Real Estate News

(Getty, iStock)

(Getty, iStock)

Many commercial mortgage-backed securities borrowers that are strapped for cash are trying to turn the keys over to their mezzanine lenders.

That’s according to a recent report from data provider Trepp, which found that the borrowers behind about $3.9 billion in outstanding CMBS debt across nearly 100 loans have “indicated a willingness” to give the collateral to their mezzanine lenders.

The loans include both small-dollar and large portfolio loans with principles exceeding $200 million, according to the report.

Nearly 65 percent of the loans Trepp found were secured by regional malls and limited- and full-service hotels.

One example is the owner behind the 212-key Eastgate Holiday Inn in Cincinnati, according to the report. The borrower “delivered written notice of unwillingness to further carry the loan payments and is cooperating in friendly foreclosure filing” on the $13.1 million CMBS loan secured by the hotel, according to special servicer notes.

The coronavirus pandemic has exacerbated a retail apocalypse that was already battering several major mall owners. Barry Sterlicht’s Starwood Property Trust recently lost control of a seven-mall portfolio after a ratings downgrade on its bonds triggered a clause allowing bondholders to take control of the properties.

The pandemic has similarly pummeled the hotel industry and driven many lenders to try to put up their hotel loans for sale.

This mall and hotel carnage prompted the proposal of a bipartisan bill in Congress that would offer relief to struggling CMBS borrowers in the form of preferred equity. But borrowers would have to be able to show they were in good standing on mortgage payments prior to the pandemic to be eligible for funds. The legislation has yet to move forward.

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Andy Unanue & 111 El Brillo Way (Credit: Google Maps)

Andy Unanue & 111 El Brillo Way (Credit: Google Maps)

An heir to the Goya Foods fortune closed on a home in Palm Beach for $11.3 million.

The estate of the late Ryan Ashley Brant, who co-founded the video game company Take-Two Interactive, sold the non-waterfront home at 111 El Brillo Way to an LLC managed by Andy Unanue, the grandson of Goya Foods founders.

Take-Two Interactive owns the publishing labels Rockstar Games and 2K.

Christian Angle with Christian Angle Real Estate represented the Brant family, while Dana Koch of The Corcoran Group represented Unanue. The 7,743-square-foot house was on the market for $14.8 million.

The Brant family purchased the Palm Beach property in 2011 for $6.6 million. In 2012, they broke ground on a new two-story home and completed it in 2013, property records show.

The seven-bedroom, eight-and-a-half-bathroom features a library, two-car garage, and a guest house.

The buyer, Unanue, became the chief operating officer of Goya in 1999 and left five years later to launch AU & Associates, the family office for the Unanues. He’s a managing partner of AUA Private Equity Partners, according to its website.

The sale marks one of many that have closed in Palm Beach recently. Earlier this month, the founder of a Texas real estate lending firm paid $5.8 million for a Palm Beach house, the former MagicJack Chairman sold his estate for $28 million and the former president and CEO of Sotheby’s bought a home for $7.7 million.

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Wendy Silverstein (Photos by Guerin Blask)

Wendy Silverstein’s career has been all about getting her hands dirty. The 17-year veteran of Vornado Realty Trust helped grow the company from a $3 billion owner of New Jersey strip malls to a more than $30 billion investment giant, as of 2015, and went on to liquidate New York REIT’s 4.4 million feet of commercial assets. Silverstein then spent a tumultuous year co-leading WeWork’s real estate investment fund before the co-working giant ditched its IPO. Approached by Meridian Capital Group to build a debt restructuring business earlier this year, Silverstein decided instead to be her own boss. The former Citibank executive teamed up with her old colleague and Deutsche Bank alum Ed Adler this fall to launch Silver Eagle Advisory Group, a loan workout firm that will target mounting distress across the real estate industry. Silverstein now splits her time between homes in Tribeca and Short Hills, N.J. Though she has periodically considered retiring — after Vorndao and again after WeWork — she’s been drawn back into the real estate industry by new challenges.     

At WeWork and New York REIT, you started at a tumultuous time for these companies — either in the midst or on the verge of crisis. Have you always gravitated to that kind of challenge?  Some people are motivated by power. Some people are motivated by money. For me, it was always about intellectual stimulation. I started my career in the mid ‘80s, in the leveraged buyout business, which was really in its infancy at that time. I found it super interesting. Then, truthfully, it went to what I found not to be intellectually interesting because the role that you were supposed to play was to basically say “yes” to every deal, even though the market was starting to turn. Even to a young person, it was obvious that it was turning. I wanted to learn the bankruptcy and workout business. At Citibank, there was $27 billion of bad loans in real estate, and I said, “Ah, I’m going to go there.” It was the draw of the challenge and the intellectual stimulation of taking a really broken situation and trying to fix it and make it better.

There are multiple books coming out about WeWork, along with a television series. Do you think this amount of attention is warranted? WeWork was a phenomenon. And I think that it is a story, to some extent, worth telling. I would say from my own perspective, what Adam Neumann did with both his energy and charisma, and the money that was given to him, was he grew a global real estate company and branded the office business for the first time, I think, ever. By the same token, I think it was confusing to myself and most other real estate people, as to how could this fairly basic concept of renting office space, fixing it up and re-renting it, how does that get to trade as a multiple that makes office ownership look like a dumb business because it trades at a fraction of the value?

To a lot of people, myself included, that just didn’t make any sense. It was one of the reasons why I wanted to get inside the company and say, “OK, if the world has changed this much, what am I missing?” I think the short answer is we weren’t missing anything. I don’t want to call it smoke and mirrors, but it wasn’t necessarily what it was purported to be, i.e., a technology company.

Do you think the company had a lasting impact on the industry? It wasn’t just the branding. WeWork created the availability of offering Class A office space, and sometimes not Class A, on flexible lease terms. That has nothing to do with co-working, but that really caught on. When they went after the Fortune 500 companies and offered them shorter, flexible lease terms for which those customers were willing to pay a premium, that had a lasting impact on the real estate market and landlords across the country, certainly in major cities and elsewhere in the world. And of course the landlords that own the space are in the best position to offer that to their clients. Not that they necessarily want to, but it’s established that there’s real demand for it, a willingness to pay a premium. That’s part of the WeWork legacy.

So, given Adam’s tendency toward being very public and being somewhat flashy, people like to focus on the person who had it all and then lost it. It was a spectacular rise. It was a relatively spectacular fall. The fall should have been predictable. Most people didn’t see it coming.

Are you glad you decided to investigate for yourself? I thought I knew the answer. Then I thought maybe I was wrong. And at the end of the day, the real estate people, myself included, said, “What the heck is going on here? This thing looks and walks like a real estate company. It is a real estate company!” It was an interesting 14 months experience, let’s put it that way.

How does the current crisis compare to what you saw in the 90s at Citibank? The difference this go-around is that there isn’t financial distress at the banking level. My expectation is that banks may in fact be more difficult to deal with. And it’s going to be very interesting to see how it plays out, because by the same token, excess in the financial system is not really what drove this recession. A lot of what we’re seeing, whether it’s street retail, certainly hotels, even some cases of multifamily, is clearly caused by the pandemic.

