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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)
My mind constantly wanders to foolish places.
Will Krasne (00:06)
But I have the discipline now to pull it back in so I can lead to extraordinary outcomes.
Hiten Samtani (00:12)
I guess in this case, the extraordinary outcomes being not one, but two of the biggest development boondoggles in the history of Times Square.
Will Krasne (00:18)
And that's really saying something.
Hiten Samtani (00:29)
Welcome back to the Promote Podcast, your insider guide to the money and many of the CRE markets. I'm Hiten Samtani
Will Krasne (00:35)
and I'm Will Krasne
Hiten Samtani (00:38)
A shout out to today's Bravo Capital, a leading HUD and bridge...
Will Krasne (00:42)
and LoanBoss, the best-in-class CRE debt management software.
Hiten Samtani (00:47)
Did you notice what I'm wearing today?
Will Krasne (00:48)
Merch looks fantastic. Actually, no, this is better than merch. Swag.
Hiten Samtani (00:54)
We're gonna have the promote podcast swag up for you guys in a few weeks. This is a very, very early sample, but it looks good. You know, you got the ten31 logo on the sleeve right there.
Will Krasne (01:04)
Make sure you really hit the tricep pushdowns over the next couple of weeks so that it really pops.
Hiten Samtani (01:09)
This
is a good reminder for people to write us a review because on the back of the shirt it says, feels like I should sign an NDA to keep listening, which is an actual review that we got. So write us a review and you may end up on the swag. Exactly right. Today's going to be an extreme docket. Big ticket development is an extreme sport. It's most avid practitioners have to be a little bit crazy. But today we dive into an example from the crossroads of the world where things got...
Will Krasne (01:21)
What other podcast does that for you?
Hiten Samtani (01:37)
I think truly unhinged. Yeah. We then look at the latest alarm bells ringing in the high octane world of data center development. Blueisle is staring down a multi-billion dollar void and OpenAI's marquee Stargate project has had major challenges powering up. Finally, we explore the rise of the rich renner, a dynamic that's reshaping the multifamily and arguably the condo markets as well.
Will Krasne (01:58)
incredibly tasty docket, let's kick things off with a punch list, our signature rundown of the newsiest news in CRE.
Hiten Samtani (02:06)
You've got the black t-shirt on, so why don't you kick this off? Let's Shvo
Will Krasne (02:09)
Hot off the presses, Shvo is in contract to sell the Transamerica building. Bought this in 2020 as part of the epic spree we've talked about with BVK. Spent a massive amount on CapEx. Has also spent a lot of legal dollars fighting Core Club. Yes, that's right. Has signed some huge big ticket leases, but quite a bit of space to be spoken for.
Hiten Samtani (02:31)
Obviously, one of the marquee properties in the Shvo BVK portfolio, we talked about BVK had invested what, two billionish with Michael?
Will Krasne (02:39)
Yeah, and they were expecting to lose a billion.
Hiten Samtani (02:42)
About half of that was not meant to come back. There's been talks that they're looking to cut ties with Shvo entirely, but there's a bunch of properties that are still in play. And remember, a lot of them have already been lost. Transamerica seemed to be one that is in relatively good shape, but there's still a lot of work to be done. And maybe BVK doesn't want to hang around while Shvo figures that out.
Will Krasne (03:01)
success begets cash outlays where it's like, great, we signed a huge lease. Your reward is that you got to give a bunch of free rent and send a massive check to the tenant rep. So it's tricky. Who knows what the total number is in terms of their basis. I would suspect that they're going to take a loss here.
Hiten Samtani (03:19)
I want you to be very careful with the semantics. When you say they, I think you mean BVK may take a loss here. Shro is going to be just fine.
Will Krasne (03:26)
yeah, Shro's fine. Michael Shvo's doing great. He's gonna be selling crypto in the netherworld or whatever.
Hiten Samtani (03:33)
What's
amazing is when all the news was swirling about BVK dumping him and stuff, Michael's Instagram was so laser focused. There's a new Ferrari, I believe. There's a new EV Ferrari. That was his entire Instagram for a couple days.
Will Krasne (03:46)
I really hope you paid the import duties on that.
Hiten Samtani (03:49)
To the buyer here.
Will Krasne (03:50)
Yeah, all of these folks are swooping in to buy SF Office. You know, is it Divco? Divco West? Blackstone? No, it's a Yoda. ⁓
Hiten Samtani (04:05)
It's Yota PLC based out of Cyprus. Ionis Papalakis is the founder and largest shareholder of Yota PLC. I can tell you, I have never heard of Yota PLC in my life. They do not seem to own anything significant, at least in the U.S. They're pretty big in the Greek Cyprus Cypriot hospitality space.
Will Krasne (04:24)
Fun fact, I'm actually personal friends with the Cypriot ambassador to the Vatican.
Hiten Samtani (04:28)
Quite a gig. I think you would donate a promo on one of your projects to be a fly on the wall in that meeting between Iannis and Michael if that ever took place.
