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Your Commercial Real Estate Insider guide. From profiles of the biggest dealmakers to skyline-shaping transactions, we bring you the deals, breakdowns and war stories that move the market — for insiders, by insiders. From bad-boy guarantees to CMBS tranche warfare to syndicator sins, we cover it all.
Each week, The Promote Podcast explores three of the most interesting and consequential stories in CRE, taking you well beyond the headlines and into the heart of the action. Hosted by the award-winning “Bard of CRE,” Hiten Samtani, along with no-BS institutional insider Will Krasne. Now a top 80 pod on Apple in "Business & Investing." Also check out our 3x/week newsletter for industry insiders at https://www.thepromote.com/
Hiten Samtani (00:06)
We continue our epic saga of the Reichmanns, the family behind Olympia in York. At one point, one of the richest in the world, and by far the most important real estate developer. If somehow you missed part one, hit pause on this guy and go listen to that first. The family history and ascent is just as extraordinary as what's to come here. For the rest of you, we've taken you through the great European escape from Nazism, the post-war adventures in Tangier
Will Krasne (00:31)
Tangius ten.
Hiten Samtani (00:33)
and the Proving Grounds of Montreal and Toronto.
Now we're in America, so this is an episode primarily about two things, balls and risk.
Gird your loins, pop your thumbs, and let's go.
Welcome back to the promote podcast, your insider guide to the money and mania of the CRE markets. I'm Hiten Samtani.
Will Krasne (01:03)
And I'm Will Krasne
Hiten Samtani (01:07)
Shout out to our sponsors helping bring this episode to life. Bravo Capital, a leading HUD and bridge lender.
Will Krasne (01:12)
LoanBoss the best class CRE debt management software, and also my son the other day said Loan Boss.
Hiten Samtani (01:18)
And Real Property Captive, the first group captive insurance for mid-market owners. The time for preamble and due diligence is over. We're going non-refundable. Manhattan, 1971.
So we talk a lot about the great dynasties of New York, the Lafracks, the Tishmans, the Rudens. There's one name that's almost completely disappeared from the conversation, the Euris clan.
Will Krasne (01:47)
Indeed, they were unbelievably significant. They had thirteen million square feet. They were Manhattan's largest office landlord at one point.
Hiten Samtani (01:55)
It was publicly traded, but in nineteen seventy one, the thing that set all of this off, Percy passed. Harold is now looking to get out of this and he's looking for someone to do a take private of the Euros package.
Will Krasne (02:07)
He wants someone to step in, take it off his hand, looking to cash out and do a DST into some triple net arbyes on the West Coast.
Hiten Samtani (02:14)
The first couple of serious players that come in, one is British Land. It's run by a bloke called John Ritblat, a very smart property man, as they used to say. He comes up with a structure that takes advantage of some offshore tax benefits available in the UK, and he puts out a number. He thinks the deal's gonna be his, but he's pipped to the post, as they say. Ooh.
Will Krasne (02:34)
Yeah, he is. And it's Steve Ross. But not
Hiten Samtani (02:37)
That's Steve Ross.
Will Krasne (02:39)
the other Steve Ross.
Hiten Samtani (02:40)
So who is this other Steve Ross?
Will Krasne (02:42)
Best known as the Warner Steve Ross. So before David Zaslov, before the Ellisons, there was Steve Ross. He married into a family that I think owned funeral homes in New York.
Hiten Samtani (02:54)
He realized that the hears' off hours were just hanging around. And he said, why don't we turn this into a limo rental service? Turn that into a parking empire, merge that with something else. And then he was off to the races. And eventually he did the modern day equivalent of buying a sports team, which is he bought a movie studio, the picture.
Will Krasne (03:11)
He's one of the rare guys who actually made money in the pictures. He lived enormously large. The penthouse in New York, all the guys would go stay with him, the place Nacapulco. I highly recommend the master of the game. He has control of National Kinney, which is the parking operator in New York. So he's very focused on the city. And when this collection of buildings is on the market, he's interested.
Hiten Samtani (03:34)
It's like an additional vanity plate to tack on.
Will Krasne (03:36)
You're starting
off with the grubbiest, unsexiest industries and then what's sexier at this point than being a major Manhattan landlord?
Hiten Samtani (03:43)
But the timing turns out to be a disaster. Awful. This is the city's fiscal crisis in the mid seventies. If you remember that infamous headline, Ford to City drop dead in the Daily News.
Will Krasne (03:55)
You had Summer of Sam.
Yes. This whole era. My mom grew up in New York around this time and wasn't allowed to go to the park.
Hiten Samtani (04:16)
Park. This fear about where things were headed was focused also on the New York real estate market. If you remember, Lou Rudin banded the landlords together to prepaid property taxes during this time.
Will Krasne (04:27)
Can you imagine billionaires actually trying to do something for the city? What's important to note too is that the tax base was hollowing out and a lot of people were moving their corporate offices to the suburbs. So New Jersey, Westchester, Long Island. And so what that meant is there's no demand for office space in New York. And there's this huge glut of supply because the market had been so tight and the families, the Dursts, the Tishmans, the Roots, all these folks have built a ton of buildings right as demand fell off a cliff. So that's the
supply demand dynamic that our good friend Steve Ross is staring at after he's made this major purchase.
