San Francisco is such a fascinating city. On the one hand, it's kissed by God and despite its pocket size is the co-epicenter of the modern economy. On the other, it is also the epicenter of some of our most misguided liberal policies, policies that have resulted in an utter shit street-level experience. (Hit me with stats all you want, but try walking around the Mission at sundown).

That splitscreen dynamic makes for one of the more perplexing major real estate markets in the country and has created, as the broker bros like to say, “generational buying opportunities.” We’ve broken down a couple here, such as Newbond/Conversant’s hotel heist, and have explored the live-ammo Monopoly playing out on the multi side. But it was time for a broader conversation on the city’s CRE dynamics, so The Promote sat down with K. Cyrus Sanandaji of Presidio Bay Ventures. Cyrus made some prescient bets on SF when most capital and players had written it off, and as the market is finding its new normal, Presidio Bay has become one of the more active basis-resetters – it’s now the operator on 650 California, one of the prime assets in the CXP portfolio that just went through a restructuring for the ages (We broke that saga down in detail for Promote Insiders 🔒 ).

Cyrus talks through doom loops and boom loops, capstack-sniping, and how you cater to an AI industry defined by hypergrowth and extreme volatility. Something that jumped out to me is how much airtime he devoted to SF’s political dynamics. 👇

Here’s JP Conklin talking through the launch of LoanBoss AI, a new platform that combines the firm’s deep CRE expertise w/ all the potential AI has to offer: “No longer will a vendor and a customer have a discussion around, ‘here are the features that you want us to build, let's talk about how we're going to build them.’ Instead, it’s now: ‘We are structured data with real estate expertise and the rules & governance around that, and then you just plug in your imagination and make your data do whatever you want.’” From covenant testing to stress scenarios to mortgage-statement reconciliations, book a demo here to understand just how far your questions can take you.

“One of our biggest problems was that the business community was completely apathetic leading into 2020 and just not engaged with the political process at all,” Cyrus says. “Post 2020, there was a seismic shift - COVID and the experiment we had with the last DA fundamentally changed it.” A snippet:

I was bummed you guys walked away from the [San Francisco Centre] mall. That was a fun one.
Sometimes the best deals you do are the ones you you don't do. We had the entire capital stack lined up after 8 months of pursuit and diligence and a tremendous amount of capital and time spent. We had this vision to turn it into something akin to the Penn District, a 4,000-5,000-person music venue within the building. And we had the tenant for that. About 800K sf of the 1.5M sf would have been office. But the fundamental structure of the deal, because a third of the site was sitting on a ground lease with the school district, was going to be the Achilles heel: Had everything gone perfectly, but for this ground lease, when it came time to reset the rent in 2031, our biggest concern was that for the $100M of capex we were going to put into just that office portion, when it came time to doing an appraisal to figure out the residual land value, we would’ve gotten disproportionately impacted, by virtue of the capital we ourselves put into the deal and the revenue we created by leasing that office piece.

Basically, it would boost your FMV to such a level…
To such a level that it would have nuked our NOI, and the school district would have been the direct beneficiary of it for not having taken any of the risk. And so we could have wiped all of the value we created. It was this sort of unfortunate just structural issue with the legacy ground lease from 40 years ago.

If you look at what happened at the Chrysler or some of the other RFR deals in New York, you have reason to be cautious.
Those ground leases, especially with public related, public agency related counterparties, for as well intentioned as their administrative team is, and they were very productive in in discussions, but then try to go and convince a school board, an elected school board, who have no business understanding any of the complexities of what a ground lease entails, that you have the need to do this. This school board may have said yes. But it was going to take too long and unfortunately, the servicer, Midland, shot the bondholders in the face by not giving us the time to solve it. We were on the path to solving it. They just wanted us to put up an unreasonable amount of nonrefundable money. We made the tough decision to walk. On to the next one.

