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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 (00:03)
This is quite a moment. If it's not handled fast and in the right way, this is a real problem.
Will Krasne (00:09)
That's gone from very small to freak accident to a real reconstruction job in the span of a couple of days.
Hiten Samtani (00:16)
Reminds me of the immortal words of Little Carmine.
Will Krasne (00:18)
Precipice Tony.
Hiten Samtani (00:31)
Welcome back to the Promote Podcast, your insider guide to the money and mania of the C R E markets. I'm Hiten Samtani
Will Krasne (00:36)
And I'm Will Krasne
Hiten Samtani (00:40)
And shout out to our sponsors, Loan Boss, the best in class CRE debt management software.
Will Krasne (00:44)
Real Property Captive, the first group captive insurance for mid-market owners.
Hiten Samtani (00:48)
And Bravo Capital, a leading HUD and bridge lender that lives and breathes cap stacks. This week we ride up a rickety construction elevator to the 21st floor of the Pfizer building, where a major scare threatens to consume New York's signature office Theresi project. We're gonna do a 360 analysis from bricks and sticks to the financials to the all-important narrative decisions. Then we check in on a battle of hearts and minds in Virginia, where Blackstones walked away from a data center mega project.
There's a growing national discontent that has to be putting some investment question marks on this mega asset class.
Will Krasne (01:21)
Thank you for the additional reviews and questions for our mailbag.
Hiten Samtani (01:25)
Yeah, we're pretty full now. I think you're good to go, right?
Will Krasne (01:28)
We are, as everyone knows from my first mailbag, I don't trust the mail. So this mail is actually full, which is great. So look out for that. And before we get into these big stories this week, let's kick it off with the punch list, our signature rundown of the newsiest news in CRE.
Hiten Samtani (01:46)
Should we start with our guy, Charles Cohen He's back, and not in the way you th-
Will Krasne (01:49)
Think
we love a redemption story here at the promote. And Charles Cohen is back at it. He has restarted a four hundred thousand square foot office development in West Palm called West Palm Point. I kinda like that name.
Hiten Samtani (01:59)
For context, he's paid off about a hundred and eighty-seven million dollars in PGs to Fortress in New York.
Will Krasne (02:04)
And now he's suing them for more.
Hiten Samtani (02:06)
That's an ongoing drama, but he's come back here in West Palm. First of all, talk about the site, a little bit of sordid history there too.
Will Krasne (02:12)
I think he bought in 2020. He had his own foreclosure suit on it, which he has settled. So it took a little bit to get going. But in the intervening period, one of the goadius goats has torn it up in Palm Beach. And so this market has improved quite a bit. He does indeed. And there's quite a bit of preeleasy, which is what you need to get one of these things off the ground. So good for Charles Cohen pulling his back off the mat and back at it.
Hiten Samtani (02:27)
He's got the Steve Ross Halo effect.
Did you get a peek at the cap stack yet? Fortress anywhere in there?
Will Krasne (02:40)
Fortress is not in there, I do not think. Though it is funny that MacLeod, after famously having his own PG issues with the equity office portfolio, has gone back to the well several times and Fortress has been happy to oblige him.
Hiten Samtani (02:55)
Selective amnesia is a beautiful thing, man. All right, next one. We've been talking a lot about SF's fantastic redemption arc. There have been some big projects that have broken ground. There have been a lot of interesting takeovers of formerly distressed projects. We spent a lot of time talking about our boys Conversant and the new bonds resurrection of these two mega hotels in SF. The story of the past few months in San Francisco has been one of resurgence, but it's not all rosy out there.
Will Krasne (03:23)
rising tide lifts all boats except for malls. So Prator Group and Presidio Bay, they walked from deal to buy the San Francisco Center Mall. And they were going to do a partial office conversion. So office market in San Francisco has been on fire. So it really says something that they walked away. They of course didn't offer a reason for pulling out of the deal, but the reasons are generally cost bust, diligence finding, can't raise the money. So one of the three in all likelihood, because we know it's not the market.
Hiten Samtani (03:52)
This is a former Brookfield, obviously, and Westfield joined, right? They'd got like a six hundred million dollar CMBS on it and in twenty twenty three prompted back the keys to the bondholders.
Will Krasne (04:02)
One
of the poster children of the bleak days in San Francisco because formerly trophy asset that essentially looked abandoned and really was abandoned and now still might be abandoned. This is sort of the stepdad coming in and then also leaving.
