Chatter from inside the hallowed halls of 125 Park is that there’s an announcement forthcoming from Newmark re. leadership 🫡 Word is that Kyle Lutnick, Howie’s elder son, could be prepping for a more front-facing role; he’s been on the board since Feb’ 25. Kyle (29/30), alongside his brother Brandon, has been in charge at Cantor Fitzgerald (Howie’s holdco that effectively controls Newmark through Zuck-esque voting shares) since last May, after Howie divested as part of becoming Commerce Secretary. Newmark’s Q1 revenues were a record $847M, up 27% YoY, w/ capital-markets revenue up 46%. It’s a more interesting shop nowadays, w/ tons of juicy I-banking-esque action and a burgeoning data-center practice, so makes sense that Kyle would want to partake. His prior experience includes working as a retail broker at Newmark and a stint at Knotel, the bankrupt co-working firm which Newmark took control of via the debt. (He also rapped as Kxtz)

CEO Barry Gosin, 75, got a nice pay bump (to $17.5M) in ‘24 as part of a contract extension thru ‘26. His contract is on auto-renewal unless either party gives notice or the term is otherwise extended, but Newmark did retain an executive search firm for succession planning last summer. More on this all soon, we’d imagine.

This week on the pod, we go off-piste to bring you a special episode on JMB Realty Corporation, one of the most influential firms in the modern history of CRE, with a playbook and an alumni network that continue to shape the industry today. You could argue that if JMB didn’t exist, real estate syndication would look very different today. M&A would look very different today. Hell, even the Heavenly Bed wouldn’t exist. From its beginnings as a gleam in the eyes of Neil Bluhm, Judd Malkin and Robert Judelson to its status as the powerhouse firm of the 80s and its legacy as the firm whose alum birthed Starwood, Blackstone Real Estate, Northwood and scores of other big shops, we explore it all.

💗 to our sponsors:
1) Bravo Capital, a leading HUD & bridge lender. Read their SNF primer here.
2) Real Property Captive, the first group captive insurance for mid-market GPs. See how you can earn dividends on unused premiums like the industry’s biggest players.
3) LoanBoss, the industry-leading debt management software. Featuring one-click covenant testing, instant cash flow forecasting, and our live forward curves!

Listen on Spotify here, YouTube here or Apple Podcasts here.

It’s happening: AvalonBay & Equity Residential have agreed to a merger that will create the country’s largest multifamily owner by far, at ≈ 180K doors. The firms are billing it as a “merger of equals,” though it’s AVB’s Benjamin Schall who’ll run the combined firm, w/ EQR CEO Mark Parrell set to retire after the deal closes. In anticipation of this mega-marriage of convenience, The Promote broke down the implications of a potential deal earlier this month, when the news first surfaced, and, of course, tackled the topic on the pod too 👇 (Also from today: A hint at how the industry will defend this merger against potential objections)

On Wednesday, The Promote hosted our 2nd installment of In Conversation, our series of Insiders-only longform chats w/ those making a dent in the CRE business. Our guest was Naftali CIO David Hochfelder, who along w/ firm founder Miki Naftali is driving some of the country’s most ambitious resi projects. David got candid on everything from scouting the country’s most coveted sites to changing capstacks and the dangers of bad policy. These chats are exclusively for Insiders, but decided to give everyone a taste this time. Here’s Pt. I of our conversation, we’ll drop Pt. II next week.

You’ve been at Naftali about a decade now. As the firm has grown, so has your mandate. I’m curious about the process of gaining credibility in a firm over time – was there a particular deal that put you on the map? 

My mandate was pretty tall: I replaced the CIO & the head of acquisitions, so I was restarting the investment team from scratch, hiring people before I even started. 

The foundation of my relationship with Miki is that we share a worldview on risk. Neither of us believes in swinging for the fences in terms of excess leverage or financial engineering. That alignment made things a lot easier, but that’s not enough to build trust – trust is built deal by deal, process by process, crisis by crisis. We’ve grown a lot. When I joined, our cumulative development assets since inception was ≈ $1B. We closed double that in the last quarter alone last year.

