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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, founder of ten31 media and author of The Promote newsletter, along with no-BS institutional insider Will Krasne. Also check out our 3x/week newsletter for industry insiders at https://www.thepromote.com/
Hiten Samtani (00:03)
If you're stockbridge, how good are you feeling right now?
Will Krasne (00:06)
The better question might be, if you're GIC, is there such a thing as too much promote?
Hiten Samtani (00:11)
I love that your mind went directly there. You're broken in all the best ways.
Will Krasne (00:15)
And no such thing is too much for me.
Hiten Samtani (00:24)
This is the Promote Podcast, your insider guide to the money and mania of the CRE markets. I'm Hiten Samtani Here's what's on tap this week. Brookfield's moving to buy manufactured home giant Yes Communities for $10 billion. It's a mega deal that's emblematic of how institutional investing has changed. RXR has a fancy new vehicle to make its office bets and maybe to generate monster fees in the process. And finally, we've got a loan in Wilmington, Delaware that speaks volumes about the office to resi opportunity.
Will Krasne (00:29)
and I'm Will Krasne.
Hiten Samtani (00:52)
outside of the typical gateway markets.
Will Krasne (00:55)
Fun docket today, we're all over the place, I love it.
Hiten Samtani (00:57)
It's going to be a good time. A couple of things before we get started. If you'd like to reach our audience of CRE investors, lenders, allocators and Silver Tongued fund managers, reach out at partnerships @ thepromote.com.
Will Krasne (01:08)
And if you want to level up on your CRE content, consider becoming a Promote Insider by signing up for our premium subscription. More on that shortly.
Hiten Samtani (01:21)
All right, let's go. Well, teleport us to the boardrooms of Singapore city where I think one of the biggest sovereign wealth fund deals of all time in real estate is kind of working its way out.
Will Krasne (01:29)
one of if not the biggest ever if it goes through of course. So GIC, which is the Singapore Sovereign Wealth Fund, and they back everybody across the all over the
Hiten Samtani (01:39)
I think of them as like the everything LP. They're just in behind the scenes on every deal that you can think of. yeah GIC has some kind of piece of
Will Krasne (01:47)
Well,
the way they're set up, can only own 49 % of stuff. you have to spread out, you have to do twice as many deals as anybody else to get the same amount in. So GIC is looking to sell Yes Communities, their manufactured home company, to Brookfield for about $10 billion. Yes Communities was put together by StockBridge in the aftermath of the recession, I believe. And they started buying homes, manufactured homes from Warren Buffett's company, Clayton Homes.
a hodgepodge of assets and then that was sold for $2 billion back in 2016 to GIC and an unidentified global investor because again, GIC can't have more than 49 % of the equity and then StockBridge stayed in for somewhere around 25, 30%, something like that.
Hiten Samtani (02:32)
which was a very, very smart move. They cashed out a bit, but they stuck around.
Will Krasne (02:36)
Yes they did and they're about to cash out quite a bit more.
Hiten Samtani (02:39)
talking
of 5X in nine years.
Will Krasne (02:42)
Yeah, and that's obviously not counting like the interim cash flow they made, any refinancings that occurred over that period, and then whatever capital they put in to buy more stuff. And on the refinancing, one thing I think is really interesting that you highlighted is when they did the $2 billion transaction, there was a $1 billion Fannie Loan.
Hiten Samtani (03:00)
The
agency was involved here and I think we didn't want to just talk about this deal because of the number, the headline number, which is obviously mass.
Will Krasne (03:06)
Yeah,
we're not this isn't the deal of the week podcast. It's more emblematic of where large institutional investing is going now that the landscape of commercial real estate has shifted so much over the past
Hiten Samtani (03:16)
years. Right. You need to be putting money to work at scale, at serious scale. And it's hard to do as you've talked about before in office, you can't throw $5 billion into the office market as easily anymore. Yeah, I'm sorry, we're going to talk about that in a bit. But now you've got data centers that have become the darling of the institutional space. And then there's also this true alternative asset investing, right? You're putting together asset classes that were not necessarily institutional darlings before, and you're putting this institutional cloak on them.
Will Krasne (03:26)
Well, RxR is trying.
Hiten Samtani (03:46)
And thereby they get a lot richer.
Will Krasne (03:48)
Right. And this is sort of the history of the modern commercial real estate industry is that every single asset class and property type that is now considered institutional wasn't at one point. You can go find articles about when Sam Zell was putting together what became EQR. And Barry Sternlich talks about this in his origin story. We're buying apartments at a 10 cap because people don't want to buy apartments. They only want malls.