Hiten Samtani (04:18)
It's gonna be a long road ahead, but we know for sure that one party is very happy about everything that's going on and that's the special servicer, 'cause they're getting the fees as this goes on. They are. Okay. The next one is a Will Krasney special, so I'm gonna let you take it away. On a Delphi, two eighty one Park Avenue South. So
Will Krasne (04:27)
Yes.
Finally sold after being, I think, on two or three different Netflix real estate reality shows, iconic piece of the skyline. Finally sold.
Hiten Samtani (04:44)
It's a beautiful building. The Church Missions House is a gorgeous building. It's
Will Krasne (04:47)
Gorgeous,
but it's always what do you do there? It's not really an office, can't really be resie. Event space, sure. They had what photographia, the meeting? Photographic something the only Swedish pop-up thing that works is that live.
Hiten Samtani (04:57)
Photograph skiah sweet Something, something, something sweet.
⁓
We haven't done a Barnett breakdown of the ABBA thing. We need to do it at some point. So in twenty thirteen, our boy A. B. Rosen had come in and bought this for about fifty million and change. And the idea, and this was during his buying spree where he said, I'm not gonna do a German accent, he said, It's a bad time to be buying okay buildings. It's a great time to be buying great buildings. Never really could figure it out from an actual business plan, right?
Will Krasne (05:27)
And the answer is is now
Hiten Samtani (05:30)
Only legal Airbnb in New York City.
Will Krasne (05:33)
People know my shtick here that this should have been a single family home. But anyway, Airbnb bought it for low eighty million ish. Yeah, but it had been marketed or whispered at 120, 130, just absurd numbers, which it was never gonna get. And they are using it as office space. And it's really interesting though, because New York has been not receptive and frankly quite antagonistic to Airbnb and short term rentals writ large across the city.
Hiten Samtani (05:39)
Close to two thousand a foot.
Airbnb
has become one of New York City's whipping boys and it's been trying everything to change that narrative. ⁓ They sponsored the New York City Marathon, they've been doing a lot of stuff.
Will Krasne (06:04)
They've been lobbying left and right.
is one of the premier markets in the world for Airbnb. There's what 3,000 short-term rental listings now down from 80,000 due to this crackdown. So they are not operating it as an Airbnb. They are using it as an office.
Hiten Samtani (06:24)
This is gonna be their largest hub outside of SF.
Will Krasne (06:27)
Yes, really says something. They're playing the long game here because the stock hasn't worked. For a real estate company, which they are, to be especially in hospitality, you need to have a New York presence. And they have had a really tough time with that. And so planting a flag in this way, I think, is part of the long game to try to get back into the graces of the city.
Hiten Samtani (06:44)
I
gotta say, A B Rosen, his list of buyers recently has been pretty top tier. So we've got Amazon, Bloomberg Philanthropies, and now Airbnb.
Will Krasne (06:52)
It's a good time to be buying great buildings, I guess.
Hiten Samtani (06:56)
Okay, next one. Office is no longer really a four letter word, and now we're seeing it in the national data.
Will Krasne (07:03)
We are only a couple years removed. I remember a a good friend of the pod who bought an office building, hired, I think, one of the big brokerages to go shop debt and has a call and they say, Hey, you get didn't get any quotes. And he said, ⁓ well, we didn't get any good quotes. We got no quotes. Nothing. None.
Hiten Samtani (07:20)
No debt available for this. How quickly the stories changed?
Will Krasne (07:23)
Yeah, so national office vacancy rates declined about ten basis points the second quarter, but it's really the breadth of the resurgence that I think is so interesting. There's ninety odd markets that Cushman tracks, and more than half of them had a big dip in vacancy rates, and that's happened two quarters in a row. But there is a little bit of a spread as we've talked about.
Hiten Samtani (07:41)
The story can differ widely ⁓ depending on the submarket you're in. Shout out to Kevin Nguyen from San Francisco Standard, pulled up some great data on the SF office market. And you can see a submarket like South Financial has a vacancy rate of 28%, North Financial 30%. Whereas in Presidio and some of the hotter markets, you're basically at no vacancy.
Will Krasne (08:01)
A lot of the lower quality stock has been taken out of the office market through office resin conversions, which ⁓
Hiten Samtani (08:08)
We'll talk about in a second. Next one.
Will Krasne (08:13)
So America hasn't just fallen in love with Erling Holland from Norway.
Hiten Samtani (08:18)
mega sovereign fund Norgus is committing what a half a billion dollars here to this retail JV.
