In a splashy entrée into the industrial sector, Scott Everett’s S2 Capital is buying prominent Texas player Fort Capital, which controls 11M sf of B/C industrial assets. But what is it buying?

“I am not selling any interest in the GP, and I will remain the sole decision maker on all Fort-owned assets until they are sold or recapitalized,” Powers said in a Tuesday evening memo to his LPs, a copy of which was reviewed by The Promote. What S2 is acquiring, using its own balance sheet, is the opco, rather than the properties themselves. Which means, it doesn’t have to assume asset-level debt obligations, and Powers remains the guy answerable to lenders & LPs on Fort-owned assets.

However, it’s this bit from Powers’ memo – “or recapitalized” – that’s the "other than that, Mrs. Lincoln..." element of this whole thing.

Come for a manic discussion about the execs w/ juice at Brookfield, stay for an insider breakdown of institutional CRE fundraising and why REPE’s private-credit giants are arduously courting 401(k) managers. Then join us aboard a lil’ yacht called Monkey Business, as we dive into the singular life & career of Aventura developer Donald Soffer – a man who saw a swamp, and imagined something more. The latest episode of The Promote Podcast now live.

Listen on Spotify here, YouTube here or Apple Podcasts here. A shout-out to our sponsor for this episode, Vesto - learn more about how it gives CRE players a single, clear point of access for all their bank accounts by going to vesto.com

The expectation is that in the event of a property recap, the deeper-pocketed S2 would carve out an equity stake and obtain GP economics, according to deal insiders. So think of it as controlling a lucrative 11M sf property-management contract today, w/ the ability to take significant ownership in a 7M sf portfolio over the coming months/years.

“I’m excited about Fort’s future with S2 and feel like it’s a huge opportunity to build a world-class industrial platform and go on offense in this new cycle,” Powers told The Promote on Tues. evening. His title at S2 will be Executive Managing Director, reporting to Everett & Chris Roach, the longtime CEO of valuation firm BBG who Everett hired late last year to stand up the platform. Fort’s 50-person investment/PM/leasing team will be retained as part of the acquisition, which is set to close this week.

Powers founded Fort in ‘10, and the Fort Worth-based co. now owns about 7M sf and manages another 4M sf. Jason Baxter came on board as principal in ‘15, and led the firm as CEO until his departure last year to launch startup Fostr AI. Powers is also a co-founder of Fostr, and hosts a popular entrepreneurship podcast called The Fort (Disclosure: I’ve been on). He declined to discuss his long-term plans post the transition, emphasizing he was committed to working through the portfolio.

Everett has been eyeing an expansion into industrial for some years now. S2 made a play to acquire another firm late last year, per a company insider, but that deal fell apart. It sees the Fort acquisition as the opening gambit in a far larger industrial play, envisioning a multibillion-dollar portfolio that would rival its apartment holdings – it is the 44th-largest MF owner in the country, per NMHC, w/ 28K+ units.

Much of the Fort-owned portfolio has fixed-rate sub 4% financing through ‘26 & ‘27, according to a source familiar w/ the properties. Three of the loans are floaters, and 2 of them have been particularly challenging to refi – rate caps ain’t cheap – though the source expects to figure out a fixed-rate solution in the next couple months.

The S2-Fort deal illustrates what many players have found out the hard way in the post-ZIRP era: The middle is death – not nimble enough to be a sharpshooter, not big enough to attract the gobs of institutional money you need to compete. As Powers and many of his peers have tried to graduate from syndicated capital to a more institutional capital base, they’ve found it tough going. In contrast, groups that already have that institutional scaffolding set up – S2, for e.g., is now backed by the likes of IMRF, Blackstone and Iconiq and recently raised a $373M distressed fund – are finding the environment ripe for dealmaking. 🐯

See also: S2’s Escape Hatch

Will dive deeper into this ASAP, but for now, wow: Vornado disclosed that its 770 Broadway 1M sf master-lease deal w/ NYU resulted in an $803M windfall for the REIT. To boot: VNO is retaining (!!) the 92K sf retail condo at the base of the building leased to Wegmans, and NYU has to figure out all the existing office tenants. Just an astonishingly lucrative & lopsided bit o’ dealmaking. Would really love to debrief w/ Marty Dorph, NYU’s real-estate czar who retired soon after finalizing the deal.

JLL has officially withdrawn from one of the most high-profile but convoluted assignments in NYC real estate: The Pakistan govt.-owned Roosevelt Hotel. The Pakistanis cited the brokerage’s potential conflicts of interest (JPMorgan, which as The Promote reported last month is among the advanced suitors for the property, is a longtime JLL client and lender, for one), saying in a statement to Reuters that “the heightened interest in Roosevelt Hotel from many of JLL’s own clients, post cancellation of its lease agreement with NYC, has put them in a compromising position.” Again, for those who don’t follow Pakistani politics, for that govt. to bring up conflicts of interest is just 🤌

A new RFP is out there, per sources, and the usual suspects (Eastdil, Newmark, CBRE) are chasing the assignment. Can a fresh shop get a JPM deal over the line and help Jamie Dimon realize his dream of a 7M sf Midtown empire? 🇵🇰 ✈

Since the passage of the ‘19 rent reforms, New York’s rent-stabilized landlords have felt like piñatas (a look at some of the bigger casualties here), and the outta-nowhere victory of Zohran Mamdani in NYC’s mayoral primary has not helped matters. The triple threat of pro-tenant laws, a more socialist political environment and a messy debt market is pushing the asset class “to the brink of uninvestability,” argues a new paper published by the Columbia Business School’s Milstein Center. The authors here are notable: Maverick’s David Aviram, one of the city’s hungrier distressed-debt investors, and his colleague John Kaminsky.

The Maverick lads do a fascinating analysis of the sector’s debt woes: $105B of O/s debt x 21K loans on 26K RS buildings (421a properties excluded). W/ originations plummeting (see chart 👆 ) due to greater uncertainty, lower valuations and the withdrawal of regional banks, much of that debt will be nigh-impossible to refi. In some areas of the city like the Bronx, the avg. sales price psf is at par w/ the outstanding debt psf – i.e. the equity is wiped. And this is all prior to a Mamdani mayoralty – the candidate has made freezing the rent a cornerstone of his campaign.

“The rent-stabilized multifamily market in New York City is not for the faint of heart,” Aviram & Kaminsky write. “However, for those with the expertise to understand the nuances of the legal and political landscape, and the patience to navigate a distressed market, opportunities are likely to emerge.” 🐺

Pairs well with: Our June episode on the carnage & oppt’y in the sector 🍷 🧀