Hiten Samtani (04:11)
This is after like the savings and loan crisis and all that.
Will Krasne (04:13)
Yeah,
then apartments become institutionalized, then office becomes uninstitutionalized.
Hiten Samtani (04:18)
Speaking of Zelle, our boy went and bought a bunch of mobile home communities and that REIT, I think it's called Equity Lifestyle, is now a $12 billion vehicle.
Will Krasne (04:28)
Well, first of all, think it would have been his 84th birthday today. So RIP to one of the goats. He was very early in this space and people like it because it's sticky tenants. It's often more expensive to move homes than it is just like to wear the rent increase. Yeah. Because generally speaking, people own the home and rent the lot.
Hiten Samtani (04:46)
You
could either rent the home or you can own your home and then still rent the land. That's typically the way it's.
Will Krasne (04:51)
Yeah,
and the latter is a great, great business because you are just selling the land. It's a lot easier. And then it's also, again, really sticky because it's really expensive to unhitch the trailer and move it. This was not considered an institutional asset class just because it's not sexy, it's operationally intensive. These aren't sitting on 57th and 5th.
Hiten Samtani (05:13)
contrasting this to the other 10 billion dollar deal that we've talked about recently, which is Blackstone and Air communities. Big multifamily plays well, however there the difference was like A-plus locations, generally top tier assets. This is kind of Midwest, Southeast, the heartland of America let's say, and it's more of an affordable housing
Will Krasne (05:32)
And it's just emblematic of how this is becoming more more institutionalized and we're seeing we saw this with data centers for instance we saw this with industrial throughout the last cycle and then now like more and more folks are looking to these alternatives to the meat and potatoes typical Assa cause marinas is another one that's really big
Hiten Samtani (05:49)
When you brought this one up, you're like, Marinas, we gotta talk about Marinas, what's going on?
Will Krasne (05:53)
Yeah, SUI, which is one of Equity Lifestyle's biggest competitors in the mobile home park space, they bought a huge marina portfolio in the middle of COVID because people are saying they're not making any more waterfront. Same sort of market dynamics that make mobile homes attractive. Because again, these are really hard to build because people don't necessarily always want a giant mobile home community going up next to their house. Same with the marinas.
Hiten Samtani (06:14)
Have you talked to any brokers who do slips? It's just like one of those fascinating niches that you can make a lot of money in places like Miami if you're a slip broker.
Will Krasne (06:22)
I live at the beach, man. It's like 600 bucks a month off season for ⁓ a slip in the Lewis, Delaware Harbor. know, Centerbridge has a massive marina business, like several billion dollars worth of enterprise value. ⁓ Bain Capital has a huge marina business. But the point being that this is, again, like emblematic of how institutional CRE has shifted.
And we're just not necessarily buying the Alamo on a mall or the Mall of America. It's more about finding other asset classes that have really favorable supply demand dynamics and then being able to put in money at scale. Like that's also what's hard about this is that it's hard to roll these up. And so doing this and being able to write a multi-billion dollar equity check into this deal is part of what's appealing.
Hiten Samtani (07:10)
It's basically tens of thousands of homes across 300 communities. I'm so curious about the financing environment for such assets, because we've talked about, obviously, with the malls and stuff, you've got the giant CNBS. How does Brookfield fund such a purchase or whatever happens after?
Will Krasne (07:24)
We talked about how there was a billion dollar Fannie Loan, which I think was the largest manufactured home loan that had ever been done. yeah. Yeah. That's honestly what partially what drives the institutionalization of this product type is how liquid is the debt market for it. And Fannie Freddie, if they're able to write loans on this, that's what makes multifamily so liquid. mean, even when rates are higher, Fannie Freddie offers so much.
liquidity in the market at such strong terms, so much better than banks, so much better than debt funds for the type of product that you generally want long term Fannie Freddie debt on, i.e. not like a heavy, heavy value add. You have the liquid debt markets, that's going to push more capital into the space and that's going to push cap rates down. It's going to push values up. So things that historically traded, you know, seven cap, eight cap, if you can get Fannie Freddie debt on it, like these can now, they trade really, really tight. And that's really all due to the availability of debt. Because at end of the day, this is all a spread game, right?
