A note to Insiders: We love ourselves a good full-circle deal, a transaction, or series of transactions, that serve as lil’ windows into different eras of the market, from irrational exuberance to trauma bonds to distressed debt. Today’s dive into 1740 Broadway – best known as the MONY Building – checks all our boxes, and then some. And the sponsor here is def getting our attention w/ all its canny capstack-sniping. Hope you find this interesting, and if you know someone who’d make a good Insider, forward it along – they can get 10% off here. - HS

“You got me tossin' turnin' in the middle of the night, and I feel alright.” - Tommy James and The Shondells 🎶

A Midtown office building that had the ignominious distinction of being the scene of the first AAA CMBS losses since the GFC is set to be reborn as a resi conversion, thanks to a just-closed construction loan of nearly half a billion dollars. That’s the news. But it’s the backstory and behind-the-scenes intrigue you’re all really here for. So let’s get into it. 👇

This week on the pod, we load up on chips n' vinegar and take you with us on an extraordinary journey into British caravan country. Embattled mobile-home king Robert Bull's tale brings together gypsies, Norwegian beauty queens and New York financiers – and yes, it is very much a CRE story. Next, we slip into Dolce & Gabbana and ride to the branded-condo epicenter of Miami, where JDS’ Michael Stern is prepping a rescue recap of his latest development – Stern is a first-draft pick for a CRE pirate, and we get into his backstory. And finally, a strong example of returns not mattering in institutional CRE – Nuveen has disclosed a string of meaty losses on its investing bets. Plus, our Punch List rundown of the newsiest industry happenings: a $1.3B arb award in an OC real estate dispute; Ken Griffin's empire-building; and Monty Bennett's pillaging of hotel REIT Braemar.

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In ‘14, Blackstone paid Vornado $605M for 1740 Broadway, best known as the MONY Building and the inspiration for the hit song by Tommy James and The Shondells. The nearly $1K/ 🦶 price was quite the basis for an older building in a semi-unsexy location, but such was the mood at the time. BX took on $308M (Loan basis: $495/ 🦶) of CMBS to finance the deal, w/ investors such as Travelers and Endurance American buying the bonds.

Staring down impending exits by L Brands (VS parent 👼 ) and law firm Davis+Gilbert 💼 , BX embarked on a makeover of the property. But it never managed to fill those voids, and defaulted on its debt in ‘22, a year after L Brands’ exit. At the top of ‘24, special servicer Midland began marketing the NPL via JLL. And this is where Isaac Hera comes in.

Israel-born Hera is an old hand in the NYC CRE game, serving in the early-mid 2010s as the US head of int’l developer Brack Capital, where he ran an 8M sf portfolio until ‘16. He then went and ran major multifamily investor Star Real Estate, a JV between 2 Israeli heavyweights, Isaac Tshuva (El Ad) and Yakir Gabay (Yellowstone). When the lads sold Star to Mitch Morgan’s juggernaut Morgan Properties (one of the biggest multi AUM Gobblers ™ ) for $1.75B, Hera needed a new gig. Gabay tapped him to run Yellowstone Real Estate. He’s been busy targeting broken capstacks, snapping up the debt on the iconic New Yorker Hotel in late ‘23, landing $200M+ from Hapoalim/Naftali on a Times Square conversion job which he acquired in ‘22 via deed-in-lieu. Last week, Hera announced that the firm had raised $207M on the TASE.

Speed is the alpha quality in a distressed investor. At 1740 Broadway, Yellowstone was the quickest out the gate, willing to go all-cash to snap up the NPL for $186M, per sources familiar w/ the deal. It did not have to battle Blackstone; the sponsor was more than happy to hand over the keys. The note sale, after all the assorted fees, saw holders of the $158M AAA tranche face $40M+ in losses (obv lower tranches got totally wiped in the process.); per Barclays, it was the first such case after the GFC. At the time, Blackstone hit the media w/ the now-classic “less than 2% of our owned portfolio is traditional U.S. office.” (They’ve recently been going w/ “less than 1.5%”)

So, Hera had his building at an incredible basis – $300/ 🦶. But the speed with which he moved to win the deal also became a complicating factor: office-resi conversions are highly complex creatures, w/ all kinds of messiness in the mechanicals, layouts etc. Yellowstone found itself going well over initial cost projections, according to conversations w/ potential investors. “Sometimes slapping a number in the budget doesn’t always work out,” one said. Even as it was tying up its sr. construction loan package, Yellowstone was looking for a lil’ extra juice in the form of mezz/pref. 🧃

For the sr. debt, Yellowstone turned to Madison Realty Capital, hella active in office-resi (Pfizer HQ, for one) and in the construction loan market more broadly. Yellowstone was looking for someone who could take down the whole $480M loan, rather than answer to a bevy of lenders, according to deal insiders. (Madison, as do other private-credit lenders, tends to internally break up the loan into sr. and mezz.) Ackman-Ziff 🦱 brokered the financing, which is coming in at roughly 70% LTC, per sources. The project got a nice boost from the Dec. ‘24 passing of 467-m, which provides tax sweeteners for office-resi projects. Yellowstone plans to go all-out on amenities at the building, w/ features such as a 22K sf sports club (w/ a boxing ring), a co-working lounge and a spa. The 182 condos (most of them at least) are expected to price between $1.5M-$4M, per sources; the project will also have 238 rentals and some retail at the base.

Though billions of dollars of debt have gone to fund office-resi deals this cycle, we’re yet to see the full arc of a major one play out: It is a sure thing that GPs can sell the dream to lenders, and that lenders can successfully pitch such deals to their LPs. But we’ll have to wait a bit longer to learn how much money there really was to be made.

Change in date/time: On Tuesday, 7/7 at 12pm ET, we’ll be hosting the 3rd installment of “In Conversation,” our Insiders-only series of unplugged discussions w/ CRE industry leaders (Highlights from our first 2 chats, w/ Lightstone’s David Lichtenstein here, and Naftali’s David Hochfelder here). Hiten’s chatting w/ Ran Eliasaf, founder of Northwind Group. Northwind is one of the most prolific debt funds out there, with action in office-resi, new dev, and one of our growing obsessions: SNFs. He’ll get in-depth about the Northwind playbook and what sponsors, lenders and brokers should be thinking about. Register here, and please hit us with any Qs you’d like Hiten to ask Ran by replying to this email.