On Wednesday, we began the saga of Yitzchak Tessler’s 172 Madison Ave, a case study of all that can go wrong in the high-stakes ground-up condo game. Pt. I gets into the history of the site and the timeline until around ‘21 – be sure to start there if you missed it. Pt. II below - HS

V: ArcPe & the Double Schlimazel

‘22: DB declares the ‘18 loan to be in default. 

‘24: NPL sniper ArcPe, led by John Olsen & David Gordon, snaps up DB’s distressed debt in Jan. That summer, minutes before ArcPe was due to kick off a foreclosure sale, Tessler puts the unit into bankruptcy to stave it off. ArcPe “intends to fight this bad faith filing vigorously!” Olsen tells Bloomberg. Tessler's people, however, insist that the product is valuable and deserves better than a fire sale. Le Penthouse will now be chopped into 5 units (Les petit penthouses?) 👇

“There's an old saying in Tennessee — I know it's in Texas, probably in Tennessee — that says, fool me once, shame on — shame on you. Fool me — you can't get fooled again.” - George W. Bush

This week on The Promote Podcast, we ask the fundamental Q that everyone tends to dance around: Is CRE crowdfunding designed to attract the dregs? If you have a great deal that needs capital, why pay a vig to Crowdstreet/Yieldstreet/WhateverStreet instead of taking it to market yourself? We also chop it up on the $2.7B take-private of Soho House and the origin story of MCR’s Tyler Morse – what does it mean to be a “Barry’s guy”? Listen on Spotify here, YouTube here or Apple Podcasts here. Brands – to get in front of our devoted audience of CRE insiders, reach out here.

Thanks to PincusCo’s Ch. 11 sleuthing, we get a rare glimpse into the exact equity breakdown. 

In Aug. ‘24, another bankruptcy filing, this time by the entity that actually owns the unsold units – the previous filing was by an entity that owned a stake in this entity 🍜 🍜

Says Tessler on ArcPe: “a ruthless company — all they do is buy loans and foreclose.” The O/S debt on the property, he claims in court filings, is just $32.5M; ArcPe is demanding nearly double that, w/ Olsen saying that Tessler’s “had three or four years to sell everything and he’s sold nothing.” 

In response, Tessler says: “They can go fuck themselves.” 🍰

VI: Bills Bills Bills 💵 💶 💷

“I cannot even pay my credit card,” Tessler claims in court this Feb., pleading w/ a judge to unfreeze his bank accounts. The 🥶 stemmed from a separate dispute Tessler was embroiled in w/ Jack Terzi (haven’t heard that name in a bit! - real heads will remember 23 Wall) of JTRE, who says Tessler owes him $3.7M. Terzi was to buy a slice of the debt from DB, but was reportedly talked down by Tessler, who agreed to reimburse him his $3.5M deposit. Pressure to repay Terzi (there’s a judgment in his favor) now would rattle the in-process reorg plan, Tessler argues – he is, after all, the project’s special sauce.

“To get in my office, it takes a key,” Tessler says. “To get into my head, it takes two years.” 👏🫡🖖

The BK court judge doesn’t buy this. When Tessler’s being grilled about the project, the judge remarks that his “grasp of specifics was quite limited.” (Disses cloaked in courtroom garb are just 🧑‍🍳 🧑‍⚖ )

By May, Tessler meets ArcPe somewhat in the middle. He agrees to turn over 5 resi condos plus 2 commercial units, w/ Ryan Serhant (aha! See Pt. I 👆) tapped to sell the pads. For its part, ArcPe agreed to reduce its debt claim to $46M. Tessler said he’s looking for $35M+ in “exit financing,” to pay off the lender (along w/ the unsold units), plus settle fees and taxes, and leave him enough cash to finish his beloved penthouse units. Tessler would also kick in $3M personally to pay down fees. Time is ticking though - Tessler has until Aug. 22 to score the money, else the rest of the units go to ArcPe as well. ⌛

He can’t pull it off. By July, Tessler tells ArcPe he failed to land the exit financing – a last-ditch attempt to line up LA developer Wylan/James as a guarantor on the refi (terms: Wylan/James would receive all proceeds from PH sales up to $10M, and 50/50 split the rest w/ Tessler) did not take. In Aug., a federal court judge confirms the reorg. Tessler will turn over all the unsold units, incl. the penthouse. ArcPe will kick off sales for the units after LDW. 