So it's like, can you stabilize and where can you borrow? And that's really what it's all about, even when it's a $10 billion deal.
Hiten Samtani (08:25)
Let's talk about StockBridge here. Friggin hell, man, they did amazingly well. it sounds like they're going to be owed a nice prize at the end of it,
Will Krasne (08:33)
Again, don't know what their deal was, don't know how much they stayed in for, but you can just sort of do the rough math and be like, they are owed minimum, like mid nine figures of promote, which is a pretty solid deal. Amazing. And good for them. It's funny, you know, when you're talking to allocators, they're often like, we're happy to write big promote checks because it means the deal went well. And then like when it's time to get the promote check, they're like, why did we pay these guys so much? Like this was the market like tailwinds. So for Brookfield.
You think about what they're going through right now. They have been giving back office buildings left and right all over the country, which
Hiten Samtani (09:06)
they
always say is a very small part of our overall business. They will make sure to say that.
Will Krasne (09:10)
Yeah, of course. Sure. And then same thing, though, with malls, like they bought GGP and yes, the top tier GGP malls probably doing as well or better than they ever have. Right. There's a whole lot of those GGP malls that are absolute dog shit that are sucking wind. They see this, I'm sure, as a play backstop by cash flow. These things are not going to go to 75 % occupancy. Just structurally, they're going to run tight. And if you're betting on like housing and affordability, income inequality, what better asset class to really look at?
over the next period of time than this.
Hiten Samtani (09:42)
This is like their big affordable housing move. Blackstone Bot's Die Town, that one didn't work out so well, but this one might be more. they really got rocked by the tenant protection.
Will Krasne (09:48)
No, blacks, I think they're gonna do okay. Yeah,
I'm still in awe of the debt deal that they got where they could borrow against the air rights.
Hiten Samtani (09:58)
and they got a $144 million interest-free loan in which the principal was later forgiven. It's like basically a $144 million gimme from the same...
Will Krasne (10:06)
Yeah,
it's pretty good. But yeah, to your point though that this is a liquid market. It's very favorable and zeitgeisty as a way to play affordable housing and you can put a large check into it. And if you put all those things together, you got yourself an institutional asset class.
Hiten Samtani (10:24)
How to put money to work at scale is pretty much all fund managers dream of. And sometimes dreams are realized in power plants, other times it's data centers, and sometimes it's manufactured homes.
Will Krasne (10:33)
cocktails and dreams, young Flanagan. Coughlin's Law. Anything else is always something better.
Hiten Samtani (10:45)
If you want to go even deeper down the CRE rabbit hole, the Promote has you covered. On October 15th, we're launching the Promote Insider. It is our premium subscription tier with exclusive content you just can't find anywhere else.
Will Krasne (10:57)
Yes.
Thank expert deep dives, in-depth interviews and bonus episodes of this podcast. More of us. What could be better?
Hiten Samtani (11:05)
More of us. Founding members pay $240 a year and get a two-year rate lock. Plus, they get to say that they were there at the start of something great. I think that's pretty cool.
Will Krasne (11:14)
As someone who's trying to rate lock right now, that is about the cheapest rate cap that you're ever going to get. So highly recommend that you click that button.
Hiten Samtani (11:22)
Pretty good deal.
Will Krasne (11:25)
Yes!
Hiten Samtani (11:32)
This is such a fascinating story. There's certain kinds of opportunistic moves that only deep pocketed families or to quote your phrase, men with deep pockets can make, right? I'm thinking of the Reichmans in the seventies when they bought what? 10 million square feet in lower Manhattan for $38 a foot, right? These generational bets that you can make when you have the money and the conviction in-house. But if you're an OPM player, like most of the big players out there right now,
you sometimes have to find the opportunity in the way that the deal is structured as opposed to the deal itself. And I think RxR is like a classic, classic example of this, what they're doing with Gemini. So let's talk about it.
Will Krasne (12:09)
Gemini how many names can we have for like office stuff with our XR what we had like Kodak project? One was like digital film other is like film print which gets
Hiten Samtani (12:15)
Kodak?
You
knock on the white papers, but I think the white papers have brought us to this moment. So kudos, Scott.
Will Krasne (12:25)
No, we are here because of the white papers. All I'm just saying is that we got Kodak to get us to Gemini. Got it. OK. Exactly. So yeah, I think it's important to understand how GP economics work.
