Subscribe
Share
Share
Embed
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)
Regular listeners of the Promote Podcast will have noticed there are a few themes we keep returning to. Overexuberance Indicators, Sunbelt Multifamily, the pullback of traditional banks and the rise of alt lenders, the shakeup in the agency lending space, and personal guarantees. Which is why we're thrilled today because we have a guest who's kind of in the thick of all of them.
Mike Comparato is the head of CRE at Benefit Street Partners. Benefit's carved out an outsized presence in the lending landscape, they've backed some of the most prominent players, and recently struck a deal to buy agency-lendered Newpoint for north of $400 million.
I was really excited, Will, when Mike pinged us both on LinkedIn and said, what's up?
Will Krasne (00:48)
I think this is great to have Mike on because a lot of people are trying to pretend everything's fine or they're so smart or this is that and the other. And Mike is by his own admission, unfiltered, unvarnished, real talk, just straight out there. And I think it's a great conversation and it's real, which is sort of what this whole podcast is about. This isn't marketing. It's not John Gray running on LinkedIn.
You're not going to see him with Kate Max, the running influencer.
Hiten Samtani (01:18)
Okay, that interview was good. I give her a lot of credit. I enjoyed it a lot. So I'm not gonna have you besmirch the running interview. Okay. I will say though, this conversation you guys are about to hear is extraordinarily candid, A, for the space and B in particular for someone who's the head of CRE at a public company. Right.
Will Krasne (01:36)
He takes that responsibility very seriously. And I think a lot of what he does both in the lending and equity side is figuring out ways to create value, not just on the deal level, but on the franchise level.
Hiten Samtani (01:52)
All right, Mike, thanks for being with the Promote Podcast. Yeah. So I guess we got to start unbeknownst to you, but our first episode was actually looking at this case, the dispute that Benefit has with GVA and Allen's Style Cup. And I think it just kind of is quite, a picture of the back and forth happening between syndicators and their lenders. So can you just walk us through how things went so wrong there?
Mike Comparato (01:54)
Appreciate you guys having me on.
I think I need to probably leave the litigation papers to themselves. But it was an interesting transaction. The transaction that kind of steered this ⁓ lawsuit was one of the larger ones, actually the largest one we did with Alan. And it was also one that was kind of at the peak of the market turmoil. we pulled back substantially on this transaction ⁓ when nobody else was pulling back.
I think we were one of the first people to see the storm clouds on the horizon, just how unhealthy the multifamily market was and that we were going to pull back on lending a 1970s and 1980s vintage multifamily and that we thought just there was a correction coming in multifamily. And this deal with Alan, it was originally about $165 million loan application. I'm going really into the weeds here, guys. So apologies. ⁓
Will Krasne (03:11)
No, that's what we love.
Mike Comparato (03:14)
You know, we had a 10 year spike in the fourth quarter and first quarter, fourth quarter, 21, first quarter, 22. And it went from like 75 basis points to like 2%, like in a flash. And me and my right-hand man who's a Brian Buffon or head of equity investments. He's been with me for 25 years. We were just like, this has to matter, right? The 10 year just doubled in like a blink of an eye.
And we said, you know what, we're going to really downshift here and we're going to pull back. And so on this specific transaction, we called Alan and we said, Alan, we're not comfortable at the loan amount that we're at anymore, and we're going to reduce your loan amount by $15 million. And of course, no other lender was moving proceeds and no other lender was concerned about the market pulling back. And so he went bananas.
And I think I had 17 guys from Newmark who were brokering the deal, call me, screaming, yelling, you know, how could you possibly then we just said, guys, the 10 year went from one to 2 percent. Like that just has to matter. And I said, Alan, call the seller. The seller is like six X in their equity. It's not like they're not going to close if you ask for a price reduction. And he ultimately got like a 20 million dollar price reduction. And so the deal closed.