Will Krasne (08:25)
With Asana partners, they're gonna buy high-quality neighborhood retail assets, which is pretty much what all the big allocators are doing at this point. Bain 11 North, MCB and Echo, Town Lane and Site One, something that five, seven, ten years ago, ⁓ man, can't do retail because Amazon's gonna take everything. My how the turntables have turned. And Norgus, which is I think the largest sovereign wealth fund in the world. Or they were until very recently. One of my favorite stats.
Hiten Samtani (08:49)
They were until very recently, yes.
Will Krasne (08:53)
Period is that they own 2% of all publicly traded securities in the world. Given their scale, this is not an enormous bet, but it does say something that it's their second one on retail real estate this year, just speaks to how asset classes can shift. And then as soon as somebody jumps in and the capital flows are behind it, owning retail, especially grocery anchored open air right now is a really, really hot asset class and great place to put.
Hiten Samtani (09:17)
Nikolai Tangen if you're listening to this, have us on your podcast. That's it for the punch list. When we come back, some columns to examine. Little column A, little column B.
Well what if I told you insurance could become an asset instead of just an expense?
Will Krasne (09:39)
But
I'd say you're trying to sell me something, but also I'm interested.
Hiten Samtani (09:43)
Fair. Here's the math. You spend two million on insurance annually, loss ratio is well under thirty percent. Over five years that's about ten million out the door, zero return.
Will Krasne (09:52)
Painful, but accurate.
Hiten Samtani (09:54)
What if 7 million of that built up in reserves that you actually owned? 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 (09:58)
Pretty interesting. Tell me more.
I
like this because that's what the big boys do.
Hiten Samtani (10:13)
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.
High overhead Midtown New York Capital Building Construction teams working around the clock to stabilize that high-rise that had been at risk of a partial collapse. Right now, the city is watching what it calls an extremely serious situation. A threat of a high-rise collapse in Midtown Manhattan that led crews to evacuate multiple buildings nearby.
Will Krasne (10:30)
Live pictures of news seven focused on that taller building in the center of your screen, the orange construction.
Hiten Samtani (10:56)
This is one of those moments in the narrative of an asset class that could be a turning point. Last Tuesday, the Pfizer Building conversion, which is a 1600 unit conversion in Midtown Manhattan, probably the most visible project of its kind in the country, had a major scare. Project workers discovered buckled columns and bending beams on the 21st floor. And so there was an evacuation of that building and several buildings around it as well. I can't stress to you how high profile this project is.
The cities put a lot of attention and TLC into it. It got the largest construction loan of its kind at the time. And now it looks like Nathan Berman, who's the co-GP on this, is gonna have to reconstruct 15 of the floors. That's a BFD.
Will Krasne (11:39)
That is not really in your pro forma and when you do the sensitivity table of returns, that's a little bit off the sheet there. As you said, the most visible office to Resi conversion project in the country, not just because of being the largest one in New York, it's who's involved, how much money the city's given to it. For buckling columns, you don't often get the governor of New York giving quotes to
Hiten Samtani (12:00)
Yeah, Kathy Hokel weighed in right after Mom Donnie, and there's been consistent press that when this podcast airs will be about a week out, and we've seen multiple stories a day. The New York Times had a follow-up that had four reporters. If you're putting four reporters on a story, you're really taking it.
Will Krasne (12:16)
Seriously.
Ninety thousand of these units are in the pipeline across the country. It is being seen as a way to revitalize urban centers and downtowns. And this guy, Nathan Berman, is the most experienced person doing this probably in the country.
Hiten Samtani (12:29)
Nathan Berman was doing this in the 90s with the tax abatement program called 421G, what is now known as the financial district was in large part because of Nathan Berman going in, taking older office stock and converting it into apartments through this tax abatement program. He became the guy, and then for a few years, he was kind of not doing as many of these because it just wasn't in the ether in the same way. But over the last four to five years, he is suddenly everywhere. I would say he's one of the most important developers in New York at this point.
Will Krasne (12:57)
He's somebody who the Rudens brought into a building they own so they could learn how to do this from him. But it's not just that. This is the single largest development loan ever given to a project like this. Madison Realty Capital gave a seven hundred and twenty million dollar loan, which is just a staggering amount. This was
Hiten Samtani (13:14)
The
biggest ever single loan that they had done. This is one of those things when this happens, you're kind of damned if you do, damned if you don't. He was asked, Is the building gonna collapse? And he said, No. And the headline is Berman denies that the building is gonna collapse. It's one of those like, did you beat your wife kind of questions? It's impossible.