Will Krasne (04:36)
definitely not. Because this whole thing is nonsense. We're the stuff, the Forbes profile of Giannis Papalakis. It's just tremendous. He invests in shipping healthcare technology in real estate in Cyprus and Greece. Of course, people list their vehicles on the TSX. They list them in the US even. They list them in England and the FTSE, wherever. Not really so much in Cyprus. That hotbed of capital markets activity. I guess he owned
a stake of something called Global Worth, which I'd never heard of. It owned offices in Central Europe. sold his stake in it for $300 million. And then the Did You Know section of the Forbes website. So Hiten, did you know before starting Global Worth, he developed commercial real estate in Romania, achieving a 175 % rate of return for himself and his investors.
Hiten Samtani (05:21)
I did not
I think they're going to get a decent number for this building, given that it's gone to kind of an out of left field buyer. But yeah, I believe that if this one trades, then you're going to very quickly see the dissolution of the massive Schwab-BBK Deutsche Finance Partnership.
Will Krasne (05:41)
I think IF is a pretty big... It will trade to Yoda or not? Who knows?
Hiten Samtani (05:48)
All right, next one, marinas. We've talked a few episodes ago about exotic alts and all these assets that were formerly non-institutional are being rolled up and sold to the big institutions. And we have a great example here. Stone Peak is paying about $700 million for a marina portfolio currently owned by KSL.
Will Krasne (06:08)
KSL
owned a huge portfolio of hotels. They had skiing, they do resorts, and had put together this marina business called Southern Marinas. And marinas, as we've talked about, has become a really hot institutional asset class. Bain has a roll-up in there. It's honestly one of these things where it's like the same type of dynamics with mobile home parks and self-storage and whatever. It's just finding the new one that's, you can say the same buzzwords in investment committee and get people excited about it.
Hiten Samtani (06:35)
people are investing in experiences, supply constraints are pretty severe. Those are the kinds of things you'll hear.
Will Krasne (06:40)
mom and pop owners, fragmented ownership. We can bring in institutional best practices. And what's funny is that you've got the folks who were in early on this are already looking to cash out. Center Bridge had Suntex marinas. They're looking to sell. Sun communities bought a marina operator during early COVID and was sort of seen as like a natural pivot for mobile home parks and ended up selling that. It was called Safe Harbor marinas. Blackstone's infrastructure arm bought that.
Stone Peak also in the news because their founder just donated half his carry to make sure the company's first fund hit the hurdle rate. He's already made a gazillion dollars and so he's doing it just to make their track records look better. I don't think it's like totally charitable on his part, better than the alternative.
Hiten Samtani (07:15)
That's an audible thing to do.
All right, let's switch gears all the way to the other end of the spectrum. The Department of Homeland Security and ICE are spending what, $38 billion to buy essentially properties for detention centers? Some pretty gnarly stuff here.
Will Krasne (07:39)
This is nuts. They're paying crazy prices to buy warehouses throughout the United States and private prison companies are looking to expand their partnership with ICE. They're looking to renovate and operate new sites, particularly in red states. Some groups are refusing to play ball with ICE and aren't selling. ⁓ Others are. Yeah, well, blue out. mean, if your your BDC is crashing and your CEOs might be facing margin calls like maybe.
Hiten Samtani (07:58)
have no such qualms I guess.
Maybe
you do the deal. So they're looking at increased capacity to over 90,000 beds and they're going to have to move fast. And this is one of those things I think about, which makes your business so interesting and exciting is like, you may accumulate these properties and have a certain exit number in your head. And then out of nowhere, this new massive bureaucracy comes along and has an unlimited budget and is willing to pay whatever, because this is the center of their political campaign in a sense. And suddenly the exits you can have are
multiples of what you might have expected.
Will Krasne (08:37)
You want to buy from a force seller and then you want to sell to a force buyer. That's sort of what we have here. Also politics aside, this is just another dynamic in real estate. Everything is a real estate story. I wouldn't have had ICE paying top dollar to take out warehouses in remote Pennsylvania on my bingo card earlier this year.
Hiten Samtani (08:57)
Okay, one more tale of government involvement here. This one is extraordinary. My guy, Steve Witkoff, one of the most interesting characters, I think, in real estate writ large. He is now Trump's my man Friday for any geopolitical situation from Vladimir Putin to the Ayatollah. Steve Witkoff is in the mix everywhere. I'm to drop a profile in the show notes. An early profile in the Observer, but it captures the man pretty well.
Will Krasne (09:19)
Steve Witkoff honestly, he can solve any issue except owning multifamily in Santa Monica.
Hiten Samtani (09:24)
So, Witkoff is involved in what is one of the biggest real estate boondoggles in New York. The Pakistani-owned Roosevelt Hotel. We've talked about this massive hotel before. Yes, we have. It has been used as a migrant shelter for quite a while. They had a pretty lucrative deal with the city. That deal ended. Pakistan was looking to figure out a new way to cash in because of major tax implications.
This was probably going to be a grand lease, right? This was not something they were going to sell outright. JP Morgan was in the mix for some, for some time. That didn't happen. The brokers got switched over and now the U S government, the federal government is involved and Wittkopf apparently made this all happen. Help me make sense of this.