And so I think the banks have to weigh their tolerance for giving forbearance and giving discounts, to the extent things don’t make economic sense for borrowers to continue to pour money into, or if they simply don’t have the money. It’s not as if somebody did something wrong and somebody else, a banker or another buyer, can take it over and do any better. I think it does make the workout atmosphere a lot different.

How dire are things right now for investors and landlords? I think it’s very asset-specific. If you own warehouses right now, your business is booming. If you own a hotel, your occupancy has gone from whatever it was to effectively zero in April. And today it may be 30 percent. But assets like hotels, that have literally daily occupancy and daily mark-to-market, have taken an exogenous shock that’s almost never existed. Because when have any of us ever seen entire economies shut down?

What about office owners? It won’t be as bad as some people say, but it’s clearly not going to bounce back to normal in some V-shaped recovery. Offices, of course, don’t have a daily mark. They have very long-term five- to 10-year leases. So the story’s going to take a longer period of time to unfold. But I think it’s hard to be so bullish to believe that the value of office in major cities and rent won’t go down. As you see maturities and major lease rollovers, I think you’re going to see more distress in the office space as well. It’s really going to be asset class-specific and location-specific. Obviously the denser cities such as New York or San Francisco are going to be more impacted than some places that are less dense.

Where does Silver Eagle fit into all this? We’re a pretty unique combination of two people with 30 years of experience on both sides of the table. Myself — as an owner and borrower up and down the capital structure for both investment grade companies and private equity companies — I’ve seen all sorts of distress. Ed, of course, originated billions of dollars of loans in multiple industries. We’re going to take that combined experience and bring both sides of the table to analyzing just about any situation out there. And I think one of the keys to doing a workout well is to be able to understand what both sides of the table are experiencing, whether you’re the borrower or the lender.

You are one of the only female senior executives in commercial real estate. Have you seen the industry change over the years? I would say that I have seen it change, and I’ve seen it change for the better. But I call it a very slow grind, and it’s still got a ways to go. We have women representation at senior levels in the industry, but the industry is super underrepresented with people of color. We better start making some progress, and the only way that’s going to happen is if people start really making it top of mind and putting it into action. If I have the opportunity to hire a woman, I’m going to work awfully hard to make sure I can get a woman of color or some other background.

Your first husband died just before you started at Vornado. Are there ways that time period influenced you? It wasn’t a revelation that I wanted to work, but it did change my reality in that quitting was no longer an option. Having to work to support a family may seem like a burden, but it can also be a gift.

Are either of your two kids following in your footsteps, career-wise? My son, Zach, did choose to go into real estate. He’s working with me now at Silver Eagle. Ed has known Zach since he was born. It makes us feel old, but it all comes full circle.

What do you miss the most about life before the pandemic? The ability to socialize with friends with ease. But one of the great sides of this was making up for years of family dinners. I think we packed them all into seven months. My daughter just got married. Their original wedding date was Oct. 3. We rescheduled to May 2021. Then they decided to get legally married. We just had a judge on the roof in Tribeca, and immediate family over for dinner. We still hope to have the big New York City wedding.

What do you do to unwind during the pandemic? You up your exercise and your wine.

This interview has been edited and condensed for clarity.

The post The Closing: Wendy Silverstein appeared first on The Real Deal South Florida.

Data on third quarter CRE investments suggests a nationwide improvement, but Manhattan has been slow to recover (iStock)

Data on third quarter CRE investments suggests a nationwide improvement, but Manhattan has been slow to recover (iStock)

After the pandemic dramatically slowed commercial real estate deals across the U.S., the summer saw an uncharacteristically high uptick — but shifting dynamics cost New York City its top spot.

Most years, investment increases about 9 percent from the second quarter to the third. This year it soared 37 percent, Bloomberg reported, citing data from Real Capital Analytics.

The normally robust Manhattan real estate market has been hit particularly hard by the pandemic and dropped behind Dallas and Los Angeles in the third quarter.

All three remain far behind their investment volume of a year ago. The third-quarter totals for L.A. and Dallas were down 41 and 27 percent, respectively, while Manhattan’s was off a staggering 52 percent.

Real Capital attributes this largely to the rent-stabilization law passed in June 2019 and the collapse of the hotel industry during Covid.

Nationwide, apartment prices have risen and commercial property prices have fallen. Mortgage delinquencies have been on the rise for some time now, and although distressed property transactions comprised only 1 percent of third-quarter deals, Real Capital expects to see more.

[Bloomberg] — Raji Pandya

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Residential sales experienced a surge in September

Residential sales experienced a surge in September

Residential sales experienced a surge in September throughout South Florida, according to the Miami Association of Realtors.

Miami-Dade, Broward and Palm Beach counties all experienced double-digit jumps, year-over-year, in total sales.

While the months of supply for single-family homes decreased in Miami-Dade, Broward and Palm Beach counties, the inventory of condos increased in all three counties. Pricing continued to rise across the board.

Miami-Dade

Residential sales grew by 12.5 percent in Miami-Dade County last month, year-over-year, to 2,521 closings. Single-family home sales surged to 1,288, a 19.3 percent annual increase. Condo sales rose by 6.3 percent to 1,233.

Closed dollar volume of single-family homes grew by 55 percent, up to $975.8 billion. Condo sales volume totaled $490.8 million, up 26.3 percent.

Median prices of single-family homes increased 15.2 percent, year-over-year, to $435,000, while condo prices increased 8.2 percent to $265,000.

Broward

Total home sales jumped 14.5 percent, year-over-year, to 2,984. Single-family home sales increased by nearly 25 percent to 1,535, while condo sales increased by 5.2 percent to 1,449 closings in September.

Single-family dollar volume surged by about 64 percent to $873.4 million. Condo dollar volume increased 15.5 percent, year-over-year, to $337.8 million.

Prices also continued to increase in Broward, with the median single-family home price rising 15.6 percent to $425,000, and median condo price rising 11.8 percent to $190,000.

Palm Beach

Residential sales surged in Palm Beach County in September, increasing 28.7 percent, year-over-year, to 3,001 closings. Single-family home sales jumped 28.6 percent to 1,744, and condo sales rose nearly 29 percent to 1,257.

Sales volume of houses increased by about 48 percent, up to $1.1 billion. Condo dollar volume rose by 38.6 percent to $417.6 million.

Single-family home prices increased 12.7 percent to $400,000, and condo prices rose by 9.4 percent to $206,250.

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Clockwise from top left: 1801 NW 82nd Ave, Miami; 6600 Congress Avenue, Boca Raton; 501 103rd Avenue, Royal Palm Beach; 3423 McIntosh Road, Hollywood (Google Maps)

Clockwise from top left: 1801 NW 82nd Ave, Miami; 6600 Congress Avenue, Boca Raton; 501 103rd Avenue, Royal Palm Beach; 3423 McIntosh Road, Hollywood (Google Maps)

South Florida’s industrial market — believed to be resilient to coronavirus as demand for distribution space and cold storage grows with online shopping — did show some signs of weakness in the third quarter, according to a newly released report.

In Palm Beach County, 350,000 square feet of industrial space was leased in the third quarter, compared to 500,000 square feet in the second quarter, according to the report from Colliers International.