Will Krasne (13:31)
That's exactly what I was gonna say. The problem here too is that it's so visible that any fix now has to be what's the Warren Buffett thing about building a bridge? You have to have twice as much capacity as what any reasonable use might be. They're gonna have to do way more because it's so visible and like nothing bad can happen here. All of these projects, no one's stealing a building like this. I haven't seen the OM, I haven't seen the Financial, I haven't seen any of that. But I can.
Guarantee you that this is not like a 30 IRR that they were showing here.
Hiten Samtani (14:03)
Everything is perfectly penciled out, so everything really has to go according to plan to make this work.
Will Krasne (14:07)
There was a great article in the closing with the GFP guy and they talked about his biggest mistake. And he goes, We had a whatever hundred million dollar loan. He's like, I just remember every day saying, like, this is costing us $900,000 in interest or something like that. In the last week, while he's been out here denying that the building's gonna collapse and fighting the good fight in the press, that loan is still ticking. That carry is still going and that basis is getting bigger every single day.
Hiten Samtani (14:36)
Just to your point, will Berman's statements and his actions that he's taken reflect the growing uproar over this project? Initially he dismissed this as like quote, very small. This is a snafu. It's nothing more than that. Just a couple hours later, he was quoted as saying this was a freak accident. So this isn't one off isolated thing. We're gonna handle it. And then by the next day, he proactively went out and told Bloomberg, we're gonna reconstruct fifteen of the floors. And he said,
The following. It will be reskinned, everything will be leveled, fixed in place, and it will be brand new. Now, this is meant to obviously reassure the public, and I'm assuming reassure the government that has bought into this project in such a big way. But doesn't that nuke the pro forma? Doesn't that complicate conversations with lenders and LPs? And I would think also complicate conversations that he's having for future fundraising. Because we've talked about this, right? These are not discrete jobs that you do one and then you go raise for the other.
You're doing this, and at the same time, you're probably raising for six more of its elk. As we're talking, Nathan Berman and some partners, Intervest, I believe, are doing an office to Resi conversion of an even bigger project called 111 Wall Street, for which they got an $867 million construction loan. This is all happening. And if there is a big question mark on this one, you gotta think, is this a domino situation?
Will Krasne (15:56)
Yeah, and there's sort of been a trail of construction issues that have followed Nathan Berman across a bunch of projects. I'm not trying to damn him or anything. These are very difficult, very complicated. You're dealing with buildings that are super old. You don't know what's behind the walls. It's much harder to convert something than it is to build it new. We play with live ammo. He's a big boy. This is just what happens. He's currently being sued for construction defects at four forty three Greenwich, which is a huge celebrity hub. I think Lewis Hamilton bought there. Jennifer Lawrence.
Hiten Samtani (16:24)
Lawsuits around construction are not unusual in New York City. They happen all the time. But when you have such a high profile incident, everyone's going back to the well and seeing what else is out there.
Will Krasne (16:36)
the local news site, the city, saw that there was a history of construction safety violations at this site. That's normal. But then you go and you have a rep for one of the unions. I think it was on the Steam Fitters union. What is a steam fitter? I don't even know.
Hiten Samtani (16:49)
Isn't it the sexiest uni job you can think of?
Will Krasne (16:52)
It's up there, I guess. But he said that the I beams are bending like cigarettes in there, which is super dangerous. They chose profit over safety and put my members as well as every construction worker over here in jeopardy. And Berman, of course, dismissed that claim as nonsense. But important fact here too is that MetroLoft, which is Berman's firm, they tend to self-perform as the GC on these office Tresi jobs.
Hiten Samtani (17:16)
This is the big point, right? The promote in some cases almost doesn't matter because you're making your money in, as we call it, via Palooza, right? You're making your money in five different ways before you have to worry about the exit or the returns at the end of the project. Nathan Berman, for a lot of his projects, self-performs. He also, as I understand it, owns a piece of the construction manager called CCM. He's partnered with CCM on pretty much every major Office Terezzi project he's done. And our sources tell us that he actually owns an interest in that company as well. So
There's a lot of no conflict, no interest happening here.
Will Krasne (17:49)
Let's also just talk quickly about what actually happened. We hear I beams buckling. What does that mean? How could that have happened in a project like this? So essentially building was built in a couple of stages, and not everything's uniform.
Hiten Samtani (18:02)
Say
Will though, it's not one building, but two. You're essentially stitching together two buildings and creating sixteen hundred apartments in that carcass.
Will Krasne (18:04)
Yes, yes it is.
Right. And so what happens is it's really hard to calculate what the loads are gonna be. You can perform it and have the model and whatever, but you know, in a building like this, you kinda don't know. When you're stitching stuff together, there's a lot of lateral stress side to side. That hasn't been tested.