Hiten Samtani (05:01)
We
always think about these non-monetary aspects that can make or break deals. In this case, because of all this hoopla around his real estate holdings, it's the whole ship, the Warner Communications Empire, this has become a burden that he needs to get rid of.
Will Krasne (05:15)
If you remember too, this was an era where the the conglomerate was the big yes thing in the public stock market where if you're a good management, you can do anything. And so people did. And bloated, huge cost structure and really levered. And that's really what happened here.
Hiten Samtani (05:31)
He's looking to get out of this, and the people in New York are pretty strapped. But incoming two Canadian players, and their names will feature multiple times throughout the Reichman story, Trizek and Cadillac Fairview.
Will Krasne (05:46)
Seventies and eighties were really in solid days for Canadian billionaires. Why going on north of the border?
Hiten Samtani (05:52)
So Trizent comes in, takes a look. One of their people said these were crappy buildings, but also they were admired in their own financial mess, so backed out. Cadillac Fairview thought these buildings had a lot of potential, but they thought at this point of time their shareholders would not go for it. Their dilemma perfectly illustrates what's going on with modern office streets today. There's a great quote from one of their executives, Bernard Kurt. If you're too conscious of the pressure to show quarterly increases on your income statement,
You don't take a chance on assets that may be lucrative in the long term but are problematic today.
Will Krasne (06:26)
That's exactly right. It's really what you see writ large across investment management where so much of this is about CYA, to be honest. The right thing to do is sometimes really hard to do. Really hard to do structurally. You've got basically every big PubCo institutional group.
Hiten Samtani (06:45)
They can't sell the steel to their people.
Will Krasne (06:47)
They can't sell it. They couldn't sell it. But I can imagine everyone says this is cheap as hell.
Hiten Samtani (06:52)
The estimate was that replacement cost would be about $150 a foot. And this was asking roughly in the $30 a foot range. It really comes back to are you good for the money? And two, can you sell it to whoever your stakeholders are? And on that latter condition, most of these bidders fell by the wayside. So that leaves our favorite group, the Cowboys.
Will Krasne (07:15)
One who got closest was Samuel Frank. Yep.
Hiten Samtani (07:18)
Yes.
Real estate tycoon Samuel Lafrac. Now he already at this time owned about a 50,000 unit portfolio in the outer boroughs, and that's important.
Will Krasne (07:28)
Staggering.
Hiten Samtani (07:29)
Every Outerborough kid wants to make a splash in Manhattan. He makes a play for it, he's in serious negotiations with Steve Ross and his team. But hovering in the distance through clouds of cigarette smoke was a certain Paul Reichmann of Olympia, New York. And more on that right after this.
Okay, I'm here with Aaron Crowitz from Bravo Capital. What are some of the elements of the business that you'd like to see come in or evolve in the next, let's call it twelve, eighteen months?
Will Krasne (08:03)
Optimizing for quality. And if that's what your goal is, your first question has to be, how can I attract more quality borrowers? And of course, higher leverage, lower rate, speed of execution, scalability, those all matter. But if you ask a borrower today, what do you want from your lender? They'll tell you, we want off-market deals, equity, and I want to bring in teams that can do that to not have a shoulder shrug.
when your borrower needs something, right? And to not say, sorry, like I can't do that, but to say, I will run through a wall and I'm gonna find a solution.
Hiten Samtani (08:42)
Thank you Aaron, and where can people find you?
Will Krasne (08:44)
Find
us at Bravo Capital dot com.
Hiten Samtani (08:57)
I love that when they wanted to come into New York, they hired Ed Minskov.
Will Krasne (09:03)
It's just great.
Hiten Samtani (09:04)
Has anyone rocked a pair of suspenders better than Eddie?
Will Krasne (09:07)
God, Cindy Pollock with no shirt though.
Hiten Samtani (09:09)
So they're looking to break into Manhattan. They make a play for one of the Eurist buildings called sixteen thirty three Broadway. This one Steve Ross is already defaulted on. The German lender goes elsewhere, but the Reichens are hovering.
Will Krasne (09:21)
They are and at this point too Lafrac is maybe over negotiating a little bit. He's asked for a much decreased purchase price. In addition to that, he wants the lender to basically eat a bunch of payments and defer things years out. He thinks he's the only bidder or assumes he's in the deal. Is it
Hiten Samtani (09:38)
This
is one of the cockiest quotes you've seen. I don't buy anticipation, he said. If you want to sell me anticipation, I'll give you anticipation money.
Will Krasne (09:46)
I missed the arrow. I wish John Gray would give quotes like that.
Hiten Samtani (09:49)
You just don't see that anymore. It's just risk-adjusted returns for our shareholders and whatnot. But Steve Ross starts looking elsewhere. And Paul Reichmann's bet here was an interesting one. The broader thesis here is just a thesis of confidence in New York City, more than this specific set of properties, which were encumbered by long-term below market leases. Paul said, if we can just stick around long enough for this to all pass, we might have something.