Miami-Dade County’s leased space was on par with that of the second quarter, but compared to the same period last year, 1 million square feet less space was leased. And the county’s manufacturing and warehouse facilities saw the lowest asking rents since the fourth quarter of 2017, according to the report.

Still, some bright spots for landlords appeared in the region’s industrial activity. Broward County saw record high asking rents in manufacturing and flex space. Palm Beach County saw record highs in flex space and warehouse asking rents.

Here are other insights from the report:

Miami-Dade County

Most of the construction in the region was in Miami-Dade, with 3.7 million square feet of industrial space. Most of that — 2.5 million square feet — was in the Medley area.

Miami-Dade County saw the largest negative absorption rate in the region, with 1.2 million square feet in the third quarter. The county saw a positive absorption of 223,000 square feet the prior quarter, and positive absorption of 456,000 square feet in the third quarter of 2019.

Miami-Dade’s vacancy rate was 6 percent, compared to 5.3 percent in the second quarter, and 4.2 percent in the third quarter of 2019.

For warehouses, the average asking rent dropped to $9.70 per square foot in the third quarter. The prior quarter saw an average of $9.87 per square foot. Rent in the third quarter of 2019 was $10.41 per square foot.

For manufacturing space, the asking rent fell to $8.25 per square foot, compared to $8.72 in the second quarter and $8.50 in the third quarter of 2019.

The county had the highest asking rates in the region for flex space, at $19.10 per square foot. That was a decrease compared to the prior quarter, at $20.19 per square foot, but higher than the same period a year ago, of $18.76 per square foot.

The largest manufacturing average asking rate in the county was in South Dade at $12.84 a square foot. The lowest was in the Miami Lakes area, at $7.65 a square foot.

In Miami-Dade, three of the largest leases signed during the quarter were for warehouses. The other two were for a flex space and a distribution facility. DHL signed the largest lease at 201,000 square feet at Miami International Commerce Center. Monat signed a 200,000-square-foot lease for International Corporate Park South. Intcomex signed a 161,000-square-foot lease at Miami 27 Business Park. Chef’s Warehouse signed a 150,000-square-foot lease at 14300 Northwest 57th Avenue, Miami Lakes. Schenker signed a 150,000-square-foot lease for Beacon Lakes Building A.

Miami-Dade and Broward’s largest industrial deal was the $94 million Elion Partners sale to Blackstone for properties in both counties.

Broward County

Broward saw the highest overall industrial vacancy rate among the three counties at 7.4 percent, a record high since the second quarter of 2016. The largest vacancy rate in the county was for Northwest Broward warehousing at 13.4 percent. Southwest Broward saw no vacancy among its 13 manufacturing facilities.

The lowest warehouse and flex space rents in the region were in Broward, at $9.21 per square foot and $13.62 per square foot, respectively. The highest warehouse rent in the county was $11.48 per square foot in central Broward. The lowest was $7.87 per square foot in northwest Broward.

Broward’s flex rent reached a record high since at least the second quarter of 2016. Rent in the second quarter was $13.42 per square foot, and $13.04 per square foot in the third quarter of 2019. The highest average flex asking rent was in southwest Broward, at $14.47 a square foot. The lowest was in northwest Broward, at $12 per square foot

In Broward, four of the largest leases signed were for warehouses. One was for flex space. International Warehouse signed the largest lease of the quarter for 145,000 square feet at Port Everglades International Logistics Center.

Other top leases included U.S. Cabinet Depot signing 103,000 square feet at Sawgrass Commerce Center, Group III International signing 98,000 square feet at Pompano Business Center G, Ferguson Enterprises signing 57,000 square feet at Coral Spring Commerce Center and United Hardware Supply signing 30,000 square feet at Hollywood Design & Distribution Center.

Palm Beach County

Palm Beach County saw the smallest overall vacancy rate among the three counties, at 3.9 percent.

The highest warehouse vacancy rate was 4.9 percent in south Palm Beach County. The lowest warehouse vacancy rate was 3.3 percent in outlying Palm Beach County.

The largest manufacturing vacancy rate was 4 percent in outlying Palm Beach County. North Palm Beach saw no vacancy during the quarter, but it’s only home to four manufacturing buildings.

The largest flex vacancy rate was 6.2 percent in central Palm Beach. The smallest flex vacancy rate was 4.1 percent in South Palm Beach.

Palm Beach was also the only county to see a positive absorption rate at 145,000 square feet. Last quarter, the county saw a negative absorption of 41,000 square feet. The county saw a negative absorption of 501,000 square feet during the third quarter of last year.

Palm Beach County had the highest asking rents in South Florida for warehouses and manufacturing facilities at $9.28 a square foot and $9.11 a square foot, respectively.

Palm Beach’s warehouse rent set a new second since at least the second quarter of 2016. The rent was $9.23 per square foot in the second quarter, and $9.06 per square foot in the third quarter of 2019.

Palm Beach is home to the least amount of new industrial construction at 1 million square feet. Most of the construction is in central Palm Beach, with 550,000 square feet of warehouse space.

In Palm Beach County, all five of the largest leases signed were new. The county’s largest lease was 52,000 square feet for Fun Sweets at 501 103rd Avenue. The other top leases were Shyft Group signing 35,000 square feet at Palm Beach Park of Commerce, IM Management signing 24,000 square feet at International Corporate Center II, Palm Beach Laundry and Linen Service signing 21,000 square feet of space at Interstate Industrial Park, and Florida Department of Health signing 20,000 square feet at Airport Logistics Park.

In August, SunTrust Equity Funding paid $21.8 million for land leased to Amazon within the Palm Beach Park of Commerce.

Palm Beach County’s largest sale in the quarter was the $51 million Oak Street Real Estate Capital deal at the Park at Broken Sound.

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Paul Singer of Elliott Management (Getty; iStock)

Paul Singer of Elliott Management (Getty; iStock)

Paul Singer is taking his talents to West Palm Beach.

The billionaire is moving the headquarters of his hedge fund, Elliott Management, from Midtown Manhattan to West Palm, adding to a trend of financial firms setting up shop in South Florida, according to Bloomberg.

While Florida has no state income tax, a major motivator of the relocation appears to be that Singer’s co-chief investment officer and expected successor, Jon Pollock, relocated to his West Palm home during the pandemic. Other senior executives at Elliott Management have also moved to Florida full-time, Bloomberg reported.

Elliott Management, based at 40 West 57th Street, will still keep a presence in New York and will also open an office in Greenwich, Connecticut. It is unclear how many of the firm’s 466 employees will move to Florida. Singer himself will continue to spend most of his time in the Northeast, including at his apartment on the Upper West Side, the New York Times reported.

Company executives are hoping that opening an office in South Florida can help the firm attract more talent in the future, according to Bloomberg.

Elliott’s move will increase hedge fund assets in Florida by more than half, according to data from research firm Preqin, Bloomberg reported.

The move follows Carl Icahn’s investment firm’s relocation to Sunny Isles, Florida. Ken Griffin’s Citadel also plans to open a Miami office next year, according to Bloomberg.

Many hedge funders own second homes in Miami Beach or Palm Beach, but few have migrated to South Florida year-round and even fewer companies have moved their corporate headquarters from the Northeast.