Hiten Samtani (18:27)
I spoke with someone who is a GC on big office to Resi projects. I had them handicapped a couple of things that may have gone wrong. So one was a couple of columns were not reinforced per the structural design. This is also what Berman is saying happened to the project. Two, it could be that the structural engineer either missed the columns or just didn't calculate how much reinforcement they needed correctly. And three, someone did something stupid. And we won't know for a long time. There's an investigation underway, of course. We will not know for a bit.
Will Krasne (18:56)
I worked on a development deal one time where a city inspector and us as the developer missed I was a junior analyst. I didn't miss this. I had no idea what was going on. But we had a podium apartment project, six stories over a podium garage. And we didn't put a tension rod in the middle of the parking garage podium. We built three stories. Somehow this got missed through like three rounds of city inspections. Someone comes in and goes, Hey, if you guys build like another story, the building's gonna collapse. Oof, because there's no tension rod.
Stuff happens because we're human beings and there are mistakes. But yeah, the cat's really out of the bag here. And so this is just full triage. Rebuilding this thing, maybe there's some I don't know construction insurance enough to know whether it that gets paid out.
Hiten Samtani (19:37)
I wonder if that kicks in here. The lender is typically first in line, right? To get paid on insurance drops, right?
Will Krasne (19:43)
They're named insured. So they have a claim on those proceeds, but then generally like gets released to you to go rebuild it. So it just depends on the policy. And on deals this size, I have no clue. This has gotta be such a complicated loan agreement.
Hiten Samtani (19:56)
If I'm Madison here, what am I thinking about? In general, debt funds like Madison will often issue a loan and then go and back leverage it. And in this case, I believe Madison SP that has a repo lender, Morgan Stanley, has issued this loan. So I'm assuming that what they're doing for now is just monitoring the situation, talking to their warehouse lender, just making sure, hey, we're on top of it. We're watching what's going on, having several conversations with Berman and the co GP, right?
Will Krasne (20:21)
It's really just communication at this point. I mean, it wouldn't shock me if some folks from Madison were in the Metro Loft offices. So if I'm Madison, I know how much you have in contingency in the budget because I had to approve the budget as part of the construction plan process. But I wanna know, are you bringing more cash to the table? Are you filing an insurance claim? What's going on with those proceeds? Have your communications with your LPs been? Are they ready to put up more money? All of those things because the budget's shot right now. Even a a ⁓ month delay in a normal project is
a real impact to the budget. Yeah. Numbers are here so big though, and everything is so complicated. The labor is so expensive that it's worse than if it was just a run-of-the-mill garden merchant builder job off the turnpike.
Hiten Samtani (21:05)
The other thing to think about, there are a lot of complications that can happen in big projects, but not all of them have the same deleterious impact on leasing necessarily. And this could be actually very scary for leasing, right?
Will Krasne (21:17)
That's
a great point. As someone who is moving back to New York and looking at apartments, the subreddits about some of these office residue conversions are real scary. Like
Hiten Samtani (21:27)
Been lit up as well in the last week or so because of this.
Will Krasne (21:30)
Yeah, that's a really great point. This is what, sixteen hundred units. This is gonna take years.
Hiten Samtani (21:35)
Leasing up this kind of project, even if everything is going great, is a marathon. It's a real undertaking. And with this giant question mark, reconstruction or not, it is something definitely to think about. We've spent all this time, well, and we haven't actually talked about the other partner on this project who is one of the promotes pet characters.
Will Krasne (21:53)
I think part of it is because there's a lot of aggravation here and this guy's aggravation free.
Hiten Samtani (21:57)
We'll get to that right after this break.
So, Will, you violate any debt covenants recently?
Will Krasne (22:10)
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 a loan. It's because that's when I started using loan boss.
Hiten Samtani (22:23)
I can't believe how old school some of our listeners are. They're still crunching DSCRs in Excel and all that. Ugh.
Will Krasne (22:28)
Total waste of time, risky business to boot. Loan Boss runs the entire process for me. One click covenant testing, incredible. Instant cash flow 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 (22:52)
They just got it sorted here for
Will Krasne (22:54)
Much better. So thank you, Loan Boss.
Hiten Samtani (22:56)
Listeners, check them out at loneboss.com, that's loneboss.com, and tell them the promote sent you.
David Werner is the unorthodox deal maker who actually put the site together. So he owned the fee at 235 East 42nd Street, and then he tied up 219 East 42nd Street with Berman. And what David Werner does, for those unfamiliar, he's one of those fascinating New York real estate, only in New York kind of characters. So what he does.