Will Krasne (10:15)
Their view was unless there's a permanent impairment in New York, his bet was that the land's worth more than this. And so we don't need a lot to go right to not lose money. Yeah. You're basically buying a call option on New York, which turned out to be one of the better bets. Let's just talk about what these buildings were. 55 Water Street, two Broadway, 100 Wall Street, 115 Broadway, 853rd Avenue, 1290 Avenue of the Americas, 245 Park.
And 10 East 53rd, and then 1301 Avenue of the Americas was part of it. But then JC Penny, who was a tenant, had a purchase option that they exercised.
Hiten Samtani (10:53)
These are trophy buildings in some of the best locations in the city. 245 Park, for example, American Brands was paying $6 a square foot on a 13-year term, which was at the time one third of the market rent. There's not much you can do there, but if you can wait it out, the rewards on that other side are phew.
Will Krasne (11:12)
And these are enduring buildings.
Hiten Samtani (11:14)
Two forty five Park, S L Green just sold a slice at a valuation of two point two billion dollars.
Will Krasne (11:19)
There you go. And then twelve ninety, of course, is tied in with five five five California with Vornado and the president. One thing you can't change about a building is the location.
Hiten Samtani (11:28)
Location,
location, location.
Will Krasne (11:31)
You can change a lot, but you can't change that. And these locations are great. All you need is a little bit of inflection. You don't need to nail your business plan to hit your renewal in year four at the underwritten number. You need the vibe to change.
Hiten Samtani (11:46)
Because the basis is so low, there's a lot of forgiveness built in. How
Will Krasne (11:49)
There's a lot of forgiveness built in.
Hiten Samtani (11:51)
did they finance this purchase?
Will Krasne (11:53)
They assumed a bunch of the debt.
Hiten Samtani (11:55)
A lot of suitors saw that as daunting. They said, my God, there's this mountain of debt. Paul Reichmann realized that, hey, this is below market debt. Going rate at the time for debt was twelve percent. And this was well below that. So he said
Will Krasne (12:09)
He still has to come up with fifty million of equity in nineteen seventy seven dollars is adjusted for inflation as what? Quarter billion today? It's real dough. However, as we mentioned in the previous episode, which you should go listen to, they have just hit a grand slam on First Canadian Place in Toronto. And had a ton of appreciated equity in there. And so they did what would become their trademark to use that building as collateral to raise the equity to buy this portfolio.
Hiten Samtani (12:37)
This is one of the things I really have come to admire about the Reichmanns and maybe it served them poorly down the road, but they've always looked at their projects as part of a giant holistic empire as opposed to a deal by deal situation. A lot of people now they come in, they'll do a deal, they'll make money or not, and then they go on to the next one. The Reichmans are always moving the pieces around the board.
Will Krasne (13:01)
It's something you think about a lot. Each deal has to work on its own, but you also have to think about how it fits into the whole, right? If you have a lot of core type risk, that allows you to go further out the risk curve. The Reichmans at this point had Flemingdon Park, which was cash flowing, first Canadian place, which would be cash flowing a lot. A bunch of industrials that were cash flowing too. And so that base let them go further out the ostensible risk curve.
Hiten Samtani (13:28)
It is extraordinary that everything they had done thus far was in Canada. This was their entry into the New York market and they choose to enter with a ten million square foot deal.
Will Krasne (13:38)
Go big or go home. I
Hiten Samtani (13:40)
Seriously.
Will Krasne (13:41)
I do wonder about the mechanics of this because going cross border in 1977, how do you like convert that much CAD into USD? Eddie Minskov, come on the podcast and tell us.
Hiten Samtani (13:51)
Eddie, you have an open invitation. Come by. National Kinney and Olympia New York agree in principle to a deal in 1976, but there are a lot of little details that still have to be figured out. National Kinney is a little bit shady about how their ground lease structure works with one of their fee owners. It gets all messy, all told in the end, this is eight buildings, about 10 million square feet, and the Reichmanns pay 46 million in cash, and they assume about 280 million in debt. So that
Per square foot price comes to thirty-three dollars a square foot.
This is the deal of the century.
Will Krasne (14:28)
And rents were about half that. Yeah. Think about it, this they're buying it two times the GRM, which I don't think you'd do that for office buildings, but still it's staggering.
Hiten Samtani (14:37)
It's amazing. So the deal closes on Friday, September sixteenth, nineteen seventy-seven. After closing the deal of his career, any career really, Paul hustles back to the Waldorf to his suite to prep for Chavez.
Will Krasne (14:50)
Of course.
Hiten Samtani (14:52)
This is former BMO chairman Bill Mulholland. As soon as I heard about the Euris deal, I told Paul that he'd make a billion dollars. And he did. In fact, he made a bit more than that. By the late eighties, about ten years on from this transaction, the Euris portfolio was valued in the three billion dollar range. Sensational.
