CRE and fraud schemes have forever been simpatico – the business is the art of converting hopes & dreams into a physical reality, and there’s plenty of room along the way for things to go awry. But certain cases have ripple effects well beyond the individual project or deal, because they strike at something fundamental about the structure of the business itself. Nightingale’s Elie Schwartz, for example, will live on in infamy, because his absconding w/ LP money via Crowd Street basically nuked the real estate crowdfunding business. In South Florida, developer Rishi Kapoor (no relation to the 70s Bollywood icon) just got sentenced to 11Y in prison over an $89M fraud scheme. It is a case that has been top of mind for South Florida condo lenders and developers because Kapoor messed with a linchpin of that market: buyer deposits.👇

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As part of his plea deal, Kapoor admitted to stealing condo deposits made by ≈30 buyers at Commodore Plaza, a Coconut Grove condo project developed by one of his firms, URBIN. In another instance, per the Herald, Kapoor used condo deposits from one of his Miami Beach projects to purchase property in Montana. The allegations against Kapoor are wide-ranging, from duping LPs to embezzling taxes withheld for employees to falsifying bank statements, but it’s the buyer deposit stuff that is the toughest pill for the Florida market to swallow, b/c deposits are the mechanism the whole model rests on.

In New York, a buyer's deposit chills in escrow and does nothing until closing. In Florida tho, it goes to work: The state’s condo statute requires only the first 10% of the PP to stay with an independent escrow agent; anything above that can generally be released to the developer to fund construction. Developers in Florida structure deposit schedules accordingly – anywhere from 20-50% before a shovel hits the ground – turning presales into the cheapest equity in the stack. (Many developers essentially treat condo pre-sales as an option on the land, is how Naftali’s David Hochfelder recently put it to me.) Pre-sales also reassure lenders, who size their loans against signed contracts – almost every lender funding big ground-up loans there will cite strong pre-sales as a key de-risking factor.

Kapoor’s not the first player to be accused of getting cute w/ buyer deposits – in ‘23, a Miami-Dade judge appointed a receiver to track down ≈$20M in missing monies tied to Doug Cox, the self-styled “King of Coconut Grove.” (Buyers eventually struck a settlement in that case.) And even when fraud isn’t in the mix, buyers can get hurt – a foreclosure battle playing out at Penn-Florida’s Mandarin Oriental project in Boca Raton could see buyers take a big haircut on their deposits. But w/ buyer deposits now featuring so prominently in a federal indictment that resulted in a decade-plus prison sentence, expect more soul-searching about the overall model. 🤔

The multifamily syndicator messaging is finally changing: After touting its track record of never issuing capital calls, which it eventually did, Rise48 (Zach Haptonstall, Bikran Sandhu) began focusing on what it said was an unblemished record of never losing LP capital. Now, the rhetoric is prepping investors for pain ahead. “Even the largest institutions have taken losses in this cycle,” Haptonstall now says. “Markets shift, sometimes from events nobody can model. That is exactly why we plan for the downside instead of assuming the good times last forever.” (See also: Rise48 ☎ Rise48: Rescue Me)

As we recently observed of Scott Everett’s S2 in the wake of its stomach-churning $400M losses: Spin doctoring is a crucial skill for an OPM dealmaker, and figuring out how to retain investors for the next big bet in the wake of a bad one is what separates the one-and-dones from the big boys. (Scott Rechler prob the jedi master of this)

This week on the pod, we dive into operatic stories of ruin on different continents. We begin with the tale of Hui Ka Yan, a Chinese property tycoon who became one of the world’s richest men before his firm Evergrande collapsed and sank the country’s market with it. We then beam into New York, where one of CRE’s preeminent girthy lads, Meyer Chetrit, has given an extraordinary deposition as creditors pursue the Chetrit Group over $$$$ in PGs. And finally, Blackstone’s finding the secular tailwinds in the marina business are strong enough to set sail. ⛵ Listen: Spotify, YouTube, Apple.

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Also featuring: Partner content from Gibson Dunn, breaking down an emerging trend of GPs forming captive title insurance JVs.

On Wednesday, Promote Insiders got the skinny on the groups dominating the market for C-PACE financing, which is (seemingly overnight) the darling of capstacks everywhere. Sign up now and have a gander.

It’s been fun to watch edgy hedgie Ken Griffin turn Brickell upside-down with a series of splashy deals in the Citadel HQ orbit, but his Miami ambitions don’t end there: He’s reportedly in the final stages of tying up a 30-acre chunk of Wynwood from that area’s maharaja, Moishe Mana. The price is still TBD, but per TRD could be anywhere between $700M-$1B. Brokers have been chattering about the “widely accepted rumor” of the Mana Wynwood trade for months, w/ some saying it’s already catalyzed investment in the surrounding area. If consummated, this would do for Wynwood’s profile what Amancio Ortega’s $370M deal in ‘15 did for Lincoln Road. 👀