He'll tie up a deal very quickly because he'll promise cash right away, very, very minimal D D.
Will Krasne (23:37)
In a duffel bag around his shoulder in the room.
Hiten Samtani (23:40)
Essentially
a short guy with a high pitched voice and a lisp, as I've been told, and he comes and he's like, I'm gonna get this done. Right. And he does actually get it done. So when he's tied up the deal before closing, he'll actually go and then flip the contract to the real money people. And instead of taking his nut, what he typically does is he flips some of that profit in as equity. That's the David Werner model in a nutshell.
Will Krasne (24:04)
So this is a vast oversimplification. Imagine a wholesaler of single family homes in the suburbs. Like that's kinda what he does. ⁓
Hiten Samtani (24:13)
some
of the most blue chip Manhattan assets you can think of. Anyway, given that Nathan Berman is the face of this project, is self-performing as a GC, and might have pretty deep ties to the CM, what is ⁓ a developer like David Werner do
Will Krasne (24:28)
Well,
I think it's what's your exposure. I would love to see their agreement. I have no idea what it looks like because if I'm a co-GP, I'm gonna have to bring more cash to the table. Am I on the guarantees? What's my exposure? Who's guaranteeing this thing? Not just the completion guarantees, but who is the warm body for Madison? Generally speaking, you need net worth equal to or greater than the loan amount, liquidity of 10% of the loan amount or two years of interest expense, depending on.
Who the loan is, what type of product it is, or something like that.
Hiten Samtani (24:58)
And David Werner has always been a Wizard of Oz type. You might actually have to look under the the machine or what have you.
Will Krasne (25:04)
This is very much the statement of you owe the bank a million dollars, then the bank owns you, you owe the bank a hundred million dollars, you own the bank. This is really Madison's problem. That's what the answer's gonna be from Nathan and from David Warner, if things persist here over a couple of months and look like it's gonna be a bigger issue. Right.
Hiten Samtani (25:22)
But
this is not a one-off job, as we just mentioned. Nathan Berman's doing half a dozen of these and is going raising money consistently. Imagine having a conversation with an LP. He's giving back a couple of buildings. Whatever. He's the one who said, I've put the lender out of my mind or something like that on one of the projects.
Will Krasne (25:33)
He's already given back one of these. I mean this
That is a part of it. But at the same time, you've got to win the battle in front of you. Obviously, you want everything to go smoothly and it helps you raise the next project, next project. But you got to do the right thing here for the project itself. And that's going to be really playing hardball. There's a universe in which this gets very ugly between all of these different parties. And it's too early to tell maybe the reconstruction gets everyone on board. He raises a little more money. And, you know, we have a smooth project and
Seven years from now it's stabilized. This is gonna be a project that has three loans at least. You know, you're gonna have a c a loan, you know, midway through construction, you're gonna have a loan at CO, you're gonna have a loan pre-stabilization, and then you're gonna have perm. It's gonna be something like that. You really wanna be Henry Bodek on this deal.
Hiten Samtani (26:28)
Well, you know who's actually involved in this one? It was IPA randomly. IPA brokered this transaction. Yeah, yeah. It's funny. Good for that. Because I I remember when we broke the news of this, I got a LinkedIn message from an IPA broker saying, You're making powerful enemies here. I'm like, dude, I don't care about any of this nonsense. Anyway, we haven't talked about the other stakeholder here. The city. The city has put a lot of stock into Office to Rise Z projects. There's the 467M tax abateman from New York State as well. So the government.
Will Krasne (26:57)
Too what scares municipalities is the hollowing out of the tax base is if they go elsewhere and there's not enough economic activity in certain areas because the office stock is so old. And so this is a way to bring folks back into those areas, breathe life into them, and increase the tax roll. So if this goes sideways and it puts a pall on the entire sector, this is two percent of all of the office Theresi
apartments in the country is this project substantial, as a PE guy would say or a good friend. That can have real ramifications for the city's budget and for city affordability, which is a hot button issue and it's really gonna be the litmus test for whether or not Hokel and Mamdani are successful. Is New York City affordable and safe? And yeah, if we lose sixteen hundred units of housing and buildings are falling on people, it's less affordable and less safe.
Hiten Samtani (27:27)
Substantial.
Okay, I'm here with Aaron Krowitz from Bravo Capital. Aaron, you've done two and a half billion dollars or so of deals so far. How are you thinking about scale going forward?