In many cases, the firms that have moved south have only opened small offices rather than relocate the majority of their employees. This includes the hedge fund of billionaire Paul Tudor Jones, who opened an office on Banker’s Row in Palm Beach in 2016 shortly after buying an estate on the tony island for $70 million.
[Bloomberg] — Keith Larsen

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Wayne Gretzky and his wife Janet Marie Gretzky with the home (Credit: Google Maps and Allen Berezovsky/WireImage via Getty Images)

Wayne Gretzky and his wife Janet Marie Gretzky with the home (Credit: Google Maps and Allen Berezovsky/WireImage via Getty Images)

Former NHL superstar and Los Angeles King Wayne Gretzky is selling the Thousand Oaks estate he and his wife Janet built 20 years years ago.

The couple listed the 13,000-square-foot Colonial Revival-style mansion for $22.9 million, according to the Wall Street Journal.

The home sits on 6.5 acres above Sherwood Country Club and is part of a gated community connected to the club. The Gretzkys flipped another property at the country club in 2017.

The recently-listed property has six bedrooms, a home theater, billiards room and a gym. The grounds have manicured lawns, a pool, tennis court and a garden, along with a guesthouse. Gretzky, who played for the Kings from 1988 to 1996 and was nicknamed “The Great One,” did not build a hockey rink on the property.

The couple has a strong connection to the home. They sold it in 2007 — to former baseball player Lenny Dykstra — for $18.5 million, when the family moved to Arizona where Gretzky was coaching the Phoenix Coyotes at the time.

Dykstra lost the property to foreclosure, according to the Los Angeles Times, and it ended up selling at auction for just $760,000. In 2018, the Gretkzys bought it back, in an off-market deal, for $13.5 million. [WSJ]Dennis Lynch

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Eric Wu (Photo by Aaron Wojack)

In Opendoor’s early days, employees knew what they were up against. And if they didn’t, Spencer Rascoff spelled it out for them.

iBuying was one of the “stupidest” ideas he had ever heard of, Rascoff, then CEO of Zillow, wrote in an email that went around Opendoor’s San Francisco office and became part of company lore.

Eric Wu had the job of keeping his troops on track, even after Zillow’s hard pivot in 2018, when it benched Rascoff and decided to compete head-on with Opendoor in instant homebuying. “We’re going to focus on our business,” he would say.

Opendoor sold nearly 18,800 homes last year, generating $4.7 billion in revenue. But as it prepares to go public, the startup is battling Zillow for dominance in iBuying, a sector that saw just $8 billion in transactions last year but one that both companies believe is the future of residential dealmaking. And Zillow is catching up: Last year, the Seattle-based listings giant bought and sold 10,000 homes, up from 800 in 2018. That dented Opendoor’s market share, which dropped to 64 percent from 70 percent, according to industry analyst Mike DelPrete. Wu must both establish his company’s dominance in a new sector and prove to investors that the sector itself is viable. “As you start to scale a business, it’s similar to flying a plane and you have to fix the plane while you’re flying,” Wu said in 2018.

Read related story: Can iBuying go the distance?

Opendoor thinks it can standardize how people buy and sell single-family homes. The company was the brainchild of PayPal alum Keith Rabois, who got the idea in 2003 and got Wu to join him a decade later.

Rabois wasn’t dreaming small dreams. “I don’t think Opendoor will have revenue the size of Wal-Mart next year,” he told Forbes in 2016. “But we’ll be in the billions of dollars very fast.”

He was right. By 2019, Opendoor had raised a total of $1.3 billion in equity and $3 billion in debt from investors including SoftBank and Len Blavatnik’s Access Industries. Opendoor’s September deal to go public through a merger with Chamath Palihapitiya’s blank-check company will give it even more firepower: $1 billion in cash.

Wu, an unassuming 37-year-old who sold a prior startup to Trulia and has invested in nearly a dozen more, envisions Opendoor to be a one-stop shop for buying and selling real estate online.

“This is our North Star,” he said in July 2019. “If we continue to deliver a super experience at the lowest cost, I do see a world where we can be a winner-take-most category. The classic example is Amazon.”

Bad employees = good founders

The son of Taiwanese immigrants, Wu grew up outside of Phoenix and was raised by his mother after his father died when Wu was four. He was 19 when he bought his first house for $110,000, using university scholarship money for the down payment. Wu turned the garage into two studios and rented them out.

“I didn’t want to pay rent,” he told CNBC last year.

By 2005, Wu owned 25 homes. He moved to San Francisco and in 2008 co-founded RentAdvisor, a rental review company that raised $7.4 million before being acquired. In 2010, he co-founded geodata real estate site Movity, which Trulia acquired in 2011.

Wu stayed at Trulia two years, long enough to rankle his bosses. “I was a bad employee,” Wu said during a one-on-one session with former Trulia CEO Pete Flint at last year’s Proptech CEO Summit. “I wanted to break through walls — that was the founder mentality.”

“I think you were quite difficult,” Flint said. Wu readily admitted leadership didn’t come naturally to him and credited executive coaches — he had six — with helping him hone his craft.

When pitching Movity at startup incubator Y Combinator, Wu met Rabois. Three minutes into his pitch, Wu recalled, Rabois tried to recruit him to “Project Homerun,” a precursor to Opendoor. Wu turned him down but came around two years later.

Opendoor came out of stealth mode in 2014 with a $10 million Series A led by Khosla Ventures.  Silicon Valley elite including PayPal co-founder Max Levchin, former Facebook CFO Gideon Yu, Eventbrite co-founder Kevin Hartz and Y Combinator’s Sam Altman participated in the round.

Within a year, Opendoor was buying a home a day in Phoenix, its first market. Employees sounded a bell each time they put one into contract.

“It was like chasing a boulder downhill,” an early employee recalled. “It felt like the whole world thought we were crazy.”

In a 2018 conversation with Opendoor investor GGV, Wu suggested he was OK with that.

“If you’re not comfortable with being misunderstood for long periods of time,” he said, “you probably shouldn’t do anything new or interesting.”

Haters gonna hate

Agents responded to iBuying with a mix of fear and loathing.

At its core, the business is “fairly risky,” said Bill Raveis, chairman of William Raveis Real Estate. Hoby Hanna, president of Howard Hanna Real Estate, said iBuyers haven’t been able to move the needle despite their heavy investments. “Some of us are making profits,” he said.

“I guess it’s good to be hated,” Wu told tech journalist Kara Swisher last year. “Realtors will have to evolve to be advisers.”

Steve Murray, founder of research firm Real Trends, said current dynamics favor the open market.

“If I’m a listing agent going out to a $400,000 to $500,000 home in Denver,” he said, “it won’t last two days. And you’ll get full price.”

Agents aren’t the only skeptics. Critics say Opendoor’s model requires it to lowball sellers to maintain margins, a claim that its executives deny.

“If we undervalue, we undermine customer trust,” Opendoor CTO Ian Wong told Forbes in August. “And if we overvalue, obviously, that’s bad for business.”

The firm doesn’t deny that its offers are slightly below the open-market price and target sellers who want the certainty of an immediate deal.