The Benson was definitely a test as my first project. It was the first new ground-project on the Gold Coast (Park to Fifth, low 70s to mid-80s) of the UES in decades, so the thesis hadn’t been tested. Miki’s been prolific, but one of the only neighborhoods he had never developed was the Upper East Side. This site happened to be around the corner from where I grew up. The execution was anything but straightforward. It took 11 separate transactions to assemble the site, 6 different sellers, all very difficult. Just to close on the land was a 2Y campaign, and we started selling in the middle of COVID. A lot of things went wrong, but it worked out because we leaned into problems and figured them out together.

Give us a sense of the scale of the Williamsburg Wharf megaproject. You’ve just closed some big financings on that.

A multi-phase, mixed-use development, about 4 acres on the waterfront. As crazy as it sounds, up until we closed on it, it was operating as a lumberyard on some of the most prime real estate in all of New York City. That deal took us 2+ years just to sign a contract. It was a complicated structure with very difficult sellers that had varying priorities. We ended up effectuating the contract signing via rabbinical court. Both sides of the families had to force each other to transact. It was not capitalism, or logic, or lawyers, that the seller groups ultimately listened to — it was the rabbi.

This pops up over and over on high-profile family-owned sites. There are the financial elements to a deal, and then there’s understanding the intangible levers – a frustrated brother, warring factions etc. [See also: Miami’s Abuelagate - fascinating case playing out w/ David Martin’s Terra Group.] Did you realize how big a deal navigating stuff like this would be for what you do? 

If I knew what I was signing up for on every deal, I might tread more cautiously. But ultimately, a lot of the value we create is in structuring the buy. There's a lot of brain damage to get to a really good buy. That's the nature of the business, so it is what it is. We signed the contract, we signed it at a good price, then when we were moving to close, it was May 2020. Not a good time to close on a 1.5M sf development site. The broader market probably thought Miki and I were smoking something just for even wanting to close the deal, but on top of that, [at that time] we focused enormous effort on vocalizing our view about New York and how important it is. We wanted to celebrate little wins, big wins, and everything in between.

Closing that deal, piecing things together between our equity partner, lender, the sellers… everything was hanging on by a thread, and we are doing this without having seen each other in person for months. But when all was said and done, we bought the site for 50 cents on the dollar, so that conviction paid off.

Let’s talk 800 Fifth Ave, probably the “it” development site in Manhattan today. You paid north of $800M for thing, so it has to be a moonshot – if you buy a site at that basis, you have to really, really go for it. We saw estimates from your new dev team that prices could blend at $11K/ 🦶 Say what you can about going for it at that level. 

We keep a running list of the most important pieces of real estate in each of the markets that we operate in. It’s not a long list. Ownership, capital stack, loan maturity, encumbrances, every detail. And it's not because we think they're going to sell, but it's so that if they maybe sell, we're way ahead of the curve. These kinds of deals tend to be kind of a blood sport – there's a finite number of them in a given decade. And when they surface, every serious player comes out, and it's winner-takes-all.

The question isn't just whether you want to win it, it's whether you can win it, whether you should win it, where your stopping point is. For 800 Fifth specifically, I'd been pursuing a deal with the sellers for 20 years. I know one of the sides of the family, I'd been approaching them, I’d say, once a year. The timing was never right. But patience played a big role. And when they brought it to market, which was frustrating at first...

You were hoping to score that off-market.

Hoping to, but I wouldn't expect something like that to sell off-market. They usually don't, unless there's a very hairy detail to the transaction. So when I got the call from Adam [Spies] and Doug [Harmon], I knew why they were calling. I was ready. We had an equity partner committed before it even went to market.

There's people that say we overpaid. I couldn't disagree more thoroughly. This'll be the third new park-front development in over half a century. The other two, 220 CPS and 15 CPW, happen to be the two most successful residential projects in New York history. And our site's in a much better location on the east side, where people want to live. This is the single highest conviction investment I've made in my career, full stop.

📺 Next week: Pt. II of the chat

Programming note: We’re off Friday 🧀 🍰 & Monday 🪖🇺🇸 Insiders, we’ll see you here on Wed. 🙏