And our loan went from, think it was 162 million down to 147 million and it was cross collateralized by like 15 assets. And sure enough, I mean, we were, we hit the nail on the head about the correction. I never thought it would hit the magnitude that it's hit obviously. Uh, but we ended up foreclosing on that portfolio. You know, if we didn't pull proceeds back,
We probably would have taken a $15 million loss and we will end up not taking a $15 million loss. I'm not exactly sure where it'll all shake out. We're kind of down to the last few, but it's it's been an interesting road with with all this indicator guys over the past. You know, some of some have been phenomenal. Some have been less than phenomenal and it was just scary. You know when you were in the in the moment.
I feel like we were very open with the market. I remember being with one syndicator on the phone. They said, we're closing a deal every 13 days. And I just like, was literally, again, I called Buff, Brian Buffone is Buff. I called Buff, was like, Buff, I just hung up when so and so, they said they're closing a new acquisition every 13 days.
Hiten Samtani (05:57)
Yeah, so where does that leave things like due diligence?
Will Krasne (05:59)
I was just thinking about like the simple stuff and I never mind like actually running the assets. How do you open the bank accounts in the right timeframe even? Yeah.
Mike Comparato (06:08)
That is an unsustainable pace. And certainly hindsight is 20-20. You look back and you see the behavior and you're like, yeah.
Hiten Samtani (06:18)
You talk about the of the macroeconomic warning sign which maybe caused you to reevaluate some of these bets you made. But what about on the sponsor syndicator level? A lot of the allegations that are coming up not only in your case but also Starwood with Tides Equities, et cetera, are malfeasance, outright fraud, gross incompetence. Was there no kind of spidey sense on that stuff?
Mike Comparato (06:41)
⁓ I don't think so in the moment, right? Because there's two very different things, right? There's bull markets, there's corrections in markets. And you just, hadn't seen bad behavior in 15 years since the GFC, right? I mean, there was no reason to have bad behavior. There was little to no defaults anywhere. And so it didn't kind of manifest itself until the defaults started coming in. And then the defaults started coming in.
And it was like we had a building burned down and it was never disclosed to us. the insurance proceeds just disappeared. You had properties that hadn't been the pools were all empty or the pools were green. There was trash piling up everywhere. Yeah, no, I mean, it's just unbelievable. And I would say to this day, that's probably one of our biggest frustrations, right? Because we're real estate guys. You know, I want people to think that we're very good lenders, but at the end of the day, we're real estate guys.
Hiten Samtani (07:26)
You're talking about the swimming pools.
Mike Comparato (07:40)
And so we'll step into an asset, we'll fix it, we'll fill it up, you know, and we'll liquidate it after the fact. it's mind blowing to me the condition that people will let some of these assets get into. And that's been probably the biggest shock of this part of the cycle is when we've had to step into some of these things. And it's just unbelievable how poorly they were maintained.
Will Krasne (08:03)
Speaking of pools, heard that someone was trying to open a pool for the summer this year and the RPM goes, yeah, when we bought it, the pool drains had been concreted over because they were leaking. So the pool hadn't been open in two years and the sponsor didn't even know.
Mike Comparato (08:21)
Yeah, it really doesn't surprise me.
I don't want to say it was bad behavior because you got to remember and I think you guys mentioned this about Sean and Ryan specifically who I think are two phenomenal human beings. Yeah, they made a lot of money for themselves. They made a lot of money for their investors and a lot of these syndicators made a lot of money for themselves and a lot of money for their investors. And so there's a part of me that understands, especially when you're younger, right? And you haven't had a 1986 yo tax moment.
You haven't had a dot com bubble. You haven't had a Lehman Brothers event where if you were 25 and everything you touch turned to gold for the first five, seven, 10 years of your career, you didn't know any better but to just keep going. And we started to see, you know, it was obvious the cracks at the asset level and the value level. And we had an investor call me. They wanted us to buy into a deal in Orlando and be the equity.
I think they wanted us to pay like 300,000 a unit for like a 19 or a 2000s vintage asset in Orlando. It traded for 125 in 2019. It traded for 200,000 in 20. And now you want me to buy it for 300 and you're legitimately showing me a pro forma that's selling this asset in 24 months for $425,000 a unit. Right. Yeah. Cause you had to show that number because that's the only way the IRR works.