It’s not clear, however, if enough sellers fit that bill to make Opendoor profitable.

“The one-click [home sale], while it sounds amazing, is unlikely for the vast majority of folks,” said Sean Black, a co-founder of Trulia and now the CEO of home trade-in startup Knock. “The home is the biggest savings account.”

Observers noted that low housing stock coupled with high demand could make iBuying unsustainable.

Even in Phoenix — iBuying’s current epicenter — iBuyers have a mere 1.5 percent of the market, down from 6 percent in the third quarter of 2019, according to local economist Mike Orr. Opendoor, which bought 300 to 400 homes a month at its peak, is now buying just 60 to 80.

“The supply of homes in their price range is extremely low,” Orr wrote in an email. “I am not sure if it is deliberate or if circumstances forced their hand.”

Fat yet frugal

Over the past decade, investors desperate to put capital to work and anxious to discover the next Facebook or Google have thrown billions of dollars at tech startups sometimes more money than was good for them. In 2017, the New York Times listed Opendoor among its list of what it described as “fat startups.”

The company raised $320 million in its first three years in business, earning unicorn status in late 2016. The cash powered its rapid growth: By late 2017, Opendoor was spending $100 million a month to purchase homes. Opendoor raised $400 million from SoftBank in 2018 and $300 million from General Atlantic last year. Rabois objected, citing SoftBank’s ties to Saudi Arabia and telling The Information that the size of its checks was breeding indiscipline.

But inside Opendoor, executives closely watched costs.

“You’d hear, ‘We eat basis points for breakfast’ around the office for years,” co-founder JD Ross said in a Sept. 21 tweet. (Ross left Opendoor in late 2018.)

In the spring of 2019, Opendoor asked several hundred staffers to relocate to Phoenix and, under a new “culture of frugality,” it stopped offering free lunch.

“We had a salary cap at Opendoor. No employee made more than $120,000 for two years,” Wu said at Proptech CEO Summit. “That’s really hard when your engineering team is saying, ‘Eric, no one can live in San Francisco on $120,000.’ There’s no reason to spend your hard-earned dollars, or your hard-raised dollars from VCs, in a sloppy way.”

Although the company lost $339 million in 2019, it was making money on each transaction in most markets, its IPO filing shows. Still, its cash needs were massive and complex, even before Covid.

Opendoor relies heavily on debt to purchase homes, often financing 80 percent to 90 percent of each deal. Raising debt and equity simultaneously has posed a unique challenge over the years. “Equity investors want massive bets and huge upside,” Wu said in 2018. “Debt investors want downside protection.”

Covid comeuppance

When the pandemic whacked Opendoor’s balance sheet, it challenged an internal belief that the company would thrive in a down market.

“We planned around a U-shaped curve,” said an early employee. “Now here’s an L-shaped curve, and it looked scary.”

As the spread of Covid proliferated by March, Opendoor was forced to suspend iBuying activities, as were its rivals. But unlike Zillow, iBuying was Opendoor’s only source of revenue.

“The effect is akin to an airline losing both engines while in flight,” DelPrete wrote.

Opendoor raced to sell off inventory. By May, it had laid off 600 people, or 35 percent of its staff.

Many were shocked, five months later, when Opendoor said it would go public with Palihapitiya’s Social Capital. Sources speculated that VCs weren’t keen to write another big check.

A former employee cast the move this way: “It feels like a Hail Mary.”

The seeds of Opendoor’s SPAC deal were planted in May, when an Opendoor board member who knew Social Capital director Adam Bain told him Wu was interested in learning about SPACs. Bain, a former COO of Twitter, knew Wu and held a small stake in Opendoor.

Over the next few months, a deal took shape. Ten days before going public with the merger, Bain, Wu and Opendoor CFO Carrie Wheeler finalized an investor presentation with Palihapitiya over dinner at his home, according to regulatory filings.

“This is my next big 10x idea,” Palihapitiya, who took Virgin Galactic public in April and is a part-owner of the Golden State Warriors, tweeted Sept. 15. At press time, the SPAC that’s merging with Opendoor was trading at $22.86 per share, more than twice its June IPO price.

Palihapitiya has been on a SPAC spree, raising nearly $4 billion since April. In general, the public market is binging on SPACs with 139 SPAC IPOs so far this year, compared to 59 in all of 2019, according to SPAC Insider.

Palihapitiya found himself on the defensive after news reports revealed he would receive $60 million in Opendoor founder’s shares. “I just don’t understand why all of a sudden it’s OK for banks to make money, but it’s not OK for other people to make money,” he told the Financial Times. Besides, he said, Wu and Opendoor’s board were comfortable with the deal.

Phoenix from the ashes

In an investor presentation, Opendoor said capturing 4 percent of the U.S. housing market would make it a $50 billion company. It projected turning profitable in 2023 with $9 million in adjusted EBITDA and $9.8 billion in revenue. Since October, Opendoor has made several C-suite hires: Julie Todaro, an executive from Amazon and Airbnb, as president of homes and services; Netflix alum Tom Willerer as chief product officer; and Wheeler, a partner at TPG, as CFO.

Opendoor’s IPO filing shows the company actually had $789 million in working capital as of June 30. “Originally, a SPAC deal wasn’t the route we wanted to take,” Wu said on CNBC. “A couple of things drew us to this path. One was speed to market.”

With proceeds from the deal, Opendoor will expand to 100 markets from 21. The company disclosed it makes an average profit of $5,000 per transaction and estimates it can reel in another $6,600 per home with added services.

“They juice the economics because there’s margin to each of those additional products,” said Fifth Wall’s Vik Chawla, an investor in the firm.

Stuart Miller, CEO of homebuilding giant Lennar, an investor in Opendoor, said the startup could play a key role in its sales funnel.

“Many customers come to Lennar sales centers with homes of their own to sell, and Opendoor can assist them,” Miller said in a 2018 earnings call.

DelPrete said Opendoor’s playbook holds up only if there are 50 other markets like Phoenix.

“Right now, there’s one Phoenix and nobody comes close,” he said. But he said Opendoor has had years to refine their iBuying playbook.

“One of the biggest competitive advantages they have is cash,” he said. “They have a huge amount of capital, and by IPOing, they’re going to have even more.”

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Itai Kathein and Jay Adair with the distribution center on the property (Credit: Google Maps)

Itai Kathein and Jay Adair
with the distribution center on the property (Credit: Google Maps)

Going … going … gone. A publicly traded provider of online car auctions paid $34.75 million for 117 acres of land in the Homestead Park of Commerce.

Copart USA, founded in 1982 and based in Dallas, bought the land at Southeast 36th Avenue and Southwest 336th Street. The site includes a 32,453-square-foot Class A distribution warehouse, according to a release.

The seller is Sure Equity Partners, a Plantation-based private equity firm led by tech entrepreneur Itai Kathein. Sure Equity bought the land in November 2018 for about $20 million, records show.

Copart will use the site to store vehicles in the event of a natural disaster. The site also features a 17-acre lake slated Copart hopes to improve with a walking trail for public recreation, according to the release.

JLL’s Brian Smith, Audley Bosch and Matt Maciag represented the seller. Ed Redlich of ComReal represented the buyer, according to the release.

