The most sensational of hotel trades in the recent history of San Francisco – a heist that brought together an Ocean’s 11 of characters from across hospitality, special servicing, politics, brokerage and the underbelly of the capstack – was catalyzed by a single statement thick with corporate doublespeak.

"After much thought and consideration, we believe it is in the best interest for Park’s stockholders to materially reduce our current exposure to the San Francisco market," Thomas J. Baltimore, Jr., CEO of Hilton spinoff REIT Park Hotels, said in June ‘23. Translation: That girthy $725M CMBS loan backed by 2 of the city’s largest hotels? We ain’t paying it.

That decision to walk away from the Hilton San Francisco Union Square & Parc 55 has culminated, almost two-and-a-half years later, in an upstart firm w/ serious hotel chops and its well-funded backer taking control of 3K 🗝s in one fell swoop. That is ≈ 10% (excl. SFO-adjacent stuff ✈) of the city’s hotel stock, at a time when SF is decidedly getting its groove back. But how did Newbond & Conversant make it happen? And what does the deal look like on the back end?

Let’s break it down. This account is based on conversations w/ several deal insiders, who requested anonymity to share the kind of deets The Promote’s readers live for👇

Promote Insiders got a vivid illustration Wednesday of the oxymoronic maxim that “lending is hard,” when we took a look at Starwood rethinking its efforts to fill the regional-banking void. If this and other market-moving breakdowns (inside a live-deal capstack!) sound like your jam, try premium for a fortnight free and read it here.

Hulking CMBS distressed deals are like supertankers 🚢 – turning them around takes a while. A few months after the Park bombshell, bondholder rep Wilmington Trust successfully sued to place the hotels in receivership. The courts tapped Michelle Russo, a hospitality-focused AM & consultant, for the task. The r’ship between a receiver and bondholders can get testy, as bondholders are antsy to get paid back ASAP while a receiver – Russo was getting paid $32K/month ⏳ – might want to go through an extensive process.

Russo “had a bit of a God complex,” said one deal insider. Her task: Sell these things in 11 months, else they’d head to non-judicial foreclosure. In June ‘24, Russo brought in Eastdil Secured to handle the sale, w/ the firm’s natty Louis Stervinou running point. Russo and JPM (originated the CMBS) also secured an 8-month extension for the sale assignment.

Enter Newbond. Principals Neil Luthra & Vann Avedisian knew the assets well from their long tenure at the Khimji Bros.’ Highgate Holdings - hotel heads will recall that Highgate & Rockpoint bought Parc 55 in ‘06, and after it fell into distress Blackstone took a majority stake in a ‘12 rescue recap 🛟 ; the partners then sold it to Hilton in ‘15. Newbond had add’l juice w/ Hilton; it’s overseeing the reno of the Hilton Anaheim, co-owns the Hilton Times Sq. w/ Apollo, etc. When Stervinou indicated that a structured solution would be how this would play out, Newbond began talking w/ a guy who dreams 💭 in structure: Mike Simanovsky. Luthra & Simanovsky had connected when the latter was an edgy hedgie at Senator. He then founded Conversant, where his playbook (check out our pod on the Sonida-CNL deal) is concentrated bets underpinned by a definite thesis. Newbond pitched him on theirs:
1) SF, still a pariah to most investors, was poised for a comeback 🪃
2) They ain’t building big-box hotels like they used to, so taking over something like this and restoring it to past glory could reap outsized rewards.

Simanovsky bit. The exact partnership split here couldn’t be determined, but Newbond typically puts in between 5-10% of the equity and runs point, per sources familiar. Conversant, meanwhile, is generally the 🦁 ‘s share of the money, typically using their fund to take down a deal and then backfilling it w/ outside investors. Both Newbond and Conversant declined to comment. Early in the process, Mayor Daniel Lurie, who seems to get that CRE wins are highly visible wins for the city as a whole, met w/ the buyers and gave them confidence in the bet they were making.