Will Krasne (15:11)
Pretty good. Pretty good. When
you're buying a portfolio like this, specifically at this time, you're not just buying assets, you're buying into the city. And that means you have to become a member of the ruling class is the wrong
Hiten Samtani (15:26)
Not so much the wrong word. You're part of the political elite. You have to kiss the ring a little bit. You have to show face. And the Reichmanns, at this point, they didn't really do any of that. Deputy Mayor at the time, Peter Solomon, later said, Most people weren't schmucks about it. They'd at least call. These guys didn't do any of that. Eventually they smartened up a little bit. They hired John Zuccotti. You remember that name?
Will Krasne (15:47)
Of course. I protest.
I'm just kidding, I didn't protest that.
Hiten Samtani (15:59)
Zuccotti Park fame, Occupy Wall Street, longtime Brookfield executive. One of the highlights of his glittering career was he was a fixer for Paul Reichmann for so long in New York.
Will Krasne (16:07)
the definitional smoke filled room where where things happen. And speaking of other consultants, I think let's just tie the bow here on Minskov.
Hiten Samtani (16:15)
Minskov gets one and a half percent of equity, which is very, very rare for the Reichmans to grant to anyone. The going rate is ten million bucks, but the Reichmans let him borrow that entire amount. Just five years down the line, he sells that equity slice back to the Reichmans for forty million bucks. What's
Will Krasne (16:32)
the
return on invested capital when you put in no money and you get thirty million dollars back? We talked about them shedding their skin and re-inventing themselves every couple of years on this way up. And this is really the big inflection point where they go from just rich guys from Canada to these are the guys.
Hiten Samtani (16:50)
And I think at this point the difference between Albert and Paul really comes to the fore. So in Albert, you have a really competent driven executive who's excellent. But in Paul, you have almost so Maradona was once described as a barilete cosmico.
Cosmic kite. And I think that's the perfect way to describe Paul Reichmann as well. Just one of those absolute X factor guys. Someone like him can come in and just completely change the fortunes of a company. And this deal illustrates that better than anything else before.
Will Krasne (17:27)
Play professional baseball and people ask, how good was everybody? Who's this, that? And I'm like, I played with Francisco Landor, and everybody was there. So Francisco Landore could have practice. If an alien came in and had never watched baseball before, and he asked him who's the best player on the team, he'd just be like, That guy. Yeah. And that's sort of Paul in this case, is that everyone he dealt with is like, that's the guy. Like Lou Rainier saying that.
Hiten Samtani (17:52)
And at this point, the myth building that we've already talked about is taking more and more shape here. The secrecy, the reputation, the word is our bond philosophy that the Reichmans had, it really draws a lot of interest and attention. One of the other big themes that emerges is they're capitalizing on fear. They're able to go in and buy the fear, as you very lyrically put it.
Will Krasne (18:13)
This is the first time where it's really making a macro bet on this way. The other ones were sort of pretty discrete. The way to add value at Flemington Park, we know how to build this at First Canadian Place. And this was basically saying we have the capital, we recognize the value of this debt. We are just taking a view. When you're doing these large transactions, you're not as much making discrete bets on discrete profits. Like they're not saying that 55 Water Street is gonna outperform. They're trying to express a view on New York through this deal.
Hiten Samtani (18:41)
Are you saying, Will, that they're making a bet on secular tailwinds?
Will Krasne (18:45)
Exactly.
You wanna be in sectors with secular tailwinds.
Hiten Samtani (18:48)
The way they use their balance sheet is so interesting, right? They have a mature asset that then becomes a source of equity for the next nascent bet.
Will Krasne (18:56)
And it's a way to sort of pyramid yourself further and really compound your net worth the fastest because they're not putting in fresh equity for these things. It's all being reused. It's all super tax efficient. It allows you to keep all of the ownership. You need the balance sheet to get bigger and bigger and bigger to do these larger deals. They're not raising equity. They're not going to pension fund. They're not going to an insurance company. They're doing this themselves. And the way to do that is to be as capital efficient as possible. And so they've figured this out better than anybody else.
Hiten Samtani (19:25)
New York City, 10 million square feet in the bag. But as a result of this portfolio, they kind of fall into development almost by accident. So as we talked about, there was some ground lease kerfuffle on two of the assets. Now the fee owner combined that dirt with another property called 466 Lex and put the dirt under these three buildings up for grabs. So the Reichman's make a play for it. Again, they kick Sam Lafrac's ass on the way, they buy this property.
And then they decide, all right, we have this building and let's give it a shot. We know how to build. They build something really spectacular. It becomes what is now known today as two thirty-seven Park Avenue. So now they're builders in New York.
Will Krasne (20:04)
They did the biggest deal in Canada. They bought the biggest deal in New York. And now they've done sort of an alpha development deal. What does Fergie the florist say in in the town? I gave it her taste. Put the hook into her.
Hiten Samtani (20:19)
What line's content with just a little taste?
It doesn't work like that. There's gotta be a feast, which we'll get to right after this.