Hiten Samtani (12:35)
To be clear, that's the main focus of the segment. The deal itself, sure, another big thing, a big article, couple buys, whatever. I think I wanna talk a lot here about GPnomics, how deals are structured, how fees work out, and how you can make money even if the asset doesn't really make money. That's the main focus here.
Will Krasne (12:51)
If you're a real estate GP again, like your product isn't the deal. Yeah. Your product is the capital that you raise. Like that's the product. A great episode of Silicon Valley where Richard hires Jack Barker, the professional CEO. And he's like, I'm so concerned about product. Like, just want to make sure your product first. And Jack's like, of course, like I only care about product. That's what we're to do. And then he does something crazy to like, you know, pump up the stock. And Richard's like, what are you talking about? That's anti-product. And he goes, Richard.
Hiten Samtani (13:19)
High Piper's product is.
Will Krasne (13:20)
stock, whatever that makes it go up, we're going to do. And that's basically what this is. Whatever you can do to raise the money, whatever the marketing is, like that's what you do at this scale. And if you're taking a bet like this, like you have a huge organization because you need all the back office, you need capital raising, you need property management in house, asset management in house, leasing in house. But those are also all levers to get paid. So you can turn those cost centers into profit centers. So in a deal like this, you know, you're getting asset.
Hiten Samtani (13:50)
Should we spell out what the deal is?
Will Krasne (13:52)
Sure.
Project Gemini. Sorry, it's not a deal. It's Project Gemini.
Hiten Samtani (13:56)
Is it called Gemini Office Venture?
Will Krasne (13:58)
Yeah, office venture. So RXR has raised money from Liberty Mutual, King Street, Balpost, one or two others, and then they've contributed equity stakes and some deals that they've done thus far into it.
Hiten Samtani (14:10)
And they're calling this a three and a half billion dollar vehicle that has already done three and a half billion dollars in deals. It's a little bit fuzzy. I'm not exactly sure if it's three and a half billion dollars of equity that's coming in or what, but anyway, it's being billed as a three and a half billion dollar vehicle.
Will Krasne (14:23)
something again I would be very interested in, is very much in the minutiae. like, how are they transferring these interests into a new fund if they're on the loan docs and they have all the meds and stuff? Again, the lawyers are also making quite a bit of money on this, figuring out how to do this.
Hiten Samtani (14:38)
So you think RXR's guys are going to a teen and saying, listen, we said that we were the buyer, but it's actually this vehicle. I'm not sure exactly how.
Will Krasne (14:45)
that
works. Again, it's all in the background, but like it's a very real thing and there's a bunch of, you know, very stressed out lawyers ⁓ in conference rooms drafting all these docs right now.
Hiten Samtani (14:54)
Exactly. So the buy so far are the 590 Madison, which we've talked a lot about on this podcast, the IBM tower, which ARXR bought with Elliott investment management. It turns out that ARXR bought it through this Gemini vehicle. have Murdoch mission control at 1211 Avenue of the America. So News Corp's headquarters. Remember they had come in and bought a, I want to say a 50 % stake from Ivanhoe Cambridge. So the last valuation that Ivanhoe Cambridge had set was $1.8 billion in 2016.
It's safe to say that ARKSR bought in here at a pretty nice discount.
Will Krasne (15:26)
Yeah, so they bought 49 % of it. And then most importantly, that property had a massive CNBS loan against it. And they were able to get that extended, which I think is due in no small part to RXR's, the strength of their sponsorship, their reputation. And people know that these guys know what they're doing. They know how to operate. They know how to lease. So I think that was probably part of the way to get the discount is to say, look, we are going to come in here and save your bacon.
Hiten Samtani (15:52)
So this project Kodak just basically a way to wash away your sins. Is that the idea? Like, hey, we're going to lose some buildings, but it's all part of this project Kodak plan. Like this is baked into the system.
Will Krasne (16:03)
Of course, like we talked about, I think it was like our first or second episode where I was talking about it. It's like, yeah, this is exactly right. The whole thing is like setting it up and making it as parallel as possible to make it look like you know what you're doing. They are very sophisticated, very smart, very good at their jobs. But the whole project codec thing.
Hiten Samtani (16:18)
We can
tell that Will is scared of Scott Reckler.
Will Krasne (16:20)
Now I'm not. Come on, Scott, let's go.
Hiten Samtani (16:24)
And then the last asset that they've bought so far is that RxR's very own Steyr Lehigh building in Chelsea. So RxR owned it with Blackstone. They were going through CNBS workout stuff on this one. They got a 900 million loan modification in January. And now RxR has just announced a 1.1 billion recap as part of this Gemini thing.