Listen to the full interview on The Promote pod: Apple, Spotify, YouTube

The Promote has been ALL over the SNF world over the past year or so – to us, it’s this irresistible combo. of capital, characters, and M&A battles, plus the end-user stakes are higher than just about any other asset class. That final point also means that SNFs get a great deal of (deservedly so) political and media scrutiny, and some of the shadier operators are at higher risk of getting dinged. The US Attorney has announced a settlement w/ RegalCare, its owner Eli Mirlis and exec Hector Caraballo, over allegations that NJ-based RegalCare overbilled Medicare and Massachusetts Medicaid for unnecessary services. Per the settlement, “Mirlis also directed RegalCare’s billing company to submit claims for patients before the patients’ assessment forms were even finalized in the billing system.” 👏 Meanwhile, the Boston Globe just dropped an investigation into Mirlis’ practices across Massachusetts, detailing his rapid statewide expansion and his penchant for gutting budgets and slashing staff. Here’s the Globe:

By 2025 at the Taunton facility, for example, RegalCare was spending about $530,000 less on nursing services than the previous owners, records show. That same year, his real estate company charged the nursing home rent of $522,000, a bill more than four times higher than before he took over.

As Mirlis grew his business, web pages bearing his name claimed educational credentials he didn’t have. These include degrees from Fairleigh Dickinson University and “Yeshiva University’s Stern School of Business.” Fairleigh Dickinson told the Globe it had no record of Mirlis being a student there. Neither did Yeshiva University, which does not have a Stern School of Business. (New York University, which does, also found no records of Mirlis attending.)

The report shows how many formerly 5* SNFs saw their ratings plummet after Mirlis took over, and how they racked up hundreds of thousands of dollars in fines. Despite this pattern, the state’s public-health dept. has not denied a single acquisition application by RegalCare in at least 7Y, the Globe found. “We owe the families who trust us and who are putting their loved ones into these facilities,” Mass. Health Commissioner Robbie Goldstein said in response. “We have to do better to maintain the quality and safety standards.”

PS: The Globe also IDs a couple of well-known characters from The Promote Cinematic Universe as Mirlis’ investors in Connecticut: Benjamin Landa, who President Trump nominated as his ambassador to Hungary; and Jacob Sod, the brawny dealmaker you’ll know from our coverage of the Genesis case & the Mark Nussbaum affair.

See also:
1. The Nursing Home Power Roster
2. SNFing out Megadeals
3. Ranking the Top 10 SNF Markets

Fmr. Naftali exec Victor Sigoura has become one of New York’s buzziest developers through his Legion Investment Group. Backed by the likes of SY royalty Eli Gindi and Nahla Capital (Genghis Hadi’s shop, invests Middle Eastern money), Legion has been doing the same kinds of deals that Naftali built its shop on – complex assemblages for sites where monied New Yorkers can be convinced to pay top dollar. Sales at 1122 Madison have been killer, he’s completing a West Chelsea condo he bought out of distress, and he’s set to build what should be Gramercy Park’s most significant development in years.

With all that juice and willing capital, why stop there? Sigoura’s now tied up a deal for a 300K sf resi project on 84th/Third, landing a $99M loan from BDT & MSD Partners & DB. His partner on the project is a longtime fixture on the development scene: Great Neck striver Samy Mahfar of SMA Equities, who started putting together the site nearly 20Y ago. Mahfar, backed by another son of Great Neck David Moussazadeh, has popped up over the years on various projects in the East Village, Gramercy, and Long Island City. His firm reached a settlement in ‘17 w/ the NY AG over allegations that it harassed rent-stabilized tenants.

It’s a fun time to be Sigoura: Once you’ve established yourself as the go-to guy for a particularly kind of high-risk, high-reward undertaking (Manhattan ground-up in this case), more and more stuff manifests.

One of the lenders at the center of the made-for-HBO federal bank fraud case that rocked the CRE capital markets has been seized by California regulators, the sixth U.S. bank to go under this year. And while Nano Banc was, in the grand scheme of things, a piddly bank, it punched well above its weight in controversy, featuring prominently in one of the maddest mishegas we’ve seen in the CRE business. Insiders: Read on 👇