Will Krasne (09:54)
Yeah, especially because this thing's, because I'm sure they're buying it tight, they're renovating, it's not cash flowing, so it's gotta be all on the exit.
Mike Comparato (10:00)
Yeah. And so I just said, please take a step back and tell me with a straight face that you think an asset that traded in Orlando, Florida, that has land forever in every direction, you're going to with a straight face, tell me that your pro forma is selling this asset for 425 in two years. And I was just like, we're out. We're just out. And just I kept hearing stories like I'm closing one every 13 days.
this one where the deal had sold and then doubled and then doubled and then they wanted to double it again. And I was just like, this is this is lunacy. It was just lunacy.
Hiten Samtani (10:35)
It seems like all the lenders are turning back to the loan docs, trying to enforce a lot of the PG's, bad boy carve outs. Do you think, did they know what they were getting into when they signed a lot of these documents or was it just like everything's rosy and we're just gonna do what we need to do to get financed?
Mike Comparato (10:52)
was guilty of this early in my career I had the same experience right everything I touch turned to gold and then Lehman Brothers happen. So when you've never been wrong you don't even think of the downside of recourse you just like recourse sure I'll sign recourse I've never had a loss of my life what's a loss even mean what's recourse even mean and now they're learning the hard way which is how we all learn is the hard way and every time someone asks.
any person to sign Reschcourse again, they'll remember for the rest of their professional careers, that actually means something. This is unfortunately how you learn this stuff.
Hiten Samtani (11:28)
I gotta ask you Mike about traveling HFCs if you've been following all the action in the Texas legislature. our last episode actually dives into that in detail. There is a retroactive component to the eradication of the traveling HFC now. My question is, okay, new deals, whatever, we know they're gone, it's over. Old deals and some of which you might have exposure to, like how do you even begin the process of unwinding something like that with this major legislative shock?
Mike Comparato (11:58)
The lender doesn't have to unwind anything until the lender takes over. we'll sit back and watch and see what happens.
Will Krasne (12:05)
gonna
say, there's also gonna be a period of a lot of legal battles before anything, so doing anything right now is probably... Yeah.
Mike Comparato (12:12)
Don't think this is gonna happen fast. You know, there's lawyers around the state of Texas that are just, you know, licking their chops for a spillable hour surrounding H.
Will Krasne (12:20)
V &E in Houston right now, they're all buying second homes.
Mike Comparato (12:23)
I really struggled with the HFC is from the from the beginning. We never underwrote the HFC. Okay. So we always under wrote, you know, full taxes. Or if we consider the HFC, we always had language in there that if it was repealed there, if it, if it went, you know, taxes went back on the tax rule.
Hiten Samtani (12:42)
Freddie has been doing that. The CNBS shops have been doing that as well, which is they have the clause where if the HFC exemption goes away for whatever reason, then the sponsor has to kick in more equity or do something to basically bring it in balance.
Mike Comparato (12:57)
It just frustrates me that that it ever came to be right, because it was like we had guys coming into our office and they're like, yeah, we're to put an HFC. It's going to wipe out the real estate taxes and we don't have to change our rent roll at all. And I'm like, that's not how this is supposed to work. Like, there's just no way that the municipalities in the state of Texas are just going to let you just wipe out the real estate taxes on your asset. Now, if there was.
actually a social benefit if you were actually going to provide housing to lower income families that couldn't afford it god bless that's fantastic like go ahead and make that help but to say that you're gonna keep your red roll identical your rents aren't gonna change at all no different people are gonna live there than live there yesterday but your real estate taxes disappear i mean come on that's that's not capitalism that's a lottery ticket.
Hiten Samtani (13:52)
Yeah, Will and I were talking about this last week. said, look, everyone knew it was a scheme and you kind of just went along with it as long as you could go along with it. But the fury and the backlash has resulted in a law that seems to many people as overreach.
Mike Comparato (14:08)
I'm
sorry you have to pay real estate taxes that some guy from another county or another city five hours away. Just took them off your tax roll I mean it's it's it's a joke it should have never existed in the first place.