Will Krasne (16:42)
still a very high leverage CNBS loan at a $1.1 trillion valuation.
Hiten Samtani (16:47)
I want to talk about the kind of fees available here. You know what it made me think of? come on, we're going, we're sliding all the way on the other side of the institutional scale. But as we've talked about with the multifamily syndicators, like sometimes the money is made no matter what happens to the deal, right? There's the construction management fee, there's the acquisition fee, there's the asset management fee. And so people like tides and rise and et cetera, et cetera, did very well, even though the projects or the properties afterwards didn't necessarily do that well.
Will Krasne (17:14)
I know. I saw the Rise 48 guys selling his house in Scottsdale. No, but let's also just talk quickly about the structure of Gemini, not just the fees, but also how it's set up and why it's an appealing vehicle. Totally. Now think of all of the legacy office buildings in New York that are owned by families for decades. And they're staring down the barrel of having to spend hundreds of millions of dollars in tenant improvements, capex, leasing commissions, never mind the vacancy.
Hiten Samtani (17:18)
Six million bucks, yeah.
We're talking stuff owned by, let's say, the Rudens, the Durres, the Lafrax, et cetera, that kind of family.
Will Krasne (17:47)
They're well enough capitalized to where they can do a lot of this themselves. But there's a lot of other buildings where it's like, you know, a family owned a decent office building on fifth Avenue. They've just been rich for 30, 40 years and they refied every seven years. Yep. Yeah. And so now if you're like, you're staring the barrel, how do I get out of this? And if you give it back in a lot of cases, you fully depreciated it. So you're also then staring down the barrel of a massive depreciation recapture tax bill in exchange for giving it back for no cash. this is a actually pretty.
Hiten Samtani (17:59)
I can think of a couple names, yeah.
Will Krasne (18:16)
smart way to set up a vehicle where if you're in that situation, you can contribute it here into this vehicle and then you get access to a broader diversified portfolio of assets without having to spend the capital yourself and you have someone who's very smart and very good at what they do doing that for you. This is a playbook that's been done a lot.
Hiten Samtani (18:36)
I was trying to think of parallels in the New York market.
Will Krasne (18:38)
The one that really sticks out to me always is home properties the guys in Rochester who built up an entire class B class C apartment complex Empire doing exactly this where they'd buy the stuff for people who didn't want to spend thirty thousand a unit renovating and They built up a massive portfolio took it public and then sold it to Lone Star That's the one I think of but it's not the similar. I a lot of people have these perpetual vehicles. I mean MLG
know, which is an MHC top 50 apartment owner, they have a dynasty fund where it's basically this exact thing. Dynasty. A Bonaventure we've talked about before, they have a long term fund like this. This is not a unique vehicle in real estate, but it is unique that it's being applied to office in New York, which I think is actually really, really smart. So kudos to those guys for putting it together. In the
Hiten Samtani (19:08)
like it.
18 months. ARXR has put together at least, this is probably at least the third vehicle that ARXR has put together. So they announced a $1 billion fund with Aries that was going to invest in Distressed Office. I don't know how many of those deals came to fruition because there hasn't really been that much pure distress and maybe at the kind of assets they were targeting. They announced a debt vehicle, also a billion dollars, with Liberty Mutual, which is an investor in Gemini as we've talked about.
Will Krasne (19:49)
Some
Liberty Mutual guys who listen to the pod, hi guys. So they're looking to basically do all parts of the life cycle. They want to do distress, they want to do credit, and then now they're doing sort of higher quality but like more value add type deals here.
Hiten Samtani (19:52)
Bye guys.
Let's talk about what the upside looks like and what the base case looks like.
Will Krasne (20:06)
I mean the base case is that you are able to fix some of these buildings, you lease them up, but office cap rates sort of stay where they are, per foot numbers don't go crazy, and you're able to make a nice little risk adjusted return.
Hiten Samtani (20:19)
What's your, what's your like swag on how much they're making a year just from, just from breathing right now? So we have a acquisition fee TBD. There's definitely an asset management fee.
Will Krasne (20:25)
Tens of of dollars.