Will Krasne (10:04)
There's no way to make sense of it. The thing that made the most sense was JP Morgan coming in and adding it to their campus. Because again, they have the private dining room, which is booked out a month in advance for the analysts trying to make reservations for their managing directors.
Hiten Samtani (10:18)
walk of life where you can't play status games. The US government is coming in here, so we already had a bureaucratic boondoggle of an extreme level in the Pakistani government. Now we've added another one into the mix. Two countries that are going to determine the fate of this prime piece of real estate in New York.
Will Krasne (10:34)
Just as it should be, let the free market decide. This is a little inside baseball, but Livecore has started talking to a bunch of their third party PM providers, basically taking them out to the bus stop and, or the train station, sorry, that's what happens in Yellowstone. They're bringing it in-house.
Hiten Samtani (10:49)
This is a pretty big deal because these are tens of thousands of units. Chatter is that Blackstone is going to do this across their multifamily holdings, pull them in and create kind of a Sauron of property management.
through their air communities acquisition. Remember the one they did for about $10 billion?
Will Krasne (11:07)
air
cover for all the deals that didn't happen in 2024 and 2025.
Hiten Samtani (11:11)
The word is that Blackstone is going to use the Air Communities umbrella and the tech stack and the learnings and whatnot to create this mega PM company that's going to put a lot of pressure on maybe on the big guys like Greystar.
Will Krasne (11:23)
That's smart because these guys third party everything for the most part. None of the big private equity firms really are vertically integrated. They're obviously like very integrated with third parties that they use and they have really in-depth asset management teams, but they don't do PM for the most part. But setting up these types of platforms makes sense at scale. And if you look at the largest owners in the country, they're all vertically integrated for the most part. Grey Star is, MAA, Morgan, Michael's organization, all those folks have it in house.
Hiten Samtani (11:52)
The next one, a bit of family intrigue at the highest level. So Charlie Kushner has been making a play over multiple years for a company called Verus Residential. Verus is a very interesting apartment owner and we're going to talk about this in one of our big segments so I'm excited. Verus's average renter makes $480,000?
Will Krasne (12:11)
They do. so Varus,
taking a step back, it was formerly Matt Cowley, which was one of the, I'd say old scions of New York, New Jersey real estate. owned millions and millions of square feet of office, mostly a lot of suburban office.
Hiten Samtani (12:25)
Is
this also area property partners? that all the of
Will Krasne (12:28)
The area guys, Matt Cowley, all that sort of were like one thing and went their separate ways, of course. In 2021, I think they rebranded to solely focused on Northeast multifamily and they own thousands of units in sort of Jersey City, high end New Jersey markets, which is again, part of why their average renter income is so high because these are prime supertanker buildings.
Hiten Samtani (12:50)
Mary Ann Gilmartin was CEO for a hot second. Oh, God. Good for her. This kind of comes back to our broader theme that we've talked about quite a bit in the last few weeks of retake privates, right? And Charlie Kushner had been agitating to take Varus private for a long time. Varus had kept rebuffing his offers. And now Kushner has taken control of Varus residential. But it's not the Kushner you think.
Will Krasne (13:17)
Jonathan Kushner?
Hiten Samtani (13:19)
who is the son of Mari Kushner, and Mari and Charlie have a pretty colorful history.
Will Krasne (13:23)
They do indeed. That deserves its own podcast.
Hiten Samtani (13:26)
I would highly suggest you read Gabe Sherman's piece on the Kuster family dynamics. We'll put it in the show notes. Murray Kuster's son, Jonathan, through a company called Vista Holding, is taking control of Varis. getting backed by Phineas. Yep. So this is going to be a good one. A bunch of family intrigue there. And this gives them like an incredible apartment portfolio with very well-heeled renters. It's going to be a topic of conversation in a second. All right. That's it for the Punch List. We'll be back in a second with bombs over Broadway.
Alright, I'm here with Aaron Krovitz from Bravo Capital. Aaron, let's get right to it. What's the story behind this mythical 100 % HUD approval record?
Will Krasne (14:09)
straightforward. We have an amazing team. We're a pure play HUD. We're focused on bridge to HUD all day. We're both fully HUD licensed and we also offer a balance sheet bridge financing where we could finance deals over a hundred million dollars just like we did in Miami, Brooklyn, and Jersey City.
Hiten Samtani (14:25)
And what's the secret sauce? How do you put it all together?
Will Krasne (14:28)
It's our underwriting. We don't rush deals to market and hope they stick. We know what HUD wants before we submit, so there are no surprises. And we have a real balance sheet. So when we go, we go.
Hiten Samtani (14:37)
You were telling me when we were chatting offline that you closed a HUD Express lane deal in four days? That's absurdly fast for HUD.
Will Krasne (14:44)
Hit 10, that's why we get up in the morning. At Bravo, we're here to break records, we're here to innovate, and when you have tight documentation, the right underwriting, that means speedy approval.
