Magical realism isn’t just for García Márquez or Rushdie – the real estate industry has its fair share of it too, most notably in the field of valuations. How much a property is worth is a murky cocktail of comps, rent rolls, and, importantly, vibes. We’re seeing this manifest in Fortress’ dispute w/ real estate scion Charles Cohen, over a half-billion dollar default that led to what’s thought to be New York’s largest-ever UCC foreclosure (Catch up here & here or on the pod here). Fortress is now looking to collect on a staggering $187M in PGs 🫢 and is accusing Cohen of dodging it by transferring plum assets to his wife. But Cohen, in an impassioned affidavit, is having none of it – he insists that his equity in his buildings is more than sufficient to pay Fortress back. (It all reminds us of the iconic Latour 57 scene in The Saint.)

“The industry writ large was not institutionalized back when Sam Zell was running around or Barry Sternlicht was buying apartments with cashier's checks at S&L auctions.” 🐮
“He got ZERO jail time. 5 Years Probation. And a $250,000 fine. My Yiddish is mediocre, but that’s bupkis.” 🍹
“When you're in that store, it's about you selling to the highest end customers. But it also means that your competitor can't, because this is a zero sum game.” 🤺

Elsewhere, you’ll hear about “risk-adjusted returns parameters.” 🤮 On The Promote Podcast, you’ll hear about how Carlyle’s tank-like head of CRE Rob Stuckey 🥋 is deploying his massive fund in bite-sized chunks of Brooklyn walk-ups 🪜, stitching together a tax-advantaged portfolio that’s now out for a $500M+ refi. We then examine mortgage fraudster Barry Drillman's get-out-of-jail-free card, a feat of game theory and cooperation with the feds. Next, we hit the retail battlefields in the war between luxury leaders LVMH and Kering, handicapping their race to snap up the world's most coveted corners (and hotel chains). Finally, we head north to the TSX to riff on Meyer Orbach & Josh Gotlib's attempt to IPO a prime Manhattan residential portfolio.

Listen on Spotify here, YouTube here or Apple Podcasts here. If interested in advertising, hit us up here. And please, go tell Prof G to have us on to talk CRE – there’s a dire need for real talk in this space.

“During my tenure as a business person, I have never failed to make good on my financial obligations or the financial obligations of my businesses,” Cohen said (h/t Crain’s). “I have not, nor do I intend to, dissipate my assets to evade a judgment.” The above graphic 👆 gives you the sauce: Citing Fortress’ own appraisals on his holdings, Cohen says that his net equity in just 4 buildings is just shy of $350M, nearly double his PG. Using his own calculations (“which are more up to date and accurate”) that net equity is $388M, more than double his PG. Hence, he should be free to transfer his “maritime assets” (yacht SeaSense) to the missus, as well as his Greenwich mansion.

It’s hard to get to where Cohen is at, though, given what’s playing out in the market. Take 622 Third, which he’s valuing at $600/ 🦶 – this is a building struggling to fill space at asking rents in the $60s/🦶. Or 805 Third, which per Moody’s is underwater on its $275M debt and is just over half occupied, down from 92% in ‘19. All these holdings are in prime locations, sure, but are exactly the kind of properties that need heaps of Capex and TIs to get them to healthier occupancy levels. A more clear-eyed assessment of his equity interests might yield a v different number 🍷🎥

Benefit Street Partners announced the closing of its $425M acquisition of triple-threat agency lender NewPoint, and we wanted to remind you of a couple o’ three things: We recently had BSP’s Mike Comparato walk us through his plans for NewPoint, from “cradle to grave” lending solutions & mortgage-servicing rights, a really fun inside-baseball chat that starts at 16:45. Also, now that the deal has closed, the Meridian Capital Group rainmakers that co-invested alongside Ralph Herzka & Stone Point to acquire the license and help stand NewPoint up – The Promote was told the all-in investment was in the low $200 millions – are wondering what their payday will look like. Will they get to realize the 2x-ish upside?

California has neutered one of NIMBYism’s most powerful weapons, an environmental law that has torpedoed or delayed countless projects across the state since 1970. Gov. Gavin Newsom pushed the state Legislature to reform CEQA (can you believe it!), waiving the law on practically any proposed low/midrise project in urban cores zoned for multifamily. “The world we invented has been competing against us,” Newsom said, per this terrific LAT analysis. “We have got to perform.” What this means, per the paper: “No more thousand-page studies of soils, the shadows the buildings may cast and traffic they may bring. No more risk of CEQA lawsuits from angry neighbors.”

CEQA masqueraded as an environmental-impact law. But in practice, it morphed into a “death by delay” tactic ⏰ 💀 employed by anyone opposing new projects, ranging from community organizers to CRE players who don’t fancy a rival project popping up – notably, billionaire developer and longtime CEQA critic Rick Caruso used CEQA to stymie Hackman Capital Partners’ Television City 👏 📺 .

California still has heaps of barriers to overcome to build sufficient housing for its needs – labor, rates, material prices, tariffs, take your pick – but beating back CEQA is a HUGE win. At the very least, it gives builders hope that the state isn’t waking up in the morning to torture them. 🌳

For all the things Related Cos. will be goated for, its ability to de-risk its gigantic development projects is easily top of the list. Other firms also build big stuff. But no one has mastered the ability to take chips off the table through equity partners, city/state/federal funds, tax breaks, & office & retail condo sales quite like Related. The latest: New York’s City Council unanimously passed a payment-in-lieu-of-taxes (PILOT) model to fund a $2B platform to be built over the western portion of Hudson Yards. In exchange, Related will designate 625 of the 4K apartments set to rise as affordable, upping the initial number by 139. Related CEO Jeff Blau described the deal as a “historic moment for New York City,” but it’s also one for his firm. The site is where Related had proposed a casino 🎰 in partnership w/ Wynn, but folded its hand on that component in exchange to get what it really wanted, which was the public funds, argues TRD’s Erik Engquist in a canny column. “Related’s leverage was the ability to leave the site idle,” Engquist writes, “with no affordable housing, no billions of dollars and no 35,000 union construction jobs.” Add the PILOT triumph to other de-risking moves at HY, notably:

•$550M for Neiman Marcus space at 20HY to Wells Fargo
•KKR, Wells, Time Warner all own their offices at 30HY
•Coach paid $750M for its spot at 10HY, later bought by Allian
•Mitsui Fudosan took a 90% stake in 50HY during development
• KKR bought HY observation deck for $500M

In this maneuver, Blau showed shades of his mentor & fmr. boss, the 🐐 Steve Ross.

Kushner Cos. has scored a $515M refi from Blackstone for the 1,700+-unit One Journal Square megaproject in Jersey City, per CO. The new debt (Newmark-brokered) retires a $385M sr. from AIG and $130M mezz from Related. It follows news last month that the 2M sf project scored federal approval to tap a new EB-5 vehicle that allows petitioners to kick in just $500K upfront, and finance the rest ($300K to hit the $800K min threshold) through a partner lender.

Programming Note: The Promote is off this coming Friday & Monday. We’ll see you back here this time next week – Happy Fourth to you! Watch this to get fired up. 🎆