Acquisition fee if you're if you're going to a big institutional fund like they're generally not giving you like an asset like an acquisition fee so
Hiten Samtani (20:37)
They're
giving you an asset management fee and a project management fee,
Will Krasne (20:40)
Yeah, asset management fee, how much equity they put in, can be calculated on that, can be based off of building's income, some percentage of that, property management fee, leasing fees, construction management fees, which on these are all going to be pretty significant.
Hiten Samtani (20:53)
Every time they've announced one of these deals, they've said, yeah, we're gonna put in a new lobby. We're gonna do this to the elevator bank, whatever. There's a lot of action to be had.
Will Krasne (21:01)
Absolutely. And that all goes into like covering overhead and, you know, comes back to the home team.
Hiten Samtani (21:05)
Right. And then the upside case seems to be the following. Net absorption in Manhattan is at the highest level it's been in 25 years. I think it was 5.2 million square feet as of Q2, so highest in 25 years. There's a lot of access for people like this to cheap debt. think SL Green just refied 11 Madison, I believe. And it was about five and a half, five and a half percent, the debt on that. So pretty good. And then you've got these single-malt buildings as I think these kind of properties either are or could become.
Will Krasne (21:24)
Yeah, massive billion dollar
Hiten Samtani (21:35)
as we call them single mall buildings, like they're able to command premium price because they're on top tier locations and they can get kind of the best tenants. And you're seeing that market is really, really thriving even as the middle of the pack is getting, is getting hit quite.
Will Krasne (21:48)
badly. thing is, there's such a skew here where I don't know exactly what their like blended last dollar basis is across the portfolio, but you can see a world where if things continue on the way they are and the demand for these buildings comes back, they could make a two and a half X in three to five years, make a massive return and a massive promote.
Hiten Samtani (22:07)
The exit could be a sale, refi, a minority interest sale to the up-bubbies of the world or the Chinese of the world or whatever.
Will Krasne (22:14)
Or it could be a public company execution. That wouldn't surprise me either. I don't know if it's going to be like Go Partners, you know, wouldn't surprise me if they got to enough scale and the performance is really good that they took this thing public. Also from a tax perspective, if people are contributing buildings, you know, you get deferred taxes at that basis for contributing the building versus an outright sale. And then again, if you take it public, you get like another.
Hiten Samtani (22:17)
A TSX listing, perhaps?
That's
a pretty good deal. Pretty, pretty good. Of all the players in the market, what is it about RXR that enabled this?
Will Krasne (22:46)
To go back, Scott had one of the all-time calls when he sold Rexon. Yeah, right before the recession. One of the all-time top tick calls. And that buys you lot of credibility. And then post-recession, they invested billions of dollars in office that did quite well until we ran into the 2020 buzzsaw. And they had to do...
Hiten Samtani (22:51)
SL Green for six billion. Yeah.
The Helmsley building is in trouble, for example. They've lost a bunch of buildings we've talked about. It's not all smooth sailing.
Will Krasne (23:17)
No, but I mean, they did very well for a long time post recession immediately in the sort of initial RXR days. And I think more than anything else, like Scott's on the board of the Fed, like he was what chairman of the Port Authority. He's he's got tons and tons of juice. I do sort of give those guys a lot of crap about the white papers and all that and all the different names for their projects. But, you know, when you think of like who's a safe pair of hands in office, like you think of these guys and just the way they're set up, it makes it easier to like have structural flexibility. If you're a REIT, it's a lot trickier.
Hiten Samtani (23:27)
He's got a lot of juice.
All right, lest you think we're just size queens and only talk about billion dollar this and $10 billion that, we've got something fascinating on the smaller end that we really wanna discuss.
Will Krasne (24:07)
This is smaller relative to some of the New York stuff, but it's large relative to this market. It's a hundred million dollar loan from an Apollo affiliate for an office to Rezzi conversion. Of course. Which you might think, ⁓ ho hum, heard that a million times. Except this isn't in Midtown East. It is in Wilmington, Delaware. I mean.
Hiten Samtani (24:28)
That's fun. This is a pretty amazing project. tell us, walk us through the little bit of a history here. This was owned by DuPont Chemo.
Will Krasne (24:35)
Right, so DuPont Chemical is one of the largest companies out there. I did. What's the company that I've never even seen another brand for when you are like fixing up a house and or building a house and you have the stuff on the outside of it to like protect it. I've never even seen another brand and like that's owned by DuPont and stuff like that. What was the Mark Ruffalo movie about how they poisoned a bunch of people?
Hiten Samtani (24:39)
Did you know that they invented Teflon?