Hiten Samtani (14:53)
And speed means the sponsor can close quick. Thanks Aaron, good to have you on.
Will Krasne (14:56)
Thanks again
and you can find us at bravocapital.com.
Hiten Samtani (15:01)
you
I love maniacs probably more than the next guy.
We've got a pretty special one here.
Will Krasne (15:15)
What's great is that you say that and you stopped be trying to like call our listener psychos, but besides the point. So let's talk about Broadway.
Hiten Samtani (15:24)
1540 Broadway. How would you define what the vision was at TSX Broadway? It wasn't just hotel. It wasn't just, it was kind of a elevated form of development here.
Will Krasne (15:36)
What's so funny about this property is that it's got the Palace Theater there too. LPC designated.
Hiten Samtani (15:43)
For listeners who might not be familiar with New York, LPC means there was la-
Will Krasne (15:47)
You can't do anything with it. So no matter what you build, you got a little bit of jazz hands. I think it's worth taking a step back and just talking quickly about how we got here. Larry Silverstein owned the site in the 80s and redeveloped it as an embassy suites in 1990. He tried to get this corner where the Palace Theater was, LPC designated it, he built around it. You could stay and look over the atrium at your embassy suites when you wanted to see a Broadway show at the Palace Theater. So in 2016,
Hiten Samtani (16:14)
Nederlander organization, which is a big player on Broadway, stepped in with a partner at a left field called Mayfield.
Will Krasne (16:21)
And Mayfield's founder and CEO has an interesting perspective on things.
Hiten Samtani (16:27)
Yeah, wasn't really a massive player in New York real estate at least, but has done a bunch of things elsewhere. He said the following in an interview a few years ago, the most satisfying moments in business I've ever had inevitably depressed me because I always feel whatever minor success I've had is so small compared to others like Mr. Jobs, Mr. Zuckerberg, Michelangelo, Da Vinci and Rosa Parks. If nothing else, that is the greatest.
collection of characters you can think of. The quote that we mentioned up top was obviously for Mark Siffin as well.
Will Krasne (16:58)
I love New York.
It's great that he says that my brain's too complicated.
Hiten Samtani (17:06)
And this is the mid 2010s, money's flowing in thick and fast again, just to set the scene, the apogee of global capital flowing into New York real estate, specifically through a program called EB5, which is a cash for green card program, the US immigration fund, which was the regional center that we're quite fascinated with was at the center of a lot of this stuff. And here they were helping them raise what? Close to $500 million for this project.
Will Krasne (17:28)
Yeah,
and L &L holding big New York developer and Fortress were both part of this too. They raised about $800 million of equity. They raised about $500 million through the EB-5 visa program from USIF. And then on top of it, got a $1.3 billion construction loan from Goldman Sachs. So basically, they got over $2 billion, $2.5 billion to build in Times Square.
Hiten Samtani (17:53)
And spare a thought for the ultra high net worth clients of UBS. This is essentially a club deal, which means you're pooling funds of ultra high net worth clients. Famously 432 Park Avenue had one of these through Citigroup, raised 400 million odd for that. But you're going to your ultra wealthy clients and saying, listen, I got something special for you. And this turned out to be the largest equity check that UBS had ever raised for a project like this. Safe to say that that money did not return to UBS's ultra high net worth clients.
⁓
Will Krasne (18:23)
chunk
of it returned to UBS by fees but did not return to the clients. So you're thinking what would they build here? Massive office building, condos? No, no, They're building a tempo hotel.
Hiten Samtani (18:36)
What does that even mean? Do you want to break it down for people unfamiliar?
Will Krasne (18:39)
There's not a whole lot of tempos out there, so I don't think this is really grab much purchase. But long story short, shockingly, the two and a half billion dollar hotel didn't cash flow.
Hiten Samtani (18:49)
didn't take.
We should say, well, there had been massive cost overruns because you have a untested New York developer.
Will Krasne (18:57)
They dealing with a landmarked at the base of this. So they had to, think, raise the theater 30 feet or something like that.
Hiten Samtani (19:02)
feet, yeah, into the air and then build retail and entertainment below it. Pretty complex job, not something you would start your New York career with, so to speak. And let's be clear, he did not start with this project. Mayfield had another project in the mix nearby called 20 Times Square. Yeah, Natixis took a bit of a bath there.
Will Krasne (19:19)
obviously gave that one back too.
You got the Swiss banks and the French banks losing a lot of money, retail money on these things. Consider donations to the Human Fund for New York City.
Hiten Samtani (19:31)
This brings up a dynamic that we see with a lot of these foreign sources of capital. So 20 Times Square was going underwater. This one, 1540 Broadway, needed extra money. USIFund tried to take EB5 funds from 20 Times Square and funnel them into this project, basically saying, money's fungible, let's move it to this project, which has a better shot of success. The Chinese investors did not want this to happen and sued. And so there was more cost overruns, more legal fees, more delays there.
Will Krasne (19:59)
As part of this, the loans came due in 2023 and USIF again wanted to either recap or sell 1540 Broadway.