JLL called it the largest industrial land sale recorded in Miami-Dade County over the past three years.

Copart operates more than 200 locations across 11 countries and has more than 175,000 vehicles for auction a day, according to its website. In September, the company reported net income of $165.5 million for the quarter ended July 31. It previously bought a massive industrial site in the Charleston neighborhood of Staten Island for $13.9 million in 2016.

Other industrial projects proposed for the Homestead area include an Amazon distribution center and a 145,000-square-foot distribution facility west of the motor racing track.

The post Sold! Online auto auctioneer pays $35M for Homestead land appeared first on The Real Deal South Florida.

The National Multifamily Housing Council’s monthly payment tracker found that 90.6 percent of those households paid some rent by Oct. 20. (iStock)

The National Multifamily Housing Council’s monthly payment tracker found that 90.6 percent of those households paid some rent by Oct. 20. (iStock)

Rental payments for market-rate apartments are holding steady from September, but down slightly from last year.

The National Multifamily Housing Council’s monthly payment tracker, which collects data on collections in 11.4 million market-rate units, found that 90.6 percent of those households paid some rent by Oct. 20. In 2019, about 200,000 more of those households paid rent.

In September, only 76.4 percent of those households made a rent payment in the first week of the month. That share ticked upward throughout the month, however, and by the end of September, 90.1 percent of renters had scraped together at least some rent.

The units that NMHC tracks do not include subsidized housing or rent-regulated apartments, which generally cater to lower-income renters. In New York City, those apartments have consistently lagged behind the national survey of market-rate rent collections.

Gauging the overall health of the multifamily market has been hampered by policy measures that seek to keep renters in their home, including federal, state and local limits on evictions, as well as forbearance programs for multifamily borrowers.

During the pandemic, the Census Bureau has conducted regular surveys of nearly 60 million rental households. In September, it found that 16 percent of those were behind on their rent, while 22 percent of low-income renter households were not making payments.

The future of the multifamily market hinges on whether or not renters can continue to make payments. Their ability to continue to do so is uncertain, as coronavirus cases increase across broad swaths of the country, renewing the possibility of more shutdowns and less economic activity. While many Americans wait to return to work, talks of another economic relief package have stalled.

“The importance of the initial support provided to apartment residents by the CARES Act is becoming increasingly clear,” said Doug Bibby, president of NMHC, in a statement. “However, that support has now long since expired and the savings households were able to build are evaporating quickly. NMHC continues to urge lawmakers to come together and pass meaningful assistance to support renters and keep America’s rental housing sector stable.”

The post Rent collections in market-rate apartments stagnate in October appeared first on The Real Deal South Florida.

A rendering of Downtown 1st and Carlos Melo (Credit: Sonya Revel)

A rendering of Downtown 1st and Carlos Melo (Credit: Sonya Revel)

A city of Miami board rejected plans for Melo Group’s latest downtown Miami project, and approved plans for separate projects from Crescent Heights and the Related Group.

On Wednesday, the Miami Urban Development Board unanimously approved Crescent Heights’ 38-story tower at 2900 Biscayne Boulevard and a 37-story mixed-use project at 225 North Miami Avenue that Related and ROVR Development are planning to build.

A rendering of Crescent Heights Nema

A rendering of Crescent Heights Nema

It rejected Melo’s Downtown 1st, a 57-story mixed-use building that would take up three city blocks in downtown Miami between Southwest First Street and Southwest Second Street. Melo Group principal Carlos Melo, who is an architect, refused to alter the design of the 570-unit project after board members took turns bashing the proposed building. The firm can either come back to the board with a new design or file an appeal with Miami’s planning and zoning director.

Board chairman Willy Bermello said he was having a hard time getting excited about Downtown 1st. “There are some integral mistakes here [such as] the frontage and the placement of the tower on the pedestal,” Bermello said. “I am having issues granting waivers for something where I don’t see a benefit to the city or the adjacent community.”

Board member Anthony Tzamtzis echoed Bermello. “I feel the building is excessive and monolithic,” he said. “We have seen this type of work before and we turned it down.”

But Melo said he didn’t see any problems with the proposed design. “I feel this building is a very great product for the market we are focusing on,” he said. “I am an architect too and I have been in this business since I was 17 years old.”

In addition to apartments, Downtown 1st would also have 10,000 square feet of office and ground floor retail space. The building would be located at 22, 30 and 34 Southwest First Street, 35, 25 and 19 Southwest Second Street, and 112 South Miami Avenue.

Rendering of The District

Rendering of The District

At Wednesday’s meeting, the board approved The District, a 37-story mixed-use project with 343 residential units and nearly 2,300 square feet of ground-floor retail space. Related is partnering with ROVR Development, led by Oscar Rodriguez and Ricardo Vadia, on the downtown Miami project.

Board members also gave Crescent Heights the green light to move forward with a 38-story mixed-use building in Miami’s Edgewater neighborhood that would feature a ground floor retail space for an organic grocer. It’s the first phase of a larger plan to redevelop the area.

The post Miami board approves plans for Related, Crescent Heights towers and rejects Melo’s proposal appeared first on The Real Deal South Florida.

Existing home sales rose again in September as listed inventory sunk to a new low. (iStock)

Existing home sales rose again in September as listed inventory sunk to a new low. (iStock)

Sales for previously owned homes surged for a fourth consecutive month, but the number of properties for sale sunk to a new low.

In September, 6.5 million homes sold, seasonally adjusted, according to the National Association of Realtors’ monthly report — a jump of 9.4 percent compared to August. Sales were also up 21 percent year-over-year.

While demand is high, supply is low: Existing housing inventory sank to a record low of 1.47 million, which would be sold within 2.7 months at the current sales rate.

September’s inventory is a 1.3 percent drop compared to August levels, and about 19 percent compared to September 2019.

The median sales price continued to climb, clocking in at more than $311,000. The median sales price for existing homes surpassed $300,000 for the first time in July.

According to NAR, 71 percent of the 6.5 million homes sold were on the market for less than a month. About a third of September’s homebuyers were purchasing their first home, while 12 percent of buyers were snapping up a second home or investment property.

Lawrence Yun, NAR’s chief economist, said September’s surge in sales deviates from the typical dropoff that occurs at the start of fall. He attributed the difference in consumer behavior to low mortgage rates and “an abundance of buyers,” in part those looking for vacation homes now that working from home has become more prevalent.

Yun noted that low inventory continues to represent a significant headwind for the sales market.

“There is no shortage of hopeful, potential buyers, but inventory is historically low,” he said. “We have seen some homebuilders move to ramp up supply, but a need for even more production still exists.”

[contact-form-7]

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Floyd Mayweather & 5501 Pine Tree Drive, Miami Beach (Credit: Google Maps and Jun Sato/Getty Images)

Floyd Mayweather & 5501 Pine Tree Drive, Miami Beach (Credit: Google Maps and Jun Sato/Getty Images)

Professional boxer Floyd Mayweather Jr. sold his waterfront Miami Beach home for $6.3 million, taking a loss of over $1 million.

Records show Mayweather, as trustee of The West Coast Legacy Trust, sold the property at 5501 Pine Tree Drive to Julian and Natalia Saban.