Hiten Samtani (14:22)
Just to be clear, you guys never underwrote with the exemption for the loans you did. I mean, we...
Mike Comparato (14:28)
We under wrote it side by side, right? We would say, okay, this is what it looks like with the HFC. This is what it looks like with the normal real estate taxes, but we would never underwrite to a seven and a half debt yield based on the HFC reduced taxes. would be, you know, somewhere much more comfortable than that. And then have personal guarantees or hold back some sort of pay down or recourse from somebody if it got repealed.
Hiten Samtani (14:53)
Yeah, we called it a summer camp romance. That's what it felt like.
Will Krasne (14:55)
Yeah, you're you go from 120 LTV. You're like, this is fantastic invention. Of course, this used to exist and take it down to 80 and then they're back to 120. That's basically it.
Mike Comparato (15:05)
Look, being a syndicator. Right, I mean, you got to think of real estate as a business. And if you're like, how do you run a business without a balance sheet? These guys were raising capital that was like to the penny of a business plan. And there's zero balance sheet there, right? It's a it's an S.P.E. entity. There's no cash sitting somewhere else. There's no line of credit. There's no way to fund.
Hiten Samtani (15:07)
is tough.
Mike Comparato (15:34)
If there's any hiccup, like any hiccup in the business plan, the only way to fund that is to call 78 people, 90 % of which you've never met before and try to raise money to like fix problems. a bull market, you know, can make a bunch of money for people, but you know, when something goes sideways, how do you run a company or a property without a real balance sheet? And I will say some of these syndicators, they really did the right thing.
by trying to help their investors out and carry it through and get to greener pastures. And I really commend the guys that tried to do the right thing. Other guys didn't try to do the right thing. ⁓ It's a tough business. And we're starting to see kind of the new wave of syndicators that are correcting some of those problems, right? They're over raising, they're raising a little extra.
They're buying in the money caps for three years and capitalizing that cost. They're trying to make sure that the same mistakes that just happened don't happen again if if something zigs when it was supposed to say.
Hiten Samtani (16:46)
Let's talk about a new arm of your business, really exciting arm of your business with Newpoint. You guys are, I believe, closing shortly on the Newpoint transaction. This is a $400 million plus transaction that you bought from StonePoint, Meridian, et cetera. It makes you kind of a triple threat agency license holder, Fannie Freddy Hud.
Mike Comparato (17:09)
They're one of only 19 lenders in the country that have all three.
Hiten Samtani (17:13)
licenses. New point was a very hotly contested asset. I know that there were a lot of people in the running for this thing. So let's talk about it.
Mike Comparato (17:19)
Having an agency license is one of the holy grails in commercial real estate. We've been trying to get one for a decade. It's probably eight or nine years ago at this point, but we invited David Brickman in from Freddie when he was CEO. sat him in a conference room and I said, how do we get a license? And he just kind of chuckled. You can't get these.
Hiten Samtani (17:44)
People have tried different, like, know Blackstone is basically side-doring it by doing an alliance with &T.
Mike Comparato (17:50)
I
personally wouldn't use the word side dooring, but I think that, you know, there there's people that are entering into very legitimate joint ventures so that they have access to the agencies. But look, it was it's something that we've been trying to get. Just going back to your original question, it's been something that we've been trying to do for a decade. We've always kind of sold ourselves as a one stop shop. That was the one thing that was missing. There were a lot of large multifamily operators that, you know,
We just didn't bank at all. And it was largely because we didn't have that agency exit. And just since the deal was announced, you know, I've been in the offices of probably a half a dozen to 10 borrowers that are major, major sponsors. And there's a reason for us to have a relationship now. So I'm really excited about the opportunity. I think we are going to bring something to the market that literally nobody has.
It is a cradle to grave operation. You know, we can do construction lending, bridge lending. We've got the CNBS exit. We've got the agency exit. And on top of being able to come into an asset kind of at any point of its life cycle, we can go up and down the capital stack. So I think there's a value proposition to the multifamily market post the new point acquisition.
where we can literally walk into a borrower's office and say we do a bunch of stuff that the other guys can't or won't or don't understand.
