“You juke the stats, and majors become colonels.” Prezbo

Appraisals are often a function of not just what is, but what you can get away with. Across CRE in the good times, we’ve seen appraisals that can range from the merely optimistic to the fantastical (Kushner’s 666 Fifth ‘07 one stands out), and these appraisals may serve as the catalyst for loans that are bigger than the property can bear. It takes a while for the market to come to terms w/ what’s happening, and then lenders tend to overcorrect. Let’s check in on Charm City.

“If you're like, ‘I want lower fees, I want you to make less money, I want more decision rights, and I’m also going to make the sales process to get my money way harder.’ What do you expect?”

This week on The Promote Podcast, we explore how institutional LPs – the SWFs, the insurers, the endowments that’ve traditionally bankrolled CRE’s biggest moves – are getting a lil’ queasy about fund managers’ hot pursuit of retail money. Should they fear a loss of clout and worse terms b/c of this giant pool of capital from 401 (k)s and such? Well, yes. We also dive into the Mormon CRE playbook and go behind the scenes on a bankruptcy resurrection fueled by the patron saint of syndicators and Bitcoin.

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.

A flurry of what one lender called “overinflated property valuations” in Baltimore is causing hard-money lenders to hit the brakes on originations or totally stop doing deals there, per Bloomberg. Lender Kiavi in July paused new originations in B’more, “under an abundance of caution,” and is “actively monitoring” when to resume doing deals. Some of these lenders are backed by the biggest names on Wall Street, such as KKR, Apollo & Temasek, and that institutional war chest helped grow hard-money lending into a $140B business nationally in ‘24, up from just $60B in ‘19, per private-lender analytics co. Forecasa (It’s impossible to track all the deals in this opaque space, so the true number is prob much higher – half of Brooklyn runs on this stuff). Given the Wall St. connection, a business that has long thrived in the shadows is now receiving national scrutiny. “It’s got everyone’s attention, all the way up to the top of the food chain,” Forecasa CEO Sean Morgan told the publication. Increased attention also brings biz opportunities, of c – Forecasa plans to start releasing its own “red flag reports” on shady borrowers. 🎏

Unlike standard mortgages, in which a borrower’s creditworthiness is an essential component of loan-sizing, hard-money lenders tend to overindex on the property’s expected NOI and/or future sales price, per Bloomberg, elevating the role of appraisals. And w/ the industry growing so rapidly, standard DD may have been compromised. “It’s become programmatic and institutional, and it’s hard for each lender to go out and visit each property,” said Jon Hornik of trade group National Private Lenders Association. Which means, you might not get a true picture of the property’s worth.

Cracking down on funny appraisals has been a major focus of agency lenders as well in recent months – players in that space will recall how Fannie has updated its lending guidelines to target common shtick - i.e. it’s been talking to the right people.

We get deeper into this on the pod next week, but a lil’ nugget from our research that’s too good to pass up here: The dirt for what is slated to become the $5B+ One Beverly Hills megaproject has one of the better back stories we’ve seen, and definitely among the more astonishing returns.

In ‘04, New Pacific Realty Corp., a CRE vehicle formed by David Margulies (formerly Apollo’s guy out west) & Arnold Rosenstein, paid Equitable Life $33.5M for an 8-acre parcel underlying the Robinsons-May dept. store. That’s just $4.2M/acre in prime-prime-prime Beverly Hills, but the site was encumbered (massive h/t 🐐 blog Behind the Deals) by Robinsons-May’s way-below-market long-term lease. Two years later, however, Federated Dept. Stores (later Macy’s) bought Robinsons-May, and began consolidating its footprint. It informed New Pacific it would be terminating its lease, one of those extraordinary moments of luck you really do have to hang around the hoop for. New Pacific was able to take the dirt – now down for whatever – and sell it to Brit property moguls Christian & Nick Candy for $500M in ‘07 – that’s $62.5M/acre, 15x what New Pacific paid just 3Y prior. The Candys envisioned a condo project, but lost the site in foreclosure, and it eventually landed in the hands of Beny Alagem. More on the pod next week – stay tuned 📺

B’more developer Brandon Chasen filed for Ch. 7 bankruptcy in July, and got grilled in court last week about the circumstances and actions that got us here. Chasen (See also: Adjusted for Longevity) has disclosed that he owes $71M+ ($20M more than what the Tides guys owe Starwood so far, for context), and attorneys for the creditors wanted an explanation. The Banner was on the scene – some highlights from its great dispatch