Hiten Samtani (20:08)
In general, should say that EB-5 funds are typically packaged as Mez, right? That's where they sit in the cap stack typically.
Will Krasne (20:15)
And by the way, you can't just shift money from one project to another with different sponsorship. That's just crazy.
Hiten Samtani (20:19)
I
don't know, a smart guy told me that you can do anything in real estate as long as the other guy agrees to it.
Will Krasne (20:23)
But
the Chinese investors sued, so clearly they didn't get to agree. But the loan comes to mature on 1540 Broadway. USIF wants to recap or sell. Problem is that no one's going to recap you at a value that makes sense, and no one wants to buy this thing for more than the debt. And so Fortress and L &L ended up negotiating with Goldman, who were the senior construction lender, and ended up doing a Dean Liu. And part of the reason you would do that is that there's
⁓ massive amount of transfer taxes that you would pay and if you do a Dean Lou they avoided tens of millions in transfer tax and USIF kind of felt that they were left in the dark. They have a great quote in their complaint from a former senior officer of Fortress saying that the deal with Goldman was quote designed and implemented in order to deprive USIF of their bargain for rights. So USIF, the reason that they're filing this lawsuit too is they claimed the transfer in the Dean Lou
Hiten Samtani (21:06)
you
Will Krasne (21:13)
violated a Mez loan agreement which triggered a bad boy guarantee. Nice. That makes the developers personally liable for the $520 million that they invested plus at least $370 million in interest. is an insane
Hiten Samtani (21:26)
amount of interest. So $900 million is what they're on the hook for, personally.
Will Krasne (21:30)
Probably the largest bad boy carve out that I've seen. We've seen this too with other funding mechanisms. So we talked about EB5, that's all over the place. Exactly, we saw it with a taste. There's always these different little veins of capital that you can go after. And we're seeing it now play out in private credit where all of private credit is trying to go into retail money as well. We'll get into it in our next story.
Hiten Samtani (21:36)
We've talked about taste.
That's going to upend the dynamics in that market about control and rights and recourse if things go bad as they are starting to go bad as well.
Will Krasne (21:59)
Do you think that this type of transaction precludes you ever working together again? Not so. Fortress is involved with USIF and other projects, so they're part of a joint venture developing the remaining sites at Pacific Park in Brooklyn, which was the Greenland boondoggle.
Hiten Samtani (22:14)
So who are the winners here? Goldman's probably going to be in a lot of trouble. That USIF, who knows, because they made a lot of their money from fees. SL Green won a management contract here, so I don't know. They probably got paid. Where did Mayfield end up? What else are they up to?
Will Krasne (22:23)
Good for them. Yeah, they might be the only winner.
They are getting smoked, as you said, on 20 times square two. What's really important to take away here is that, one, development's really hard. But human behavior is as old as the hills, as Jesse Livermore would say. And at the top of every cycle, you have the guys who've never done nothing, never. They were saying, I'm going to do not just a simple, let's build 20 units in bedstuy and call it a day. They're like, let's do the single most complicated, hard to deliver, massive.
project that we humanly can.
Hiten Samtani (23:01)
in the middle of the most high profile location on earth basically.
Will Krasne (23:05)
What do they say in Princess Bride? The two rules don't get in a land war in Asia and never go in against us. Death is on the line. And then the third would be don't do a landmark time square development at the top of the market. We mentioned this because we look at these types of guys who really they're like Icarus going into the sun. you've got like Joseph Ben Nani over in Sutton Place. It happens every cycle. The way people are able to con these retail investors into putting capital on these things.
Hiten Samtani (23:10)
Sicilian when
I was just going to mention Ben and Adi.
Will Krasne (23:34)
It's honestly, it's one of the great hallmarks of America in capitalism.
Hiten Samtani (23:40)
It does make you feel a little bit patriotic that this can happen over
Will Krasne (23:43)
It does,
because if you're an orthodontist at UBS Private Wealth Management, you too can own a piece of the tempo times square.
you
Hiten Samtani (23:58)
So, Will, you violate any dead covenants recently?
Will Krasne (24:02)
So funny you should ask. I have been in technical default recently. I mean, who among us? Right. But not since Q4. Ooh. And that's not because I paid off the loans, because that's when I started using Loan Boss.
Hiten Samtani (24:15)
I can't believe how old school some of our listeners are. They're still crunching DSERs in Excel and all that. ⁓
Will Krasne (24:20)
Total waste of time, risky business to boot. Loan Boss runs the entire process for me. One click covenant testing, incredible. Instant cashflow forecasting, impeccable. And my favorite nerdy delight, the live forward curve. So I hate having to go download the forward curve and then it's always vertical and you gotta alt HVT to have it go horizontal. Make sure the index match works, like ridiculous.
Hiten Samtani (24:44)
It just got it sorted here for you.
Will Krasne (24:46)
Much better. So thank you, Lone Boss.
Hiten Samtani (24:49)
Listeners, check them out at loneboss.com. That's loneboss.com. And tell them the promo sent you.
Blue Owl Capital is trying to build a $4 billion data center in Lancaster, PA, which is one of your suites.