Hiten Samtani (19:18)
I was talking to some lenders and I was asking about what else the other side benefits of the transaction like this. There's a $55 billion loan servicing portfolio that comes with Newpoint. I wonder if that was just a carat or is that like a core part of the reason?
Mike Comparato (19:33)
Part
of it. goal is to get this company trading at or above book value as soon as possible. One of the only ways to do that is to have capital light businesses where you're profitable without actually making you an investment. Now I say that we're making a $425 million investment. So we're making a very large investment in that platform, but it doesn't have recurring capital that has to be allocated to it. So you've got the servicing business that
You know, where do we go from here? Can we become a master servicer? You know, can we expand into capital markets and start doing servicing on SASB and conduit and CRECLO? Can we, you know, take that $50 billion portfolio and make it hundred billion, a $200 billion servicing portfolio? And that is just, that is just money straight to the bottom line.
Hiten Samtani (20:25)
So as you're going through this approval process, there's a major kind of shift in the kind of the broader picture of this agency lending where President Trump is talking about potentially privatizing Fannie and Freddie. So I wanna understand what that might look like for you guys.
Mike Comparato (20:42)
were
private before, know, being private again, I don't think meaningfully changes anything for them. It'll be interesting to just see how that all happens. I joined Bill Ackman on something where he went through, I think he's got a big position in water, yeah, that you know, and he got that one right as he gets a lot of things right. ⁓ And I think this is much to do about nothing. But remember, several presidents have been talking about
Hiten Samtani (20:58)
Yeah, pretty big thing.
Mike Comparato (21:12)
privatization of Fannie and Freddie. This is not an easy web to untangle. I'm sure it can be done, but I think it is probably infinitely more complicated than just the headline that's, we're just going to take them private.
Hiten Samtani (21:27)
To your point, Mike, I think a lot of the talk so far has been more vibe-based than specifics-based.
Mike Comparato (21:33)
We're going to support Fannie and Freddie And when I say we, the federal government, it is the backbone of the country, right? Is the mortgage lending apparatus that they have built over the last 50 years is just, you know, it's unbelievable. There's no way to kind of separate Fannie and Freddie from the federal government with that guarantee. You know, does that guarantee go from being implicit to explicit? There's just a lot of substance that needs to be figured out. And I don't think it will likely
happen quickly if it does happen, but I don't think long term there's going to be any meaningful changes.
Hiten Samtani (22:11)
Right now the license scarcity is such a big part of the reason you went for this, right? Does that have any impact potentially? Where if they're private, they say, yeah, we don't just have 19 or 22 licenses, let's go wider. Is there any risk to that? ⁓
Mike Comparato (22:24)
I
mean, there's risk to everything, but I think, you know, Fannie and Freddie, to my knowledge, hit their caps every year. It's not like they're not, you know, getting enough product from the licensees that are out there. So, you know, if anything, I think, you know, what's what's going on in the past few years with all these fraud findings, I think if anything, they're going to want to increase the institutionality of
the people that are originating loans for them, right? I we're a public company. We've got, we're, you know, a wholly owned subsidiary of Franklin Templeton, the fifth largest asset manager in the world. We've got an infrastructure in place and the policies and procedures in place and we're lenders, right? I wake up every day. I'm a lender. I'm not a broker. I'm actually taking risks with my balance sheet. I understand how that goes.
Hiten Samtani (23:06)
Yeah.
Mike Comparato (23:19)
I think they're going to want to see more institutional people that look like us and act like us being the counterparty on this stuff. So even if they were to bring more licenses out, I don't think it materially changes our opportunity with Newpoint.
Will Krasne (23:38)
So
your goal is to get this public company trading above book as quickly as possible. And obviously providing this broader aware of services is one way to do that. And especially with capital light, this is like servicing. But I think the other way is like right now, aura is one of the lowest costs of capital there is. And, you know, I think in this conversation, which has been phenomenal, like your communication style comes across, I don't feel like we're talking to the president of a public company. It feels like we're talking to like a real estate guy over a cup of coffee.
