USA vs. Schuster

Controller: Josh. Need to figure out Cash.
Schuster: Where did the $600k go from last week?? I’ll be at the office shortly. We need that [Investor C] deal to close. - SEC complaint filed against Josh Schuster

There are people you see at real estate parties that have a glow of success about them. Rather than work the room at Cipriani or YJP or Provocateur, they can plant themselves in a corner and be confident that the action – the lenders, the investors, the try-hard brokers – will make a beeline for them. During that blessed period, everything, from flattering profiles in the press to landing prime development sites to scoring deep-pocketed capital partners, is going their way. They burn so bright that you can’t help but wonder how long they’ll last.

In mid 2010s-early 2020s New York, Josh Schuster was Exhibit A of this breed. He was everywhere – planning a $250M ground-up condo in Turtle Bay, a condo conversion in Brooklyn, a condo in Gramercy Park. Operating from within asset manager Silverpeak’s captain-of-the-universe office on 57th Street, Schuster’s Silverback Development was able to piggyback off of that institutional aura. 🐩 

“He’s sitting in their offices. [Silverpeak principal] Mark Walsh is right there in the office with all the artwork,” one exec recounted to TRD in ‘21. [Schuster’s] taking you downstairs for lunch at Nobu and charging up the black AmEx.”

According to the US Attorney for the Southern District of New York, that AmEx bill has now come due in spectacular fashion.

Schuster (Cont.)

Schuster was arrested on Wednesday in Florida & charged w/ defrauding investors, according to a newly unsealed indictment. “As alleged, Joshua Schuster stole more than $10M from his investors to fund his own lifestyle, pay off other investors in a Ponzi fashion, and maintain the appearance of success,” US Atty Jay Clayton said. The FBI, for good measure, added that the bureau would “never permit any individual to unlawfully profit off false promises—even when those promises result in actual buildings on the city’s skyline.” Schuster allegedly told investors that their money would become equity/pref in development projects, but instead used much of it to “fund his lifestyle including over $1M in personal credit card payments and hundreds of thousands of dollars in gambling losses, to repay earlier investors in a Ponzi-like fashion, and to cover unrelated business obligations and payroll.”

It details a scheme at Schuster’s Gramercy Park project at 21st/2nd: Schuster took $5M of investor money to pay off $2.4M in loans he owed, $137K for a credit card bill, $100K on a gambling debt, $440K to early investors (that’s the Ponzi bit), and $400K on payroll. Schuster later made a capital call to that same investor, and repeated the playbook 👏 The indictment lays out a similar pattern of fraud at projects in Queens and the Bronx.

The criminal charges are wire fraud & securities fraud, but that’s not all Schuster is dealing with: The SEC is also coming at him, alleging in a civil action that he raised over $6M in investor capital for the Gramercy Park project but misappropriated $2M+ of it for other purposes – the SEC suit is what details the exchanges between Schuster and his financial controller.

Controller: “And I need to wire the $310+ for 2nd Ave in the am. Where are we getting the $ from? [] And what am I telling [the two other investors]. they’re going to shoot me.”

Schuster: [Investor C] will close tomorrow[.]”

After things went south in New York real estate, Schuster went south too, moving to Florida and reinventing himself as a solar energy entrepreneur 🌞. In a ‘23 puff piece about that venture, Schuster did a post-mortem about his real estate troubles, zeroing in on a vehicle he offered investors that he dubbed “dequity,” or short-term convertible debt. This structure was wildly popular w/ his investors, he said. But when Covid hit, it worked against him – they no longer wanted a piece of the action, they just wanted their capital back. And Schuster’s preternatural fundraising ability – what he likened almost to “passing a hat” – finally failed him.

“I think it was a valuable lesson in what not to do as an entrepreneur,” he said.

Buy Now, Pay Later: A Skyscraper’s Unusual Sales Pitch

In our increasingly financialized world, you can now pay for a burrito 🌯 in installments, so why not a Manhattan skyscraper? A buttoned-up pension fund is considering an unusual strategy to unload its 1M sf 41-story office tower at 590 Madison - allowing a buyer to opt for a deferred payment structure to meet the hefty $1B-plus price tag, per CO. The usual suspects have popped up as prospective buyers: Blackstone, which is in its “office buildings are good again” era; RXR, which bought in on the cheap at Murdoch HQ in January; Tishman Speyer, which is in contract for its first Manhattan office deal in a couple years; and SL Green. There’s so much noise around this particular (Eastdil-brokered) process, not only because it’d be the biggest NYC deal in 3Y, but also because the seller, STRS Ohio, has been embroiled in unusually public infighting – it’s been telenovela fodder for the pension trade publications.

Inside Track on Chicago Megaproject

After taking back the keys from Sterling Bay at a chunk of the 53-acre Lincoln Yards megaproject site in March, Bank OZK needed to find another suitor to fill the void. It decided to give a shot to an experienced hand w/ a track record of taking on big-ticket Chicago projects: Jim Letchinger’s JDL is in advanced discussions to take over more than half the site, per Crain’s, and the bank expects that JDL will take over the parcel for around the $84M OZK transferred it over for during the deed-in-lieu.

JDL has a 60-day exclusive window to make the deal pencil before the deposit goes hard. The time will allow JDL to figure out both the financial hurdles it’ll need to clear – and the political ones. Alderman Scott Waguespack told the publication that Letchinger understands that “the market won’t bear what Sterling Bay was trying to do.” (For those unfamiliar w/ Chicago development politics, think of an alderman like a city councilman, but w/ far more power and willingness to flex it.) Tax-increment financing for add’l infrastructure improvements might come into play, he added. It’s doubtful that what eventually gets built at Lincoln Yards will match Sterling Bay’s original vision – a $6B Hudson Yards-style project on the Chicago riverfront w/ millions of sf in office and lab space and 6K resi units. If you’re a Chicago development wonk or just want a deeper understanding of the intricacies of such deals, def. read the full Crain’s piece – it’s v thorough.

Wish We Had More

But for now… the vibes on the agency-lending side at Greystone are totally off. Hearing of panic within the ranks. Walker & Dunlop already snagged a couple folks, per CMA. We reported last week that Meridian alum Shaya Ackerman is out, less than a year after he got going, and also noted that a former Fannie underwriter has hopped over to the firm to help clean things up. Greystone has lost its PD (fast track) designation w/ Fannie. Let’s see what else comes. (Steve Rosenberg, if you see this and want to talk through, please reach out – emails to your comms team have repeatedly gone unanswered.)

Quickies

• DRA to pay $750M for Merlone Geier’s grocery-anchored shopping centers 🛒 - now seeking $550M debt on it

• Sugarman, Melohn land $167M refi (GS/Barclays/MS) for Lower Manhattan ground lease 

• Former CEO sues appraisal trade group for sexual harassment, self-dealing

• Old Navy inks NYC’s biggest retail lease of ‘25 👖 

• Good analysis here of how city politics nuked Doug Eisenberg’s big Harlem affordable housing bet 🍋 

• UCC foreclosure in the works for Moinian’s Hilton Garden Inn Midtown

• Having “capital management” in your name is tough here: ASB sells SF office at $97M haircut

Unquotable Quotes