Will Krasne (25:09)
First of all, Lancaster. You say it as fast as possible. We know that you're an outsider.
Hiten Samtani (25:13)
So Lancaster PA is a $4 billion data center project. Blue Owl is obviously one of the marquee names in this whole data center game. They're trying to build everything, trying to finance everything. They're in with Pimco on the Meta project. What is it called? Hyperion? They're all over the space and they're betting honestly the future of their firm and their reputation on this asset class.
Will Krasne (25:37)
And they're having some serious issues with it. They've had a bunch of issues with their BDCs. Boaz Weinstein's gone activist on one of the publicly traded ones. halted Redemption's at something. They tried to merge another thing. Honestly, I'm just a dumb real estate guy, so a lot of this is above my pay grade. All I know is that it's some shenanigans. There's also articles that Doug Ostrover and Mark Lipschitz are potentially facing margin calls on their personal stakes because the stock has gone down so much.
Hiten Samtani (26:01)
I've
giving some pretty defensive interviews in the of the financial press. saw something in Barron's that was quite interesting too.
Will Krasne (26:06)
There's some really interesting media play here. So BI, again, great assault, reported that Blue Owl couldn't find financing for this Lancaster data center. So this project, formerly a printing company owned these two facilities in Lancaster, went bankrupt. Machine investment partners, eight millimeter, underrated classic. ⁓
Hiten Samtani (26:28)
I
love that movie, it's so depressing, I wasn't allowed to watch it for a long time.
Will Krasne (26:31)
By the
way, it's great that Maschine bought this asset because if devoted watchers of 8mm will remember that the guy who commissioned the tape is from Harrisburg, which is right up the road.
Hiten Samtani (26:42)
That is a deep cut. Why is this so interesting? It brings in a lot of the different players in this new asset class that we've talked about. Remember CoreWeave? CoreWeave went public recently. The easiest way to think of CoreWeave is it's like a WeWork for data centers, right? It puts stuff together and then brings in the hyperscalers and all that. They went public. They were seen as the litmus test for the asset class writ large. How would you say that?
Will Krasne (26:50)
What could I
They were the litmus test because they didn't own anything. It's like they were like Lloyd Dobler. They're like they don't want to. Yeah, we don't want to make anything or own anything that's processed or whatever. They were just the marketplace, as you said, and they had these enormous lease allegations, but then they would go find tenants to cover them.
Hiten Samtani (27:11)
like.
Google,
etc.
Will Krasne (27:24)
For sure. so this data center in Lancaster was going be taken by CoreWeave. So an executive who arranges debt for major data center deals told them that the lack of interest was due to growing caution among lenders and investors about taking on sizable AI exposures with less than sterling credit. And a senior executive at a large specialty lender... is so good. ...told Business Insider, we saw it. We passed. ⁓
Hiten Samtani (27:43)
God, this is so good.
Oof, that's just...
Will Krasne (27:50)
But the media spin I think is really interesting because if you're really winning like do you respond at all or do you just say? nothing
Hiten Samtani (27:57)
If you have the financing in place or on the verge of getting it, you're just going to let the haters hate and you do your thing. However, Blue Owl responded and they said, the central premise of the Business Insider article that we encountered financing challenges related to the Lancaster project is incorrect. They're flat out denying that there's any issues whatsoever. And then they're talking about their commitment was really just half a billion, not four billion. Like all they need to do is fill that half a billion dollar hole.
Will Krasne (28:23)
Right, and they're saying that they considered third-party financing as, quote, as we would with any transaction as we explore alternatives before choosing the most attractive path forward.
Hiten Samtani (28:31)
And this is my favorite part. We've talked a bunch about the Blackstone playbook when it comes to any Office bets that have gone sideways. They have a very, very specific line that they deploy, which is, Office is less than 2 % of our own portfolio in the US. And Blue Owl is doing pretty much the same thing here. They're talking about how these data center projects were at less than 1 % of their book.
Will Krasne (28:52)
I don't know if that's great considering how well their other book is going, though guess Ice can only buy so many of their products.
Hiten Samtani (28:58)
The bigger point here, we've talked a bunch about data centers. Incredible flood of capital has gone into this asset class very quickly. One of the things you mentioned is you can't write a half a billion dollar check into a mall anymore. It's hard to do it in office anymore. But these big money managers need to do that somewhere. And so here it comes along this new asset class that promises to be the lens into the AI boom, the digital railroads, you will, Mark Ganzee and all these guys are all over that, that narrative.
And suddenly you can find so much money moving into the space from all over. The global capital, MGX and Abu Dhabi, all these players are flooding into the space. A lot of the tenants, the hyperscalers themselves are betting billions of dollars. So you have this insatiable narrative of demand. However, there's a lot of holes in this narrative at this point.
Will Krasne (29:42)
about Stargate too because this isn't the only project where financing may be a little bit shaker than you might have thought.
Hiten Samtani (29:48)
So Stargate is this open AI flagship project that the Trump administration talked about very publicly. What's going on with that?
