“I treat zoning like the Talmud.” - Michael Stern

Being a luxury condo developer is like being an illusionist: You take something ordinary – a patch of dirt, a decrepit old building – and transform it into a showstopping symbol of aspiration, something the world’s richest people need. You cobble together funds from a murderers’ row of capital sources, then corral architects, planners, builders and marketers, all while battling financing, political, engineering and PR challenges on the fly. And even when it works – even when you do the impossible and put something spectacular up – it doesn’t always work. 👇

A 🖋️ from Pensford’s Joe Long: Most lenders that require a hedge can’t actually provide one. When borrowing floating from a debt fund, Agency, or other nonbank lender, if there’s a hedge, it’s almost always going to be a cap procured from a 3rd-party bank. What if you’d prefer a swap though? By leveraging a fund-level trade, institutional borrowers have access to the fixed-rate protection they want on a loan where it otherwise might not be possible. Here’s how it works…

In this bonus ep. of The Promote Podcast, JDS Development’s Michael Stern joins the lads to talk through his maverick career, which includes home runs like Walker Tower in Chelsea, strikeouts (though he disagrees) like the Brooklyn Tower, and 11th-inning odysseys like the skinny Billionaires’ Row supertall 111 West 57th St. Outside of addressing specific litigation (there’s lots of it) and live deals (The Promote reported on an incoming record constr. financing package from JPM+Nuveen for Mercedes-Benz Places), Michael got candid about the aspects of the development game that insiders care about, from lining up investors to construction intricacies to his risk-reward math. Plus, our favorite wildcard: how he turned journeyman architect Ralph Walker into a starchitect 💫 📕 .

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Listen on Spotify here, YouTube here or Apple Podcasts here. Brands: To get with our obsessed audience of CRE insiders, reach out here.

Scott Everett, the founder of S2 Capital, one of the cycle’s biggest Sunbelt multifamily syndicators, doesn’t tweet much – about once a year. Last August, fresh off a rescue recap of a large portfolio from Alan Stalcup’s GVA, he wrote: “We’re having fun, no?” At the time, Everett had bought S2 a stay of execution via his private-REIT maneuver, and was pouncing on his peers’ distress. But the floating-rate reaper eventually came for him too, culminating in this summer’s revelation that his $400M multifamily value-add fund was a 🍩 – zero return of capital. (Our pod ep. S2pocalypse Now breaks it all down.) Everett laid low on that front for a couple weeks, choosing to instead speak about his industrial push. He eventually went to CoStar, where one of the reporters has produced an array of puff pieces about S2 over the years, and addressed the wipeout, saying that the firm was working hard to restructure the portfolio. “Throwing our hands up in the air and crying,” he said, “doesn’t solve anything.”

This month, with lenders shopping a chunk of his distressed properties (“Pipeline call this AM sounded like S2 D-Day”, one exec at a major multi landlord told me), Everett was back to CoStar for another hug: An article titled “CEO's real estate journey began in high school detention” contains lines like “he showed flashes of the out-of-the-box thinking that CEOs often need..” He talked through S2’s new continuation vehicle, for which he’s raising ≈$100M, “relying on principles he first read about back in detention,” a re. to Jon Gray’s big housing bet at Blackstone. He also got back on Twitter to tease a new AI SAAS product for CRE investors. “You learn a lot of lessons through a downturn. What you got right and what you missed.”

We should say: Everyone loses money in CRE. Everett is NOT uniquely good or bad, despite the mass schadenfreude his news unleashed. He did the same stuff as many now rejoicing in his crash, just that he did it bigger and made a lot more money. What we’re interested in The Promote is the spin around bad news, b/c it shows the evolution of a one-and-done wildcatter into someone figuring out how to be a long-term player. All the biggest dogs – from Brookfield to BX and beyond – are masters of spin, finding ways to turn an LP incineration event into the next fundraising opportunity. This.. is the business we’ve chosen!

"During Prohibition, we ran molasses into Canada, made a fortune - your father, too!" - Hyman Roth

The Promote has long been enamored w/ Traveling HFCs, what we think of as “the mother of all property-tax loopholes,” and have been closely following the fate of the hundreds of properties that were left in the cold after legislators closed the loophole w/ extreme prejudice last May. Our work caught the attention of the wonks at Atrium Data, who put together this visualization/deal tracker that makes it stark just how hard these nebulous entities went. (Best to think of this dataviz as directional rather than exhaustive, as it doesn’t yet have the complete list of units.)

The immediate standout is Pecos, which did 150+ HFC deals: My guy John Salcido 👇 who runs the Pecos Housing Authority was for a couple years during the frenzy one of the most important guys in Greater Dallas, which is 400+ miles away

Texas Rep. Gary Gates, who sponsored the HFC killer bill, estimates that there are 339 properties w/ over 100K units at stake here, and they’re collectively valued by local tax authorities at ≈$12.4B. Many of them have since sold or are currently in play. 🍋