Well, you've worn many hats in your glorious life so far. Pro baseball player, thespian, tornado remediation specialist. I want to ask, which was your least favorite?
Will Krasne (20:40)
First two, ugh, they were dreams. The third was a nightmare. Turning into a dream though. However, if you asked me a few months ago, I would have said Excel Monkey was my least favorite. Modeling out the debt tab was really, really annoying. Maturity dates, extension options, rate caps, ugh. My spreadsheets were beautiful, but at what cost?
Hiten Samtani (21:00)
Sounds like you had good ROI, but your ROI BD, return on invested brain damage, not so good. So what changed?
Will Krasne (21:07)
I discovered Lone Boss. All my loans live on one screen. No more let me just pull that up while I jazz hands a capital partner. And the extension option tracking with automatic notice reminders. I used to have a post-it note on my monitor for that. A post-it note, a 10.
Hiten Samtani (21:21)
In this day and age. Mm-hmm.
Will Krasne (21:22)
Don't. I'm not proud of it. But the one-click DSCR testing, every lender adjustment, every unique requirement automated? my god.
Hiten Samtani (21:31)
No more getting surprised by your own cap stack. Listeners, check them out at loneboss.com, that's loneboss.com, and tell them the promote sent you.
They have bought what is already turning into a home run transaction, but now they're going to do something even more daring, even more complicated. So Battery Park is this unloved spit of land downtown.
Will Krasne (22:03)
That might even be generous.
Hiten Samtani (22:05)
It's apparently it's where the the mafia used to dispose of their undesirables.
Will Krasne (22:10)
That's so funny because I remember there's a line in Sopranos where Tony talks about, we need to get into real estate like those guys would try back
Hiten Samtani (22:16)
It's become a political shuttlecock of sorts, right? The state and the city, everyone wants to see this developed, but they don't really know what to do with it, and no one's really stepped out. The problem is that the state has already issued 200 million worth of bonds on this stretch of land.
Will Krasne (22:32)
Not only have they issued these bonds, they have a massive payment that's due to fifty million dollars. What do you do? You gotta sell to a developer.
Hiten Samtani (22:41)
Yeah. So they put out these RFPs and this is about six million square feet of buildable. This is absolutely massive, right? One third of Hudson Yards up for grabs right here. They're loading these things with tax abatements, which would mean the dirt's effectively free.
Will Krasne (22:55)
But the thing is that they have this bond payment that's due. And so when you offer a site this big, practically no one's gonna do it all at the same time. They're gonna wanna do it in phases. There's gonna be paced land sales. So even if you agree to a huge headline number, you're not getting all that right away.
Hiten Samtani (23:12)
But the only person who really understood the true lever of this deal seemed to be Paul Reichmann.
Will Krasne (23:18)
If I could pick one instance that showed the genius of this guy and how he was different than everybody else, I think this would be it. I agree. So you've got the best developers, not just in New York, but in the country, all gunning for this thing. Gerald Hines, Tramble Crow. And it's funny, we're saying the names of these companies, but it's the guys. When we say Heinz, we don't mean Heinz, the company, the institutional asset. No, Jerry himself. No, Jerry Hines. When we say Tramble Crowe, it's Trammel Crow.
Hiten Samtani (23:44)
Such is the size of this opportunity and the promise it brings.
Will Krasne (23:47)
They submit it's like an entourage when Vince is thinking about leaving Ari and he goes to every agency.
Hiten Samtani (23:53)
Pull out all the stops. Yeah.
Will Krasne (23:55)
Cola, McDonald's, yeah. And he goes and sees Ari last and like he thinks it's gonna be a personalized pitch or whatever. It's the same thing. And that's what and that's what all these developers did. They have these big complicated plans.
Hiten Samtani (24:06)
Also importantly, they all respond precisely to the RFP, which is looking to build one parcel. And then Mr. Paul Reichmann comes in. He doesn't have any fancy proposals or intricate development plans. He walks in reportedly with a single piece of paper.
Will Krasne (24:22)
In that piece of paper, the bond repayment schedule.
Hiten Samtani (24:24)
This guy. He meets with Richard Kahn, who's the director of the Battery Park City Authority, and he says, I see that you have some bonds you need to repay. How about if we guarantee the payment on $50 million worth of them? Richard Kahn doesn't really react in the moment, but he later tells Tony Bianca for that excellent book that has been the basis of so much of this. What I really wanted to do at that moment was to jump from my desk and kiss the man on both cheeks. And the other part of this will.
Paul Reichman's not making a run at one of the parcels. He says he'll have all of it. Six million square feet. He will take it all on. And he's gonna do it in half the time that the other developers have promised.
Will Krasne (25:04)
This is in full flight.
Every single thing here is on display. What everyone else didn't see in the RFP, what their real motivation is, because that's deal making. Anyone can go pay the biggest number. How do you make a deal? Yeah. How do you figure out the other guy's motivation?
Hiten Samtani (25:27)
You talk about career risk a lot. This is understanding how career risk works and how to manipulate it.