Hiten Samtani (24:07)
You've only said risk-adjusted returns once. Yeah.
Will Krasne (24:09)
There's a big difference to that. No offense to John Gray, but it's not like we're watching you do a running video on LinkedIn right now. And I think that's a way to sort of create aura is people feel like they're dealing with a real person.
Mike Comparato (24:24)
I'm selling a commodity that commodities money right so if everybody is selling black condos how do you differentiate yourself you provide better service I mean I hate to say sound so corny about it but just treat people properly and they're gonna treat you properly back now we'll fight too I don't like to
Hiten Samtani (24:46)
You are fighting, yeah. You're fighting as we speak.
Mike Comparato (24:48)
Unfortunately, sometimes we have to and I would say when we fight, half of it is because we have to fight. We have no choice that we need to fight. But I also want to let other lenders know and let other investors know, hey, these guys did this, this and this. You should know about that. Like, I think there needs to be a little bit of a policing of this of this space overall. Hey, these guys were our borrowers on these assets.
They let it go to hell in a handbasket. took rents. They did that. They stole this. Like that's information that I think people need to have because those guys will be out there raising capital again. There's no question about it. And I do want to prevent protect the little guy who, you know, might not know any better. And he's got, you know, 25 grand in the bank that he's worked really, really hard to get to that 25 grand. And he just gave 15 grand to a syndicator and it can go up in smoke.
Hiten Samtani (25:47)
And not even directly, right? He gave that 15 grand to a feeder fund who really doesn't have any legal recourse over the eventual syndication.
Mike Comparato (25:55)
And they don't know how to read the fine print. you've got guys out there making three, four, five point acquisition fees and taking the grass is green fee and the sky is blue fee and the construction fee. like it's like by the time you're done with all these fees, like if this guy breaks even, it would be a phenomenal outcome because he got feed to freaking death. And I don't think people were malicious. I don't think people did it with intent. There's not a lender on the planet that would have made alone. And there's not an investor on a planet that would have bought an asset.
If they thought the 10 year was going from 1 % to 5%, just period, hard stop, right? That was in no one's crystal ball. No one was calling for it. Everybody got it wrong. And it's really, really painful. So I don't want to add insult to injury, but if you're a borrower and you're upside down and you call us, you know, first is they, they, they pound their chest and say, what do you want the keys? And we're like, well, no, but.
We'll take them if that's the only option. after they realize that like I'm not Bank of America and I actually am fine owning real estate and we know how to operate real estate and we know how to liquidate real estate, they kind of, you know, back away pretty quickly. But look, the reality is one of the outcomes of lending on commercial real estate is occasionally owning commercial real estate.
Hiten Samtani (27:16)
My Comparato, we knew you were an unfiltered guy, because A, you told us, and B, I've seen your LinkedIn post for a long time. Our audience is trying to grapple with two things, right? How the fuck they get out of some of these situations they're in, and how they kind of look ahead, right? And I think you've touched upon both of those things, which has been fucked. I really appreciate your time, this was a ton of fun for us. Awesome.
Will Krasne (27:34)
Thanks so much.
Hiten Samtani (27:44)
Dude, he was so good. was so, it was, yeah, like he did not hold back. I was very thrilled to have him
Will Krasne (27:51)
Hope you sold me a LVL.
Hiten Samtani (27:54)
That's it for the Promote Podcast this week. Write us with your feedback at podcasts at thepromote.com. That's podcast at thepromote.com.
Will Krasne (28:02)
Write, subscribe, email, paint the side of your house even. That works. Only have you have good frontage.
Hiten Samtani (28:11)
And if you like what you're hearing and you want to get in front of our audience of CRE lenders, insiders, developers and allocators, please write us at partnerships at thepromote.com. That's partnerships at thepromote.com for advertising. Well, that was a hoot, man. Thank you.
Will Krasne (28:25)
Don't thank me, thank my comparato.
Hiten Samtani (28:28)
my comparato thank you and we'll see you guys next week
Will Krasne (28:35)
I was waiting for you to say ja-
Hiten Samtani (28:37)
Well, I say it in the end. I close this out. Ciao.