The boxing champ bought the four-bedroom, five-bathroom house in 2016 for $7.7 million, according to records. That means Mayweather, who is known as “Money Mayweather,” took a $1.4 million loss on the sale.

Last year, Forbes named Mayweather the highest paid athlete of the decade, with $915 million in earnings. Of that, he pocketed more than $500 million, alone, for his 2015 and 2017 fights with Manny Pacquiao and Conor McGregor.

Mayweather started his professional boxing career in 1996 and retired in 2015 with a record of 49-0. He came out of retirement in 2017 to fight famed MMA fighter McGregor.

The 5,200-square-foot home was built in 2015 and features white glass and wood flooring, floor-to-ceiling windows in almost every room, and has a Cameo white lacquer kitchen, according to a previous listing.

The outdoor area is fit for a champ too, including an infinity-edge pool, 80 feet of water frontage with a boat dock and 10-foot tall Ipe wood privacy walls.

Pine Tree Drive, which runs along the Intracoastal Waterway, has had plenty of high-priced waterfront sales recently. HES Group’s managing partner and founder sold a waterfront home on Pine Tree Drive for $7 million, an auto insurance mogul sold a 10,000-square-foot mansion for $7.3 million and JFK’s nephew, Anthony Kennedy Shriver, sold his Pine Tree Drive home for $8.15 million.

[contact-form-7]

The post Taking it on the chin: Floyd Mayweather Jr. sells Miami Beach home at a loss appeared first on The Real Deal South Florida.

Bill Gurley of Benchmark (Getty; Unsplash)

Bill Gurley of Benchmark (Getty; Unsplash)

No office, no problem, according to one of Silicon Valley’s major tech investors.

In a concerning turn for commercial landlords hoping that tech companies will fill office buildings, Bill Gurley of Benchmark said an office is no longer a criteria for the startups that his venture capital firm funds.

“We are now backing startups without offices, which isn’t something we had done before,” said the longtime tech investor in an interview with Bloomberg last week. His track record includes investing in Zillow Group and Uber.

Gurley explained that most of the early-stage companies he backs are five to 10 people and those firms are being founded without offices. He also said that without a physical office requirement, companies are more likely to hire geographically diverse candidates — and spend less money.

“People struggled with building large engineering teams [in Silicon Valley] anyway because it was just so competitive and expensive,” Gurley said in the interview. Silicon Valley is among the most expensive housing markets in the nation, although rents have fallen in San Francisco during the pandemic.

Large tech companies have already leaned into remote work with several opting to make it a permanent fixture of their corporate culture. They include Twitter, Facebook, Dropbox and Zillow.

But Gurley’s view on remote work might still be an outlier among venture capitalists. In a June survey about 60 percent of VC firms said they were less likely to invest in a startup that didn’t have an office. But a lot can change in four months, as this year has proven.

[CNBC] — Erin Hudson

The post Benchmark’s Bill Gurley: We’ll now back startups without offices appeared first on The Real Deal South Florida.

1500 West 21st Street and Todd Glaser (Glaser by Mary Beth Koeth, Todd Michael Glaser)

1500 West 21st Street and Todd Glaser (Glaser by Mary Beth Koeth, Todd Michael Glaser)

Spec home developer Todd Michael Glaser paid $5.9 million for a waterfront home he is building, and plans to list it for nearly $10 million.

Andrew Mirmelli sold the partially completed home at 1500 West 21st Street on the Sunset Islands to Glaser, who said he will list it for $9.9 million with Douglas Elliman agent Dina Goldentayer.

Glaser was building the Miami Beach home for Mirmelli, but ended up buying the property from him. The 4,700-square-foot house, which is on Sunset Island IV, is about three months from completion, Glaser said. It will have 1,600 square feet of terrace space, six bedrooms, seven-and-a-half bathrooms, a negative edge pool, boat dock and a new seawall. The three-story home also features a rooftop terrace.

Dina Goldentayer

Dina Goldentayer

Property records show Mirmelli paid nearly $3 million for the 8,700-square-foot lot last year.

Mirmelli owns M&M Parking Management in Miami Beach, which owns private parking lots. He is also a real estate investor. In June, he sold a retail center in Lauderhill for nearly $13 million, one year after acquiring it for $10.6 million.

Glaser has been especially active over the past six-plus months in Miami Beach and Palm Beach. Last month, he sold the waterfront spec mansion at 6650 Allison Road for $15.2 million. Also in September, he and his partner Rony Seikaly acquired a partially completed home on Sunset Island III from architect Kobi Karp for $6.7 million, with plans to list the finished mansion for nearly $18 million.

Glaser also sold a $14.4 million spec home on Sunset Island IV in Miami Beach to Tampa Bay Rays co-owner Randy Frankel in August.

[contact-form-7]

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Mike Nunziata & the site map

Mike Nunziata & the site map

13th Floor Homes’ longtime plans to develop a housing community on former golf courses in Tamarac are moving forward.

In a 6 to 2 vote on Wednesday, Broward County commissioners approved 13th Floor Homes’ plan to rezone the Woodlands Country Club’s two golf courses at 4600 Woodland Hills Boulevard to build 397 single-family homes.

Miami-based 13th Floor Homes first announced the development plans in 2017. The plans have since changed, shaving the number of homes down from 525. The earlier plan stated that the homes would be priced in the $300,000s, have at least 2,000 square feet and include at least three bedrooms.

The plan now includes over 160 acres of preserved open space with new lakes, a five-mile recreation trail and a new clubhouse, according to a spokesperson.

Developers like 13th Floor have been picking up golf course properties in recent years as the sport’s popularity continues to fall and vacant land for residential development becomes increasingly scarce.

In March, 13th Floor Homes spent $5.6 million on Villa Del Ray Golf Club in Delray Beach. In 2018 it bought another Delray Beach golf course for $5.4 million.

[contact-form-7]

The post 13th Floor scores approval for housing community on former golf course in Tamarac appeared first on The Real Deal South Florida.

(iStock)

(iStock)

The share of older Americans with housing debt has doubled over the last 20 years, rising from 15.3 percent in 1995 to 32.7 percent in 2016.

Blame refinancings.

A recent analysis published by the Harvard Joint Center for Housing Studies found that equity extraction, refinancing and extended loan terms largely account for the increase in seniors’ housing debt over the last two decades. Among older Americans, the amount of debt jumped from $27,090 in 1995 to $70,000 in 2016, after adjusting for inflation.

The analysis used data from the Survey of Consumer Finances to examine the effects of a variety of factors on the growth in seniors’ household debt. Some factors were demographic, including race, income, wealth, the age at which homeowners took out mortgages, the rate of homeownership, the number of years the homeowner owned the property and home purchase price.

The remaining factors included loan term length, whether the homeowner refinanced their mortgage and whether the homeowner extracted equity from their home.

The analysis found that, all told, demographic factors only account for about 25 percent of the growth in debt. Far bigger contributors were “mechanisms that increase the incidence of debt conditional on the number of years that households have owned their homes,” wrote Jonathan Spader, the study’s author.