Will Krasne (25:33)
Absolutely. You know how the chair of it of the Battery Park City Authority gets fired? If they fucking default on the bonds?
Hiten Samtani (25:41)
So they say they're gonna take on this whole six million square feet. This is a transformative deal, not only for the fortunes of the Reichmanns in the real estate market, because Euris, non romantically, that's building trading hands. This is transforming New York City itself. So it's a different level.
Will Krasne (25:59)
They're building a huge urban campus. They built a huge campus at Flemington Park. They've built a huge office building in First Canadian Place. They know the Manhattan market from having bought the Euros portfolio and redeveloped two thirty seven park. So all of these component pieces have come together that have allowed them to do this next thing. And my God, do they do it?
Hiten Samtani (26:20)
A lot of local developers were obviously put out by this. My favorite is Sheldon Solo, catching strays here. He's complaining in the papers about this deal. How can you let an out-of-towner take advantage of such an important tax abatement of such an important site? And Tony Bialgo eviscerates the guy, referring to Solo in the book as quote, a second-tier New York developer.
Will Krasne (26:40)
What's the drill tweet? It's like I'm not mad. Don't put in the newspaper that I'm mad.
Field place today. That's what this thing is. So it's two hundred Liberty Street, 225 Liberty Street, 200 VC Street, 250 VC Street. And of course, we cannot leave out the Winter Garden HRM, which most famously features in the phenomenal Eddie Morphe movie Boomerang.
Hiten Samtani (27:17)
And Battery Park City is not quite prime lore Manhattan, and they've got to convince people to make the jump over.
Will Krasne (27:24)
Part of what made Battery Park City feasible is they had to extend the shoreline to seven hundred feet. So how do you do that? Because it's really expensive to haul dirt. Where does it come from?
Hiten Samtani (27:34)
Don't know.
Will Krasne (27:35)
Well, just across West Street.
They were building something called the World Trade Center. And so they did huge amount of excavation instead of the dirt and the fill that was used to extend the shoreline literally just went across the street and created Battery Park City. Wow man.
Hiten Samtani (27:58)
So they go and have conversations with Amex and I thought you would love this. It's Paul Reichmann and Sandy Weill going toe to toe.
Will Krasne (28:05)
Young Jamie Diamonds in there maybe. Who knows?
Hiten Samtani (28:08)
Sandy Weil prides himself as being one of the world's alpha negotiators, but he hasn't ever met a guy like Paul Reichmann. He'll just sit there and not say anything for thirty minutes and he'll force the other guy to blink.
I don't know how to translate that. They have a lease deal in place which is announced to the world, and this is when the Reichmen say, Welcome to World Financial Center. Eventually, Amex ends up buying their own building.
Will Krasne (28:36)
Sort of what happens at Hudson Yards. These projects, then you talk a lot about with condos, that it's like an IPO. You need to organize everything, momentum, get the medium right and create momentum. It's a genius move where you figure out who are the tenants that we would want, like Amex, brand name, massive, another genius at the helm. How do you get them? They're in their building. Buy the building.
Hiten Samtani (28:58)
In this case, it was a couple hundred million dollars that they paid. But Amex is in the building. It is no longer a peripheral financial center. It is the financial center. Simple as that.
Will Krasne (29:07)
Completely financiable. They get to a significant amount of leasing right away, which makes all these things feasible. Very, very successful project on twelve out of ten difficulty scale. Everything, the creativity, the negotiating, the financial capacity to do this, the construction capacity, all of that's on display here.
Hiten Samtani (29:26)
Mythmaking is at its absolute peak as well. Globe
Will Krasne (29:29)
So what does the Globe and Mail say?
Hiten Samtani (29:30)
and Mail, which is Canada's paper of record, has a front-page article about the Reichmans, and they say, It is said that their business acumen is second to none. It is said that they are the smartest real estate people in the world. The Reichmans don't talk very much, or at least not publicly, so the secrecy has helped them become these inscrutable geniuses.
The Reichmanns were famously not very extravagant men, except in one regard. Their philanthropy, at this point, they have become by far the most important family in the ultra-orthodox world, both by the reputation and just the scale of their largesse.
Will Krasne (30:07)
This is all the Gentile men starting to read the Talma to try to figure out how these guys did this.
Hiten Samtani (30:14)
So by nineteen eighty five, the prophecy is somewhat true. The Reichmans are the best real estate operators in the world. They are one of the richest families in the world. And they have essentially unlimited capital. So what do you do when you're in that position?
Will Krasne (30:28)
time AOM Gow.
Hiten Samtani (30:30)
And we'll get to that right after this.
Well what if I told you insurance could become an asset instead of just an expense?
Will Krasne (30:48)
I'd say you're trying to sell me something, but also I'm interested.
Hiten Samtani (30:52)
Fair. Here's the math. You spend $2 million on insurance annually, loss ratio is well under 30%. Over five years, that's about 10 million out the door, zero return.
Will Krasne (31:01)
Painful, but accurate.