So who came in here, what happened? Let's break it down for the audience.
Will Krasne (25:08)
So the Buccini Polling Group, is led by Robin Chris Buccini, brothers, and then also part of the Polling family who, know, Polling owned the Washington Wizards, the Bullets, RIP. They formed this company and they're the largest property owner in Wilmington and they've expanded elsewhere. They have a big portfolio of hotels, office buildings, sports facilities. They own the 76ers G League facility, which is in Wilmington and is absolutely beautiful.
So this got bought in 1999 and it was five buildings and they bought it sort of in pieces.
Hiten Samtani (25:42)
phases I think it was like 1999 to 2017 and the last piece of it was the the world famous iconic Hotel DuPont. Apparently Prince Rainier was was a regular at this hotel. Joe Biden announced his senatorial campaign way back. I mean if you're ever going to be involved in politics now would be the time. And then his presidential run here too.
Will Krasne (26:03)
It's very famous in Delaware for that reason. Again, like DuPont was so powerful and so wealthy that you had all these types of people coming through Wilmington. These guys, the Bishini Pulling Group, have bought this enormous complex over the course of like 15 years, and they've been converting it away from office into residential over a period of time. In addition, they've done a dozen, if not more, projects in downtown Wilmington, across the river.
So they've really rebuilt all of downtown Wilmington, which like a lot of these industrial cities got hollowed out and they've really sort of rebuilt it from the ground up.
Hiten Samtani (26:41)
It's reminded me a little bit of what Dan Gilbert's doing in Detroit right now with all his
Will Krasne (26:44)
Yeah, very
similar. It's very, very similar.
Hiten Samtani (26:47)
be able to do this again, it's one of those things you really have to be invested in that city. You really have to have a lot of juice in that city, which they obviously do. And you've got to be able to bet long-term. You're not going to see rents creep up very, very quickly here. This is like a very long-term play, but if you can get in at a low enough basis, the rewards can be amazing.
Will Krasne (27:07)
You can ride the entire city coming up with you, which is really, really valuable because again, no one can ever replace their basis. This building is, I think, really interesting because they announced the conversion in 2023, but they just landed, again, $100 million alone in Wilmington is massive. That's a lot, and it's real people. it's Apollo, Pearl Mark, Octagon, and then S &T Bank, very like PA, Maryland, Delaware focused.
Hiten Samtani (27:22)
Thanks a lot.
That's their regional bank, is what you would have typically expected to be the lender in a case like this.
Will Krasne (27:36)
Yeah, this was a $10 million loan, it would just be S &T taking it down themselves. But it speaks to how there's a huge appetite for Office to Rezzy, but also again, how difficult it is to do. And so if you're an operator who knows how to do it, which these guys have done this before, and they've been doing it throughout this project, they can point to, we've done this at this site.
Hiten Samtani (27:52)
Yeah,
look at this. This is leasing at X. Look at this phase. It's working out.
Will Krasne (27:56)
You
can get Apollo to come down here and take the lion's share of this loan.
Hiten Samtani (28:00)
I love
this little anecdote about Buccini. think in the early 2000s, this is how he did the math. He's like, there's about 50,000 workers in downtown Wilmington. ⁓ I say that if we have enough housing here, I wanna say that 10 % of people would wanna be here, which is 5,000. And that's how he came up with his Office to Rezzi. That was the germ of the Office to Rezzi idea.
Will Krasne (28:20)
directionally like things. He's right. Sometimes we might over complicate these things. I remember doing a similar calculation ⁓ when I bought a hotel in Silicon Valley at Saro Capital Group and there was X million square feet of Google office directly across the street. like, well, how many people are going to come visit this office? How many hotel rooms do we have? What can our occupancy be? We might over complicate this. But again, just to put some numbers to this, they bought the building in 99, was 800,000 square feet.
fully office and it was DuPont's worldwide headquarters. And they reduced the square footage.
Hiten Samtani (28:55)
I think they did a sale least back of so.
Will Krasne (28:57)
Right. mean, it's sort of like a covered office deal. I'd say covered land, but it was a property. They reduced the office space to about half a million square feet, added 85 apartments, retail, a gym. Then they bought the rest of it from over the period of 20 years. They're all sort of down the street from each other. So it's really been a campus. And so we talk about like urban campuses a lot. JPMorgan doing this for themselves in Midtown. This is like what Pachini-Pollan has done in Wilmington. They've completely repositioned into from
dead office and do something like more lively.