Will Krasne (28:07)
There's a divergence between optimizing for scale and optimizing for quality. And when you're running a debt fund, you have to pick. You have to say, Am I really fee-driven and do I want to maximize how much I could put out? And the other business model is what we've chosen is slow and steady. Do we want the reputation to proceed ourselves? Investor returns, that's more important for us than volume. If you look at some of the REITs, they were forced to deploy in the realm of two to eight billion a month. First
They AUM gobbled, right, as your sweatshirt says, but then they were forced to like regurgitate that AUM more rapidly than they really could. And it forced them to pick terrible deals. Their returns are negative to just go scale sake. That's a short lived business model.
Hiten Samtani (28:52)
For scale for scale.
Thank you, Aaron, and where can people find you? People can
Will Krasne (29:00)
Mm.
Hiten Samtani (29:09)
The quest to build data centers is really a battle on two fronts or three fronts. You gotta get the power, right? Then you gotta get the money to build this thing. And you gotta have the political buy-in at every level and the community buy-in to make this happen.
Will Krasne (29:24)
Are you saying
that then you get the woman? After you get the power and the money? You got those Tony Montana, right?
Hiten Samtani (29:30)
Come on. I set you up with it.
Will Krasne (29:32)
No,
yeah, yeah, yeah, okay fine. Then when you get the money, the power.
Hiten Samtani (29:36)
You're getting
So Blackstone is walking away from this massive data center project that they had planned in Prince William County. Let's just talk through it, TikTok it.
Will Krasne (29:46)
This has been going on for a long time because Virginia, as we've talked about, has been the data center alley, Dulles Airport. What's happening though is that this is one of the more affluent communities in the United States. And Yeah, with political Jews, proximity to the Capitol, quite literally. Guess what? People don't love having massive data centers that have weird noises, increase your ⁓ utility.
Hiten Samtani (29:52)
Bulls out.
Political juice.
It's that noise seeps into your skull bad.
Will Krasne (30:17)
happening though, I think which is so interesting is that you're having you know boards of supervisors, zoning boards approve projects and then the people still back out anyway, the developers still back out given the backlash from the public.
Hiten Samtani (30:30)
Just put some scale on it. This was bigger than Hudson Yards. I think they were planning to build 22 million square feet of data centers, 34 buildings, and 1.7 gigawatts of capacity. So we're major project here. Basically, Blackstone did a $10 billion take private of QTS, which became their data center arm. And the way that they've positioned it is this is Blackstone's lens into the AI boom.
Will Krasne (30:42)
This is QTS.
they can stop up so much capital. And that's really what they're looking for. Is how can we put out tons of capital in a way that's in a secular tailwind that's defensible to our LPs and we think is has a range bound investment outcome.
Hiten Samtani (31:09)
Adding to that point, when you look at the base of LPs that they have, AI is a strategic imperative for many of them, some of the world's biggest sovereign funds out of ⁓ the Middle East as well. Countries like the UAE, Saudi, et cetera, have made getting into the AI race early a cornerstone of their theses, long-term investment theses. And Blackstone and Brookfield and companies like that are ready. Let's go, let's get all that money.
Will Krasne (31:32)
They're also doing it for retail investors because if you're a single digit net worth person and you want exposure to AI, also you're gonna get it. You're not getting into anthropic, you're not getting into open AI, but you can get into Blackstone's data center public vehicle. And they've really been trying to grow this. So this it was a joint venture with compass data centers. It'll be
Hiten Samtani (31:51)
To say exactly what happened initially, what was struck down.
Will Krasne (31:55)
To make a long story simple, what happened is that they needed rezoning approvals, got them, a court voided it, then Blackstone took the fight to the Virginia Supreme Court to try to appeal it, and then decided the litigation wasn't worth pursuing, which is really saying something because this is a tens of billions of dollars project. Even if you spend forty million dollars in legal fees. The optionality, as everyone loves, is still pretty the expected positive value. So they were
Seeing the writing on the wall, not just legally, but also the backlash that has gone here. And this is not the only project which is seeing this. Lancaster, Pennsylvania has seen a lot of pushback to a core weave and blue owl data center. Carolinas just had the same type of thing happen where a developer backed out. We talk about income inequality, inflation, cost of living increases. And I think the public is really seeing the zoning and power regulations as a rich get richer issue. It's ⁓ you want Blackstone, you want John Gray, you want
all these massive companies which are making billions of dollars, you're giving them stuff for free and you're making me pay for it. Real estate, one of the great things about it, it touches everything. And right now you have to know what's in the zeitgeist. And the zeitgeist is not
Hiten Samtani (33:07)
Data
centers have broken out. I have lefty Instagram friends and a lot of them are posting anti data center stuff on their
Will Krasne (33:15)
feeds.