“Mr. Tessler has burned up all of the goodwill he possibly could have had,” ArcPe’s attorney Jason Nagi said. “It’s time to move on.” 🕊 🎬    

*Acknowledgements: Want to s/o some impressive reporting from TRD’s Jake Indursky throughout the BK proceedings - his stories were v helpful here 🫡

🎗 Be sure to check out some of The Promote’s other series

Don’t you dare call office REITs boring. Paramount Group, which has 13M sf of office in Manhattan and SF, has given us a lifetime’s worth of telenovela delight in a matter of months – nepo perks, etch-a-sketch governance, management shake-ups, SEC investigations, even an ex-lover text chain. Amid all this, the REIT has put itself up for sale (BofA Securities handling), and TRD now has some deets on who’s bidding: SL Green & ESRT are among the local lads in the mix, along w/ Blackstone, DivcoWest (in partnership w/ DXB’s Saray Capital, already a 5% Paramount owner), and Rithm Capital (the asset manager was vying to buy agency lender NewPoint earlier this year). Bidding for the firm has now reached the 2nd round. Will the winning bidder toast w/ wine from Behler’s vineyard? 🍷

Economic impact studies seem like such a wonderful business. A city wants to pump billions into a hella complex and oft-boondoggle-y project like a convention center redevelopment, but needs some cover w/ taxpayers. So they hire a consultant to figure out how beneficial it’ll be, and the consultant comes up w/ a nice big number - $20.6B, in this Houston example. Then comes the press blitz. “One of the reasons we commissioned the study was to determine whether the design for the expanded convention center was what our clients were looking for,” Houston First CEO Michael Heckman told the local BJ. This bit from the story is pretty remarkable:

Regardless, the projected $20.6 billion return on the new convention building is pretty remarkable, Heckman said, given that the first phase of the project is expected to cost $1 billion.

That story w/ the headline number gets picked up unchallenged all over the place, and even jazzed up further – see here “Houston’s $1B convention center bet predicted to pay out $20B”

The takeaway: If you tell people what ROI will be, they may/may not believe you. However, if you commission a study… 👩‍🔬

Chesky Brach’s CSB Holdings is on an office bargain-hunting spree. The Brooklyn lad, son of Signature Acquisitions’ Abe Brach, just closed on a nearly 700K sf tower in Philly for a mere $68 / 🦶. Brach beat out a flurry of other buyers by slapping down a ≈ $5M hard deposit, per deal insiders, and partnered w/ Aaron Loeb’s Tide Realty Capital out of Baltimore on the deal. And there’s another one in the works: The Promote can confirm a Pittsburgh Biz Times report that Brach is closing in on the acquisition of the 500K+ sf Liberty Center for just over $50M (≈ $100/ 🦶 ), another big 💇 from the $98M owner CBRE Investment Management paid. Brach is acquiring both the office building on the site and the 480-space parking condo, per deal materials, and has tapped Morris Betesh’s Arrow to help it land $14M in financing for the parking deal. Sounds like he’s already got the office funding lined up.

Favor: We’re soon launching a premium tier w/ exclusive content - The Tessler story above gives you a flavor of the kind of thing to look forward to. What else would you like to see? Help us understand by filling this out. The Promote is for CRE insiders only, so we want the product to be informed by you. 🙏

Programming note: We’re off Monday for LDW. Have a wonderful long weekend, and we’ll see you back here Wed. 🎆