Hiten Samtani (29:30)
There's a couple of levers here that they can tap into, right? There's a historic tax credit play as well. there's a bunch of incentives for things like this. You're creating much needed housing in downtown locations, which were in some cases struggling.
Will Krasne (29:43)
It also speaks a little bit to how we talk about return to office, how important that is. But you also have these markets, which are sort of the shoulder cities that can be really attractive. The rents here are what? 25, 30 percent cheaper on the residential side than Philly and your one train stop away. Cheney Poland owns like 20. The article in the Philly Business Journal about this, they have 2500 apartments in downtown Wilmington. They're 96 percent leased. So it's a lot easier to get the financing for another big bet like this when you've got a pretty big portfolio to choose from.
Hiten Samtani (30:13)
things in the New York office to resi market is a lot of these projects are not penciling out. They're getting massive loans, but we're already seeing like Nathan Berman, for example, underwater on a couple of things, 60 Gilder stepped into one of them. I don't know if the economics makes sense.
Will Krasne (30:27)
At the end of the day, everything in real estate outside of a handful of products is a commodity. Whatever Nathan Burden's building, it's a commodity. And the most important factor above a baseline level of demand, the only thing that matters really is supply. And so in New York, you have so much supply of this type of product. And it's so expensive to do that maybe it doesn't really work. In Wilmington, Bajie, Poland, there's some other developers who've delivered products.
Hiten Samtani (30:53)
But they've got this on lock, kind of, they've got this area on lock.
Will Krasne (30:55)
Yeah,
and they have the best data because they can point to like, here's we know what the rents are half a block down the street. Like they just opened Crosby Hill in December. It is a half mile from this building. They know exactly what all the rents are. They know exactly what the
Hiten Samtani (31:07)
don't know enough about Wilmington and nor do I care about the landscape there as much. What I do want to know though is what's the vibe at Buczynipole? And is this like, are we talking like a Tom Cousins situation or what?
Will Krasne (31:17)
These are like the great men of Wilmington. mean, it really kind of is. 76ers G League facility is beautiful. it's worth, if you're ever driving down 95 to go to the beach, like, go check it out. They've done stuff that's not just like, let's stick up some office, let's stick up some resi. If you're building a campus and you just do one of these things, like, it doesn't work. Everything has to be additive and build upon itself. And you need to create the full 360 lifestyle to make everything work together in concert. So.
Who arranged this $100 million financing?
Hiten Samtani (31:49)
you ask it was Morris Batesh the former Meridian Capital Rainmaker who's now got his own shop called Arrow. We did a call him the promote called Metanon Batesh and it's worked out pretty well like the guys all over everything in this in this range call it like 70 to 200 million he's got he's got a lot of activity.
Will Krasne (32:05)
I give him a lot of credit because this is probably the biggest construction loan in the history of Wilmington, Delaware. And he got it done with some brand name lenders in the cap stack.
Hiten Samtani (32:15)
If he can make a reputation for being the guy in these secondary tertiary markets, that could be a very, very lucrative niche.
Will Krasne (32:22)
Absolutely, and that's going be a great business to be in.
Hiten Samtani (32:32)
That's it for the Promote Podcast this week. So much money to put out, so little time. So you have to keep finding new asset classes to institutionalize. ARXR finds a way to fee up and continue being on the offense. And downtowns all across the country, not just in headline markets, are waking up to office to resi.
Will Krasne (32:49)
So the takeaway from this podcast is that you need to do office to mobile home conversions and tertiary markets and structure it to get all of the construction management fees. That's the key.
Hiten Samtani (33:01)
and then you have low bar and on speed dial from there.
Will Krasne (33:04)
100%.
Hiten Samtani (33:06)
Brands, hit us up at partnerships at thepromote.com for advertising. That's partnerships at thepromote.com. And stay tuned for the Promote Insider, our premium subscription offering. Founding membership starts at $240 a year.
Will Krasne (33:18)
can't beat it. And again, please continue to give us love via review on Apple or rating on Spotify. We got some good ones this past week that we'd like to shout out.
Hiten Samtani (33:27)
Yeah, I love this one from Jonathan Law. He says, Well crafted and highly entertaining without the usual pandering to industry players. That felt really nice because that really is how we feel. William, I'll see you next week, man. Thank you.
Will Krasne (33:40)
Thank you, this was fun.
Hiten Samtani (33:42)
Ciao.