In summer ‘24, KBRA valued the hotels at just $554M, a staggering $1B+ drop from the ‘16 appraisal at the time of the CMBS financing. So we had somewhat of a hint of where bids might end up. In Dec. ‘24, Newbond/Conversant were selected as the “prevailing purchaser,” per a receiver declaration in court filings. Joining them was Witkoff, Steve Witkoff’s eponymous development shop. But at some point Witkoff dropped out, w/ sources saying it was a combo of a too-full plate w/ Miami/NYC initiatives & Steve’s role as a roving POTUS envoy. Given the long lead time on such a deal, the buyers gained conviction as they watched SF’s rebound (here’s a sweaty Jon Gray telling you all about it 🏃), buoyed by the AI boom and a pro-business mayor. “Imagine the benefit of watching a market for a year before you close,” one deal insider said. “And we hadn’t moved on price.”

So, to the price. Newbond/Conversant are paying $408M, or $136K/ 🔑. But it’s not like they’re forking that over – rather, the $725M O/S debt got slashed down to that $408M, which they’ll assume for a 5Y term at sub-4% interest, per sources, and the partners will kick in an add’l $225M in equity for the renovations. So their all-in basis is ≈ $211K / 🔑 In exchange for the below-market debt assumption, the buyers will kick 25% of the profits above a hurdle (15-20% let’s say) to bondholders.

If it sounds hella complex, that’s because it is. To shepherd them through the process, the buyers enlisted an OG: Robert Verrone of Iron Hound Management. Verrone & his colleague Job Warshaw, who previously ran special servicing at industry behemoth LNR, were fluent in bondholder patois and knew how to tango w/ several stakeholders at once. And there was some drama to contend with: Initially, the special servicer running point was Wells Fargo/Trimont, and Newbond/Conversant had the contours of a deal w/ Wells. However, AAA bondholder Pimco had issues w/ Wells on another workout deal, and this spring successfully lobbied a supermajority of bondholders here to replace Wells w/ KeyBank, according to multiple sources familiar w/ the matter. There was also back-forth about how to handle the servicing advances, who’d be on the hook for Hilton’s management fees, etc. But eventually, “everyone swam in the same direction,” one insider said.

The sale closed in mid-November. Now, for the paydays 💰
• Eastdil gets $1.25M, per court filings (since restructurings are by definition from a point of pain, the commissions are less generous than one might think)
• Receiver Russo gets $424K, per court filings
• Iron Hound gets sign-on fee & success fee (undisclosed, declined to comment)

Newbond/Conversant expect to wrap up the renovations in 3Y. If SF keeps climbing and they find a buyer at, let’s say, $800M ($270 / 🔑 ), that’s a hefty MOIC, particularly if they go finance their $225M 🍕 You can play w/ the return numbers a bunch – it’s all a thought experiment for now – but the size of the potential prize becomes clear. 🌕

Note: This kind of detailed deal tick-tock will soon be exclusively for subscribers to The Promote Insider, our premium tier. Consider signing up today w/ a 2-week free trial.

“I don’t know of anybody else who is so stupid to take such long views with so much risk and hope that at the end things work out,” Gary Barnett recently said of his absurdly high risk tolerance. We’ve covered the Extell Development boss’ recent capers here, here, and in a special pod here, but now we’re getting word of another: Extell is in pole position to snap up a rare fee simple offering on Park Ave., The Promote understands. The sites at 405-417 Park hit the market via Newmark in an unusual joint listing late this summer. On Wed., Corem (i.e. Klövern AB) , which co-owns 417 w/ GDSNY, announced that it had an LOI to sell its site to an unnamed US developer. Other bidders on the joint spread include Brookfield, sources said, w/ numbers in the $500M range. And there’s chatter that Gary (as he does) isn’t content w/ just those sites for his assemblage: he’s also making a play for Parkoff-owned 110 E 55th St. and maybe even the 54th St. home of secretive private club the Brook 🤫 . Extell declined comment, and we should be clear: this is a live deal, Corem specifies it just has an LOI (i.e. not a contract), and things could certainly change. 🛀

This week, we dive deep into the maverick career of Seattle skyscraper titan Martin Selig - a true man in full who at his pomp controlled more than a third of the city's downtown, but is now at risk of losing it all. Listen on Spotify here, YouTube here or Apple Podcasts here. Brands: To get in front of our obsessed audience of CRE insiders, reach out here.