Will Krasne (29:54)
It was a joint venture between OpenAI, Oracle, and SoftBank. The information put this out. Not a grain of salt, BI grain of salt information, I think, were good. But they're saying that the joint venture hasn't hired any staff. They're not actively developing any data centers. ⁓ And they say that the partners are arguing over responsibilities, how collaboration should be structured. And I guess OpenAI then tried to build stuff on their own, but they couldn't get finances.
Hiten Samtani (30:16)
They couldn't get financing and this is like one of the top three hottest companies in the world right now.
Will Krasne (30:20)
Well, we talk about how a narrative and vibes are more important than reality in some cases. But at some point, lenders are going to say, hey, if you're building a hugely capital-intensive real estate project, we need cash flows, we need security, we need guarantees. And lenders weren't willing to back a multi-billion dollar construction loan, essentially, from a company that has an unproven business model and is going to essentially have to anything before. They haven't built anything. And also, in their forecasts, they're like, yeah, we're going to lose
Hiten Samtani (30:43)
built really any
Will Krasne (30:47)
$80 billion or whatever it is over the next four years. They're heavily dependent on the capital markets and the capital markets. It's not even if they freeze. It's like if the capital markets gets a little colder and the water's moving slightly slower, they're in real, could be in real trouble.
Hiten Samtani (30:58)
Just a little.
This is a really important point you're making. Any Emperor's new clothes type situation here, if anyone asks a question that slows this down even a little bit, even just that slight loss of acceleration can derail the whole thing.
Will Krasne (31:15)
You're the
road runner running off the cliff and if you look down you're gonna fall but if you keep looking ahead you can make it to the other side. And that's sort where we are and I think it's important to consider what happens to real estate.
Hiten Samtani (31:26)
You can't really repurpose this stuff very-
Will Krasne (31:28)
very
well. can't repurpose it. But I'm thinking more to like all of the capital that's gone into real estate that has gone into this asset class. What if this is like what fiber in 2000, all that stuff eventually got used. But like all of those companies got absolutely torched. And what happens if you're blue owl? What happens if you're soft bank? What happens if you're open AI and you've committed so much capital of this? You need everything to go perfectly.
Hiten Samtani (31:52)
Look at the scale here. A lot of these projects are now trying to get investment grade ratings so that they can get access to cheaper debt. Fitch worked on 35 projects. The average deal size on those projects is $3 billion.
Will Krasne (32:03)
Basically, each project is one Vanderbilt. And think of the coordination to do that, and we're doing that 35 times. It's just hard to fath-
Hiten Samtani (32:12)
one Vanderbilt as projected today, but as we know in real estate development, there are cost overruns. This is assuming that everything goes perfectly from here on out. And that is not the case with a project like this with an unproven developer. The other thing that I think is important here, you know how we talked about Steve Ross and West Palm Beach and having the balance sheet to go solo and whatever the fuck he wants right now. And it's such a glorious time in his life. This is the opposite of that. You could be one of the most well-funded companies on earth. Take Google. They still have to collaborate.
they still have to stitch these cap stacks together with other partners. Like these projects are too immense for any single party, no matter how rich to take it on.
Will Krasne (32:50)
Absolutely. look at Meta. They're really trying to off balance sheet a lot of these things too, because they don't want it on their balance sheet. Exactly. So I think that sort of tells you everything you need to know. ⁓
Hiten Samtani (33:00)
If look
at the lender profile on some of these projects, most of it is obviously not banks. JP Morgan has been involved in a couple things, but for example, the one in Louisiana is a consortium between Blue Owl and Pimco. So it's a lot of the shadow banking system we've talked about.
Will Krasne (33:15)
The shadow banking system is the new banking system, given the new capital requirements. We know this is kind of broken containment because on my little Google RSS feed, it gives me the suggested stories. And I got one that says, who is Blue Owl and what's gone wrong with it?
One of the big things that we've talked about a lot on this podcast is the softness in the multifamily rental market.
Hiten Samtani (33:38)
We had a multifamily insider in the promote this past week share some pretty hard truths about the myth of rent growth in a lot of these markets.
Will Krasne (33:46)
Yeah, and you're seeing vacancies over 10%, rents are flat over periods of years. There's one area where that's not true.
Hiten Samtani (33:53)
And that's at the very, very, very high end of the rental market. Before we get into any of the macro and all the trends, let's just talk about David Weinroh, please.
Will Krasne (34:02)
So David Weinreb, former CEO of Howard Hughes, Bill Ackman was talking about David is this He's Bill's guy. going to build Seaport into this massive cash machine. That didn't happen. He left the company. He had this unbelievable apartment.
Hiten Samtani (34:08)
What a war.
Really nice, really, really nice in West Chelsea.
Will Krasne (34:24)
Yeah,
and so he had it on the market, I think for $75 million, didn't trade, but second place trophies, he just leased it out.
Hiten Samtani (34:32)
for $177,000 a month. A month.
Will Krasne (34:37)
Now, what's amazing is that based on the asking price, and again, it didn't trade there. It probably sells for 15, 20 million less, who knows? It's a two and a half percent rental yield before factoring in any expenses related to the property. still really hard to make money as a single family landlord, even at the super, super high end.