Especially in the more educated pockets like Prince William County and Northern Virginia. These are people who are saying everything's getting worse. And it's because of the thing you're putting up like on the old like Johnson farm around the corner. What's crazy is that the demand for a compute though is still not going to be met.
Hiten Samtani (33:33)
And the fundraising's reflecting that, right? The Starwood ten billion dollar fund that they just raised.
Will Krasne (33:37)
Point two, don't forget the point two. Half of which is Starwood itself investing the cone.
Hiten Samtani (33:40)
Yeah.
And more than a third of that allocation is going to data centers, which I believe is two X what it was last time around.
Will Krasne (33:50)
Yeah, and I think Barry had the quote that defines the real estate epoch right now, which is ⁓ the firm has never been so excited and so terrified. It seems
Hiten Samtani (33:59)
That's perfect. I want to make this point very explicit. A firm like Blackstone, when they do these kind of things, they rejig every arm of their business and the head honcho's worldviews to reflect that investment thesis. So Blackstone is now an AI infrastructure company above everything else that they do. Steve Schwartzman's philanthropy has been directed to AI research efforts. John and Mindy Gray just announced a big grant to
use AI to advance ⁓ cancer research. Half of the running videos are now talking about infrastructure and AI and data centers and all that. It's kind of staggering to see in practice how they turn the entire ship in that direction, right?
Will Krasne (34:43)
It really is. I just want to put some stats in the tape just so we have the four biggest US data center markets are Northern Virginia, Atlanta, DFW, and Chicago. And they added two gigawatts in the last twelve months, which is thirty three percent increase in supply. So we talk about like multifamily, and if you're in Dallas, you say, my God, there's seven percent of supply added vacancy's gonna be seventy eight percent forever. But right now, across those four markets, there are fewer than seventy five megawatts available.
And supply is falling further behind given a lot of these projects now being stalled or put out. So despite everything, the demand is here. You don't shift the entire armada at Blackstone for something that doesn't have massive secular tailwinds, massive supply-demand fundamentals that are attractive. And this has that for sure. You want to put $20 billion of equity capital against this because
Where else are you seeing it? Where else are you seeing thirty three percent supply increases just get absorbed like that? With plenty behind it. And it seems to be increasing.
Hiten Samtani (35:46)
Just like they did with the multifamily stuff, with the build to rent stuff. I I think there's gonna be a pretty concerted ground game to handle some of these challenges as they come up because okay, they pulled out of this one, but if this keeps happening, they're gonna be in some serious trouble.
Will Krasne (36:01)
This isn't a public equity where you can press a button and buy it. It's not even a private equity where it's an access game. And if you're in the right spheres of influence on the West Coast, you can be one of the SPV bros in Anthropic. To build these assets which power those things, you have to go to real people's land. You have to go in front of the community meetings with twenty-five people who might be the backup snowplow driver for the county.
Hiten Samtani (36:23)
gotta have
a certain hokey charm to your institutional pitch.
Will Krasne (36:26)
You need a ground game and it's really like winning hearts and minds one person at a time.
Hiten Samtani (36:37)
That's it for the promote podcast this week. Will the Pfizer conversion end up being a poison pill for Office Theresi? And can the sheer quantum of capital being bet on data centers overcome the rising backlash against them?
Will Krasne (36:48)
Some of those steel girders might have taken too many GLP ones. But anyway, would like to thank our sponsors, without whom we would just be two guys talking over the internet in their thirties. Attend not for that much longer.
Hiten Samtani (37:01)
⁓ ouch. So thank you, Bravo Capital, a leading HUD and Bridge Lender that lives and breathes cap stacks. They are at BravoCapital.com.
Will Krasne (37:09)
Real property captive. They're the first group captive for mid-market owners, and you can find them at rpcaptive.com.
Hiten Samtani (37:15)
And Loan Boss, the best in class CRE debt management software. Find them at loanboss.com We're two episodes away from our seventieth every ten episodes. We're gonna try to do a special episode. Do we wanna tell people what's about yet or what do you think?
Will Krasne (37:28)
Yeah,
let's not do the Bill Simmons thing on the rewatchables where we don't tell people the movie. So we are gonna be covering the Reichmanns.
Hiten Samtani (37:35)
Reichmanns.
I'll see you next week, man. Thank you. Ciao.
Will Krasne (37:38)
Thank you.