Hiten Samtani (31:04)
What if 7 million of that built up in reserves that you actually owned?
Will Krasne (31:07)
That's pretty interesting. Tell me more.
Hiten Samtani (31:09)
Real property captive built specifically for scattered site GPs, top carriers issue policies for lender compliance, reserves stay in your account, and after a few clean years, you're converting spend into equity.
Will Krasne (31:20)
I like this because that's what the big boys do.
Hiten Samtani (31:22)
Exactly,
and now it's accessible for mid-market drivers like yourselves too. Check out the platform at rpcaptive.com. That's rpcaptive.com, and tell them the promote sent you.
So far, they've leveled up over and over again, but they've done it in their domain of expertise. At this level though, they're compelled to play different games and they get into the good old fashioned corporate rating.
Will Krasne (31:52)
Yeah.
You know what's hard is building a building, finding a site, putting up a PG. And you know what seems like a lot more fun? Pressing a button.
Hiten Samtani (32:06)
I would love a little bit of a one one on corporate rating and how it works.
Will Krasne (32:10)
Throughout 70s, we had really high inflation. What you ended up having were companies that had assets that were worth significantly more than what their stock price was. And so what that led to was an entire industry of buying these companies and then selling off the parts.
Hiten Samtani (32:28)
So this is the era of the go go MA banker and hostile takeovers and all of that stuff. Yeah.
Will Krasne (32:33)
Concurrent with that is you had a new breed of financing, which was Michael Milken creating the real modern junk bond market with his highly confident letter, basically allowing anybody with a piece of paper to go take over a company with a hundred percent or more LTV financing. And so you could borrow against the company's assets, sell them down to pay off the debt, and then you're left with nothing. The Reichman's benefited from inflation a lot. Yeah. Because if you have debt and there's inflation, you're paying down the debt with cheaper dollars.
Hiten Samtani (33:03)
Essentially paying back less money.
Will Krasne (33:05)
And they see, okay, well, we've benefited in this way from inflation, and now we have unlimited capital to where we can go do the same thing. We are experts in this one domain and we can apply those same principles into other domains.
Hiten Samtani (33:19)
Little bit out of their depth, so they find an unlikely compatriot in another great Canadian family, the Bronfmans. Yes. The Seagrum dynasty. The Bronfmans have this reputation as tough corporate raiders, and having the Reichmans, the esteem that they bring with them, is a good counterweight for them. And then for the Reichmans, the Bronfmans are their guides on this wild and exciting journey. And in particular, one employee is a true character that we have to talk about.
Will Krasne (33:48)
Jack Cockwell.
Hiten Samtani (33:50)
South African.
He is this pugnacious runtish man who's running all the deals, this tyrannical deal making machine that Paul Reichmann finds to be very simpatico.
Will Krasne (34:03)
There's a lot of similarities between how Jack Cockwell set up the Edper structure and how the Reichmans borrowed and set up their financing structures to keep moving forward. So they would pyramid these assets. And so Jack Cockwell famously would have a Russian nesting doll of entities.
Hiten Samtani (34:20)
You don't
Will Krasne (34:21)
There's an entity four up that has 1% holding but somehow controls the entire bottom co. And that might be familiar to those who have looked at the Brookfield corporation today.
Because he's the mastermind behind it and one of the co-founders. They're really kindred spirits. So they just go on a spree. They buy Brinco in 1980. They buy Abitibi Price. I'm gonna pronounce that incorrectly, but it's the world's largest newsprint manufacturer. They buy Trilon with the Brompments, it's big financial services company. And then they do the big one, which is Gulf Canada.
Hiten Samtani (34:54)
So that's the massive oil company at the Canadian subsidies.
Will Krasne (34:56)
Right? Yeah, they buy that for two billion dollars and it was controversial because they got a bunch tax breaks. They tried to buy Hiram Walker, which is a liquor conglomerate. I think they own Canadian clubs of Dom Draper, really big fan.
Hiten Samtani (35:07)
There's a lumber company that I think a broker pitched to Paul, and Paul just bought $280 million worth of shares on the spot.
Will Krasne (35:18)
Well, the commonality here is that a lot of these are cyclical commodity businesses, natural resources, and that inflation play, you think these are things that fare well in that regime. But in a recession, all correlations go to one and especially things like this. They're also cyclical and hugely capital intensive. Hindsight's twenty twenty. These are the smartest guys in the room and they have unlimited capital and this for a while worked.
Hiten Samtani (35:45)
You just said they're the smartest guys in the room. But everyone believes they're the smartest guys in the room, and maybe they believe it a little bit too strongly as well. Paul Reichmann, fully expressed, is a magnificent creature, a deal-making machine, but also someone who more and more at this point is unable to hear dissent.
Will Krasne (36:05)
Who could blame It's really easy when you're feeling it, yeah, to think you can do anything. And the guy
Hiten Samtani (36:10)
Was feeling it for sure.
Will Krasne (36:11)
And I mean, has anyone ever felt it like
Hiten Samtani (36:14)
before just to give you a sense of scale, the Reichmans and the Brahmans are two of the nine families that collectively at this point own half the shares of Canada's answer to the Fortune 300.