Hiten Samtani (34:54)
Think about this, I mean, this $177K a month, this is not, this is now not just like a one of one situation. Our boy Bad Bunny paid what, $150,000 a month at the pen asset, the Jardin? Yep.
Will Krasne (35:06)
did and we've seen another one recently at $95,000 a month lease. And that wasn't even on the park or anything.
Hiten Samtani (35:10)
And then after these build.
remember
when it was headline news when I think at the Mark Hotel there was a unit that went for 75k a month. You remember that? A few years ago? Yeah. Now we're seeing more and more of these deals at the six-figure Marklet's call.
Will Krasne (35:26)
There's a good quote from this article from a guy, Douglas Elliman. said, when the high hundreds per square foot for a rental start to become the norm, it's completely different from what we're used to. I've never seen prices where they're at. Again, it's really hard to build in New York. We had the rush from 421A to get your footings in and get done to get the tax break. But beyond that, permits have been at historic lows. If you have no new supply, you don't need that much demand to have increasing prices.
Hiten Samtani (35:53)
not just permits, because obviously that is a big factor, also availability of capital has been constrained for the last few years. And so four or five years out, you see the dent on supply for this very tippy top product.
Will Krasne (36:04)
Yeah,
and that's why I always think it's so silly when people say like I only invest in red states like this again Not a political statement sure go for it. Yeah, but but with regulations and making it hard to build That's where you want to own because there's another hundred twenty five thousand dollar a month apartment at least at 70 vestry part of a divorce
Hiten Samtani (36:22)
I know you don't even care about the price tag here, you care about the backstory, so why don't you cook?
Will Krasne (36:26)
Yeah, so Julia Hart who co-owned elite world group the modeling agency rented the penthouse that she bought with her estranged husband Sylvia Scalia amazing for $125,000 a month during their contentious divorce. I think this is a bigger trend because we talked a lot about folks moving to Florida Texas away from California New York and a lot of those folks have come back and But one way to avoid the tax man coming after you is to rent because if you buy something
They'll track your days. just puts a headshot in your file. if you rent something, there's no doc. Like doesn't get filed with public records. And it makes it a lot less likely that you get audited. Maybe some folks are like taking the chance a little bit more and saying, hey, like if I don't need to put a bullseye on my back for the IRS, maybe I don't need to.
Hiten Samtani (37:13)
This comes with pretty massive demographic changes as well. The number of renter households earning a million dollars or more in the U S more than tripled between 2019 and 2023. I guess if developers are seeing these trends, they're going all out in the construction of these units, right? then renters themselves are investing, I guess, if you're paying 75 K a month for your apartment, you might as well add a few bells and whistles on your own dime to it. Almost like you would if you bought a place.
Will Krasne (37:39)
Yeah, and it's more capital efficient too, because if you're buying a $57 million apartment, you've to put $15 million down. Sure. So if you're spending $177,000 a month, like what do you care? It takes you 10 years to spend that much.
Hiten Samtani (37:51)
Ken Griffin paid what, $238 million for his 220cps apartment? He did indeed. And it's a frickin' white box. You and I are kind of simpatico with this view here. Both of us probably could see ourselves renting for very long time instead of buying our primary home.
Will Krasne (37:57)
yeah.
It goes back to some of the GP economics that I wrote about in my article on the Promote, which you should subscribe to.
Hiten Samtani (38:11)
I wonder what that means for the site selection, product selection when a developer is looking at a market like Manhattan.
Will Krasne (38:18)
New York ⁓
Hiten Samtani (38:23)
Why
build a frickin' condo then, right?
Will Krasne (38:25)
Yeah, because that's why condos have gotten built is it was the only way to make the numbers work. Yeah. But we're seeing big sites in Greenpoint that you've reported on and rents there are like 90 bucks a foot. Yes. Those are numbers that like let you build. And rentals in New York have sort of gone one way the last couple of years.
Hiten Samtani (38:48)
That's it for the Promote Podcast this week. A Times Square mega project became a sacrificial ground for global capital. One of the loudest names in data center development is being met with radio silence in its quest for funds. And the emergence of the frou-frou renter has warped the buy versus rent dynamic in top cities and might change how developers think about dirt too.
Will Krasne (39:08)
Thanks again to our sponsors, Lone Boss and Bravo Capital.
Hiten Samtani (39:11)
You can find them at loneboss.com and bravocapital.com. Bravo just dropped a new white paper on the sniff industry. A lot of good insights we're checking out. I'll drop it in the show notes too.
Will Krasne (39:20)
Really, really strong stuff. I enjoyed it. We'll be back next week with more CRE Insider goodness. And if anyone has a line to blow out, please hit us up. We'd like their permission to pod either in the shell of the data center product or potentially we'll sublease some space in the Seagrams building. Let us know.
Hiten Samtani (39:35)
I would love that. Well, thanks dude. Always a pleasure. Ciao.
Will Krasne (39:38)
Thank you.