This story has everything CRE junkies crave: A gargantuan development site in the heart of a top-tier city, a giant CMBS loan, a brash New York transplant who went by the nickname “Big Boy,” and a capstack opportunist who sensed an opening. Throw on a light hoodie, and let’s pay a visit to San Francisco’s largest apartment complex, Parkmerced 👇

A 🖋️ from Pensford’s JP Conklin: We all know who said, “Inflation is always and everywhere a monetary phenomenon.” And that’s because we all have that insufferable know-it-all friend, the one who also likes to use words like “convexity” and “standard deviations.” New Fed Chair Kevin Warsh studied under Friedman, and he's spent years arguing the Fed's biggest post-pandemic mistake was believing monetary policy had nothing to do with money. Read on…

It’s tough to know where to begin w/ Parkmerced, a 3K-unit plus megacomplex that sits on 150+ prime acres on SF’s west side. It was built in the 40/50s by MetLife, and has since been host to an all-time cast of characters, from Leona Helmsley to Carmel Partners. But for the purposes of this tale, let’s start in ‘05, when Larry Gluck’s Stellar Management and Rockpoint stepped in. Running point on the $700M deal for Stellar was a certain Robert “Big Boy” Rosania, and in a move that mirrored New York’s Stuy Town, the plan was to quickly deregulate as much of the complex as possible. But deregulation is a high-risk endeavor, and by ‘10, the complex was in distress, w/ the owners declaring that they’d be defaulting on their $550M debt (Of course – of course! the party getting bodied here was the JV’s equity partner, Calpers – California pensioners have long been the unwitting victims of CRE wildcatting.) Even as this is all happening, the owners (Fortress by now is majority equity, and Stellar is out) are moving to entitle the property for a substantial redevelopment – in ‘11, the city gives its blessing for 7,200 new units in a multiphase project, per this handy timeline from the SF Standard. (For readers unfamiliar with the NIMBY hellscape that is SF, it is hard to overstate how big a deal this is.)

Rosania has by now exited Stellar to form a new shop, Maximus Real Estate. In ‘14, partnering w/ 601W Cos. (Mark Karasick, Harry Skydell 🔒 ) he takes control of the property in a $1.35B recap. The JV, in which 601W has a 70%+ stake, lands a fresh $450M slug of sr. debt from Ladder, and reportedly $775M (!!) in mezz from Children’s Investment Fund - hoo boy. This recap also results in a massive payday for Fortress, per WSJ, w/ the firm making a $200M profit on its $175M bet in just 4Y 👏 . In ‘15, SF approves Phase I of the redevelopment. In ‘19, Maximus lands a $1.8B refi, consisting of $1.5B in CMBS (Barclays, Citi) and ≈$275M mezz from Aimco, w/ the idea being that it would get moving on the expansion project. Incredibly bad timing, as we’re heading into Covid.

In ‘22, Rosania’s equity in the project was restructured, according to sources familiar w/ the matter. At that time, Yellowstone* (Yakir Gabay, Isaac Hera), which has proven itself adept at navigating the nethers of a capstack 🔒 , came in w/ ≈ $100M in sr. debt to finance Phase I, records show. Alongside the sr., a new mezz 🍕 was originated. Now this is where it gets tricky, so pay close attention: At the time of the financing, the development land designated for Phase I – which allows for ≈2K resi units – was carved out of the CMBS collateral pool, per deal insiders. Meaning, the Yellowstone collateral was independent of the CMBS collateral. So if things went south, Yellowstone, not bondholders, would have dibs on that land.

In ‘23, Aimco sells off a piece of its mezz, and the buyer has a purchase option for the rest. At this time, Parkmerced is facing a flurry of tenant complaints about living conditions. By spring ‘24, the CMBS goes into special servicing. SL Green’s unit, Green Loan, is running point for bondholders, who ask the courts to appoint a receiver. In early ‘25, the judge grants that request, and Douglas Wilson comes in. The receiver brings in an affiliate of Ballast (remember them from the Veritas saga?) to manage the property. By this summer, Rosania’s Maximus is in a spot o’ bother, per this amazing SF Standard dispatch, missing payroll and scrambling to score outside capital while trimming down the portfolio. “We’re at a moment of conviction,” Rosania, who describes himself as the firm’s “lead visionary,” says to his staff, telling them that Cirrus’ Joe McDonnell, who invested in Parkmerced at the time of the earlier recap, was interested in running it back. “There’s no doubt in my mind that for certain we are going to build Phase 1,” Rosania adds.

Meanwhile, Yellowstone’s sr. loan on Phase I also goes into default in ‘24. The firm eventually moves to foreclose, and per deal insiders took control of the land last week. The full redevelopment is expected to occur over 9 phases, sequentially – kicking off each new phase is contingent on the completion of the previous phase. We’ll see if Yellowstone ends up building the whole thing themselves, or if new players come in for the successive phases. But for starters, we’re looking at 2K new units in SF, a city that is most definitely getting its groove back.

* Yellowstone’s big New York undertakings include the office-resi conversion of the former MONY building at 1740 Broadway (deal breakdown here) and the Candler Building.

Such a good read here from WSJ on the rural property owners who’ve earned a king’s ransom from selling their data-center primed land to QTS and its ilk: In Salem Township, PA, 96 families collectively sold ≈ 1,700 acres for ≈ $586M ($330K/acre) to the Blackstone joint. The fams each earned $5.5M on avg., birthing a whole new crew of overnight millionaires. These were blue-collar types; some lived in trailers, some ran modest businesses, one was a convicted felon. They printed T-shirts with “1 DEAL OF A LIFETIME” on them. This isn’t a one-off: With the AUM Gobblers ™ looking to establish data-center primacy at all costs, there’ll be plenty more jackpots to be had. Right next door, 200 sellers are in the midst of negotiating a $1.3B joint sale, per WSJ. These properties are coveted b/c they have already solved the make-or-break issue of power 🔌 .

Cometh a new gold rush, cometh a new thiccc lad who finds a way to put himself into the mix. This time around, it’s Jack Sordoni, a local player who coordinated the QTS assemblage. Having made a career out of assembling sites for oil & gas projects, Sordoni got a tip 2Y ago that Amazon was making a play for a huge site in the area.

“I didn’t even know what a data center was,” Sordoni, of 4-3 Consulting, confessed. He proved a quick study. He had to overcome the usual challenges, among them, establishing which family members had legit claims to the land. He says he’s now a hero in the community, and was asked by one seller to officiate their wedding. “We would shoot guns with them, drink beer with them, pray with them,” he added of the sellers.

The quest to build data centers has gotten increasingly fractious, with players facing both political headwinds in the form of development moratoriums and constant opposition/legal challenges from the communities in which they’re located. Just recently, Blackstone bailed on a 2,100-acre data center project in VA, the backstory of which we broke down on the pod.

See also: As data centers become central to brokerages’ fortunes, firms are reshuffling the talent deck.