Will Krasne (36:25)
Unbelievable. The important thing here though, more so than any one individual deal, is that these things are draining cash. They are adding leverage. And probably most important of all is that they're distracting Paul from real estate. Yes. Their portfolio in New York alone is 16 odd million square feet. That is a ton of asset management to do. At this point, Paul had a goal, I think, to raise $3 billion of debt, help fund Battery Park City.
And they go everywhere. It's not just banks, it's not just insurance companies. They're getting US commercial paper, London corporate bonds, some c insane Japanese denominated, you know, Eurobond note issuance or something.
Hiten Samtani (37:05)
Every exotic financial instrument you can think of. If Tase had been around then, I'm sure the boys would have been on the taste as well.
Will Krasne (37:11)
To the point though about how they're getting spread a little bit thin is that you're starting to see the cracks a little bit. Asset management's really hard. And especially here where a lot of these things are binary, if Amex leaves, that's a huge problem. Not only do you lose the rent, it is so expensive to refit these things, both between CapEx, TI, LC. And so you're seeing across their portfolio, especially in Canada, I think First Canadian Place notoriously was poorly asset managed.
Hiten Samtani (37:39)
You're starting to see reports of tenants moving in early, past rent not really being collected efficiently. So these are things that start to add up. And especially when you have an empire that's predicated on constant growth and momentum, you can't really afford to have slip ups like this.
Will Krasne (37:55)
When you're really pyramiding your debt in this way, you need the assets to still cash flow. And so when you're losing tenants because of asset management issues, that cascades all the way down the road.
Hiten Samtani (38:08)
They understood the real estate game as well as anyone ever did. But when they were in this broader world of corporate rating, the specific kind of glad handing that you need, they didn't really understand and they never really played that game properly. So even in those companies that they were buying pieces of, there were a lot of operational and management issues embedded within them that the Reichmanns, for once, did not have the skill to recognize. They
Will Krasne (38:31)
Yeah, indeed.
Hiten Samtani (38:32)
were out of their depth in a sense.
Will Krasne (38:33)
And speaking of out of depth, there's one last person we should talk about. One of my favorite characters, maybe just of all time, it's Bobby Campo.
He's the subject of a book called Going for Broke, Seminole 80s Tomes. It's criminally underrated. An Ottawa home builder, cum developer, cum retail magnate, had money, maybe didn't have money, and bought Allied Stores, which was a massive retailer in 1986, and then doubled down and bought federated department stores in 1988. Basically, all debt massively overpays for federated. One of the bankers said he overpaid by 500 million dollars. Wow.
And it goes completely sideways. Now, how does this impact the Reichmans? They are major shareholders in Campo Corporation because he had eight office buildings in Canada that they were like, well, we know these really well. We have great collateral here. They lent him quarter billion dollars to rescue the retail secured by these office buildings. And most importantly, they kept throwing good money after bad.
Hiten Samtani (39:43)
This is exactly it, right? It was a real estate play initially, but what it turned into was beyond their skill set.
Will Krasne (39:51)
And they invested seven hundred million dollars or more essentially to try to like save these flailing department store acquisitions. And Campo, of course, defaults. And so just as they are taking on the biggest bet of them all, bigger than World Financial Center, bigger than Euris, they're starting to deal with all of these little things that are peaking up from underneath the surface.
With all their success in World Financial Center delivering to acclaim both architecturally and financially, another big eighties figure peers across the pond and says, I might like one of those in an old dock land that I have in my major financial capital.
Hiten Samtani (40:37)
The Our Lady herself.
Will Krasne (40:39)
Maggie Thatcher. No one would remember the good Samaritan if he'd only had
Hiten Samtani (40:43)
Good intentions.
Will Krasne (40:44)
he had money as well.
Hiten Samtani (40:49)
And that brings us to July 1987. And that's where we're going to leave you for today with this headline: Quiet Man Will Make Canary Sing.
That's it for the Promote podcast this week. We had initially planned to wrap up the tale, but then we decided we couldn't quite do it justice that way. Don't worry though, this isn't just an extend and pretend.
Will Krasne (41:17)
No, we're injecting significant capital into this to reposition the asset and set us up for strong future returns.
Hiten Samtani (41:25)
Thank you again to our sponsors, Bravo Capital. You can find them at BravoCapital.com.
Will Krasne (41:29)
LoneBoss, the best in class CRE debt management platform. You can find them at Loneboss.com.
Hiten Samtani (41:34)
And
Real Property Captive, they're the first group captive insurance for mid-market owners. Find them at rpcaptive.com. I'm almost a little bit sad for the party to be done on this one. I've had such a blast doing it.
Will Krasne (41:43)
Good.
Me too. But as Coglin said in Cocktail, everything ends badly. Otherwise it wouldn't end.
Hiten Samtani (41:51)
Until next time, man. Thank you.
Will Krasne (41:53)
Thank you.
Hiten Samtani (41:54)
Ciao.