Adam Neumann, touched by God

“It’s a feeling,” Adam Neumann recently said of his new multifamily venture Flow 🧘‍♂️ And at some point, you have to hand it to the guy: it is indeed a feeling, a feeling of the mystical: This guy is just playing a completely different game than the rest of you. You break your back trying to extract every last dollar of value from your buildings, hoping that incremental gains eventually translate into big rewards; he doesn’t sweat details such as NOI and rate caps, and instead just goes raises more money.

Two Flow headlines dropped this week, within 24h of each other. First, Bisnow reported that Flow is in the midst of selling a stake in a 425-unit property in Atlanta’s tony Buckhead neighborhood to multifamily giant Cortland. The purchase was part of a 4K-unit flurry of acquisitions in Southern cities by Neumann-connected entities, totaling more than $1B – this is, mind you, top of the market, ZIRP-y heaven, financed by floating-rate debt. The Atlanta deal is in distress, sources familiar w/ the matter told The Promote, and it most likely means Cortland is stepping up w/ rescue pref capital, as this is also the tenor of discussions Flow is having w/ other operators on deals in Nashville & Atlanta.

But…does it matter? The second headline that dropped came c/o of Bloomberg, which reported that Flow has raised another $100M+ from investors at a $2.5B valuation, over double its previous one 😲 “I’m sure this is a company that we could take public one day,” Neumann said. “We don’t need to rush.”

Flow (Cont.)

There was a throwaway line in the Bloomberg story: “Executives expect Flow to be cash-flow positive in 2025.” This is par for the course in techlandia – high-growth startups aren’t under immediate pressure to be in the black – but in operating multifamily real estate??? It is NOT a mark of distinction to be losing money. In this, Flow’s shtick rhymes w/ Neumann’s previous adventure at WeWork: take what is essentially a lease-arbitrage real estate business, and put tech-company lipstick on it to secure an unreasonably high valuation. 💋

Flow’s backers on the new round incl. a16z, which previously backed the startup to the tune of $350M. That earlier investment wasn’t a straight equity deal tho; WSJ reported in ‘22 that a16z also took a stake in the multifamily portfolio as part of it. Which means: a16z now has a lot of underwater buildings it needs to sort out 🛟 . Besides the Buckhead tower, properties in play include Nashville’s 2010 West End Ave, sources told The Promote. The 358-unit rental has been bleeding cash and turned last year to crowdfunding platform YieldStreet to plug the shortfalls. Pref is the preferred route here too, but let’s see if investors can first get to loan value - a $121M mortgage on the property came via CIM. The other property Flow controls in Nashville is the 268-unit Stacks on Main, where Rialto issued about $60M in debt; the chatter is that too may be in play.

Inside Flow, ops are quite an adventure. The man calling all the shots and doing most of the dealmaking is a familiar face: Mark Lapidus, cousin to Adam’s wife Rebekah and former global head of real estate at WeWork. Flow has also cycled through several property managers, incl. 3 at the Buckhead property alone. But if you are Adam Neumann and can pull rabbits out of your mane whenever you need to, ops are secondary to vibes. It is, after all, a feeling. 😇 

Mexican Multi Machers Land in Midtown

The David Werner circle of life continues: The 🐐 dealmaker has been employing his playbook – sew up the deal, flip the contract at a girthy mark-up, retain a small piece of the action – w/ gusto across New York, taking full advantage of a depressed (single-malt buildings ™️ excepted) office market and the office-resi frenzy. The latest exhibit is 300 E 42nd St., where Werner went into contract to buy the property from Fortress for just over $50M ($220/ 🦶) earlier this year, per TRD. It was quite a fall from grace for a property that Somerset (Keith Rubenstein 👨‍🦲 ) & Meadow (Jeff Kaplan) had bought in ‘19 for $123M ($520/ 🦶 ), but handed the keys back to their lender Fortress in ‘23. Werner had no intention of being the end buyer, though: that distinction, The Promote has learned, falls to the Brothers Smeke, Sal & Alberto (piercing eyes both), members of the family that is one of Mexico’s biggest multi players 🇲🇽 The Smekes’ opco CSC landed a $45M acquisition/predev loan from Ran Eliasaf’s Northwind Group (all over NYC deals rn), and will look to convert most of the building into 135 rentals, tapping into the new 467-m program that incentivizes such projects. (The loan was brokered by Arrow Real Estate Advisors, one of a flurry of deals that makes our “Bettin’ on Betesh” piece prescient.)

The Smeke brothers have made some interesting bets in the US over the years: They partnered w/ now-defunct co-living startup 🪦 Common on a co-GP vehicle in ‘19, and recently attracted Jersey Shore headlines over their operation of a kosher eatery.

Jeff v. Jeff: Sutton Pursued Over PGs

A small but potentially radioactive conflict: After going to the mat w/ several rinky-dink landlords over loans it took over from Signature Bank, Jeff Krasnoff’s Rialto has opted to take on the industry’s answer to Jon Jones 🐘 . The firm is going after Jeff Sutton, seeking to foreclose on the retail titan’s property in the Flatiron District, and is looking to enforce a bad boy guarantee over Sutton’s alleged “misappropriation” of rents, per TRD. We’ll see if this case goes all the way – remember that Rialto went after Joe Cayre over a Brooklyn Heights deal, but promptly settled after Cayre bit back. We get deeper into sponsors (Carl Icahn) bringing the heat on Rialto in next week’s pod – subscribe on Apple here or Spotify here – but if you’re curious about how bad boy guarantees and other PGs work, check out our inaugural episode below – it focuses more on syndicators but should give you a sense of the mechanics 👇️ 

See also: A rare Jeff Sutton chat, reflecting on his recent Fifth Ave triumphs

StepStone Pips Goldman in Record Secondaries Haul

StepStone has raised a record $3.8B for its new CRE secondaries vehicle, per PERE, besting Goldman Sachs’ $3.4B haul for its fund last year. StepStone also picked up another $730M for separately managed accounts. The firm’s generally able to score a 15-25% discount to asset value on such bets, which help other managers recap properties, pay down debt or provide stopgap financing, but tariff uncertainty could make the valuation math fuzzy for a bit. The firm’s head of RE Jeffrey Giller made quite a statement on what geopolitics was doing to the biz, telling the publication that “we think of Europe [as having] more fragmentation and somewhat more dislocation, and the US [as a] bigger, more stable market. That may be reversing in this new world order.” 🌏️ ◀️ 

Quickies

• Related offers to more than double housing units in Hudson Yards casino proposal ♠️ 

• NYCB/Flagstar reports lowest quarterly loss since ‘23 (see also: Mnuchin - the White Knight) ⚔️ 

• Every single win SF’s new mayor Lurie touts here is a CRE win – the media should take the industry more seriously (We rant more on this on the Fort pod)

• Selig surrenders 2 more office buildings to lender Acore after $240M default (see also: Selig’s in the 🍜 )

• You don’t see the move in this direction much: Madison’s Ricky Braha jumps to Newmark ◀️ 

• Malorted: Inside a Brooklyn investor’s crumbling Chicago empire 

• 🤣 BlackRock sells a third of its stake in Paramount Group, after the latter firm has come under fire for undisclosed payments to CEO Albert Behler (also see here & here)

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