One such mechanism is refinancing. Term refinancings have nearly quadrupled over the last two decades, with the share of older households who had refinanced mortgages tripling to 10.7 percent in 2016 from 3.4 percent in 1995.

Another mechanism, according to the study, is mortgages with terms exceeding 30 years. The share of older households with such mortgages increased to 13.5 percent in 2016, up from 3.5 percent in 1995.

Spader suggests that older Americans are increasingly turning to refinancing and longer-term loans because they reduce monthly mortgage payments and allow more room for spending. Another possible explanation is that extended terms are an unintended consequence of households refinancing in a low interest rate environment and treating the 30-year mortgage as the default.

Refinancings among all American homeowners fell in the last week of August 2020, according to the Mortgage Bankers Association, but were still up by 40 percent over last year, with many homeowners taking advantage of historically low interest rates.

The post Older Americans increasingly saddled with housing debt appeared first on The Real Deal South Florida.

When George Schneider decided to sell his home this spring, Opendoor made him an offer he couldn’t refuse.

Schneider had paid $76,750 for his three-bedroom stucco house in the Phoenix suburbs a decade earlier. Opendoor, the iBuying startup backed by SoftBank and Lennar, was willing to pay him $225,000, all-cash.

The deal closed in August. After a paint job and minor repairs, Opendoor turned around and sold the property for $265,000, making $40,000 before expenses. But $40,000 doesn’t go too far when you’ve got to pay broker fees, taxes, interest and holding costs.

iBuying, the catchy handle for algorithmically driven instant-homebuying, is one of the biggest wagers seen in the residential real estate industry over the past five years. Established giants like Zillow have dumped hundreds of millions of dollars into developing their platforms, while startups like Opendoor and Offerpad have relied on venture capital firepower to compete. Last year, iBuyers purchased $8.1 billion worth of homes — so far just 0.5 percent of the U.S. housing market but twice the volume of the year prior. Since 2015, the number of players in the space has gone from two to two dozen. The goal is a lofty one: to institutionalize the U.S. single-family home business, one of the world’s largest and most fragmented marketplaces.

Read related story: This many wants to make your home a commodity

Sellers get speed and the certainty of an immediate offer, benefits for which many give up the premium they could have got from the standard selling process. But for iBuyers, the financial burden is tremendous, and the path to profitability deeply uncertain. Last year, Zillow lost more than $300 million on iBuying. Opendoor, which is set to go public in a $4.8 billion merger with a blank-check company, has lost nearly $1 billion since it launched in 2013.

In 2019, Glenn Kelman, CEO of online brokerage Redfin, which had dipped its toes into iBuying, called the business a “race to the bottom.” And increased competition could make profitability even more unlikely.

“When those guys [iBuyers] start competing and making offers,” said Gilles Duranton, a real estate professor at the University of Pennsylvania’s Wharton School, “the seller is going to sell to the iBuyer with the best offer, to whoever is making the biggest mistake on price.”

From eBay to Amazon

Homes are traditionally valued using “comps,” or an analysis of how much similar homes in the same area traded for. Comps, iBuyers argue, fail to take into account the unique characteristics of each property. iBuying uses algorithms to generate what they claim are far more accurate assessments of value by analyzing hundreds of different data points — everything from whether a home has granite or Formica countertops to the size of a home’s outdoor space.

The iBuyer will then make an offer for the home based on this value and collect fees of between 6 and 10 percent. The aim is to make minimal necessary repairs and quickly sell the home at a profit.

“Agents who dismiss the iBuyers as ‘flippers,’ I think they’re doing that at their own peril,” said Lane Hornung, founder of zavvie, a Denver-based startup that aggregates different iBuyer offers for sellers.

Brendan Wallace, a managing partner of real-estate focused Fifth Wall Ventures and an investor in Opendoor, described the current U.S. residential landscape as the “largest peer-to-peer market on earth.”

“It’s a gigantic eBay for homes, the most expensive asset most consumers ever purchased,” Wallace said in May. “And as a result, the information, the transparency, the speed of transactions are all suboptimal.” A company like Opendoor, Wallace said, “can capture data, provide transparency around the sale. So you just have a higher level of quality, a higher level of experience.” iBuyers can also standardize other aspects of the homebuying process that are currently cumbersome and opaque, such as title insurance.

But others feel iBuying can be detrimental to consumers. “What ends up happening is, sellers sell for less than they could have gotten, and buyers pay above market rate,” said Shaival Shah, co-founder and CEO of Ribbon, a startup that helps buyers make all-cash offers.

Some said the model is viable when home prices are rising, but given its razor-thin margins, will be tested if the market turns.

“Suppose they buy at a 3.6 percent discount and sell at a 1 percent premium,” said Tomasz Piskorski, a professor of real estate at Columbia Business School. “If housing prices drop by 5 percent, it erodes their ability to make money.”

Nima Wedlake, an investor at Thomvest Ventures, which has backed startups such as SoFi, Ladder and Lending Club, said he considered investing in several iBuyers but was deterred by their  constant need for capital.

“We didn’t fully grok the model,” he said.

Mayday in March

By late March, with Covid at its height in the U.S., all of the major iBuyers suspended activities, citing massive uncertainty around pricing and fearing a housing bust. But that meant suspending a key (and, for Opendoor, only) source of revenue.

“The effect is akin to an airline losing both engines while in flight,” industry analyst Mike DelPrete wrote at the time. The pain was acute, and the repercussions swift. Within weeks, Zillow slashed expenses by 25 percent, Redfin furloughed 41 percent of agents, and Opendoor laid off 600 employees, or 35 percent of its workforce. 

(Click to enlarge)

In retrospect, the freeze worked to iBuyers’ advantage, allowing them to avoid racking up too much inventory while nonessential businesses, including brokerages, were closed and home showings impossible. Between February and July, Opendoor reduced its inventory to $172 million worth of homes, down from over $1 billion, according to its financial statements.

Then the housing market rebounded with surprising ferocity. By May, Redfin said demand was up 17 percent compared to pre-Covid levels. July home sales surged 24.7 percent month-over-month, the largest gain since 1968, according to the National Association of Realtors.

Last month, Opendoor announced that it was going public through a merger with a blank-check company run by noted investor Chamath Palihapitiya.

“This is my next big 10x idea,” Palihapitiya, who took Virgin Galactic public in April and has invested in firms like Slack and Yammer, tweeted at the time. Opendoor declined to comment for this story, citing a quiet period before going public.

Trojan horse

iBuyers have taken pains to emphasize that they are not here to replace residential agents.

“Last year, we paid tens of millions of dollars in agent commissions,” Opendoor notes on its website. Zillow, too, has stressed that agents remain central to the homebuying process.

But last month, Zillow said it would start employing salaried agents, who would represent Zillow in its home purchases. In those transactions, Zillow Homes will be the broker of record, the company said. Atlanta, Phoenix and Tucson are first on deck with plans to expand to other cities later next year.

The move incensed agents, who spent nearly $1 billion last year advertising on Zillow.

“I’ve heard agents today saying, ‘Well, why am I buying leads from my competitor?’” said Hoby Hanna, president of Howard Hanna Real estate, a family-owned  firm with $22.5 billion in sales last year according to research firm  Real Trends.

Zillow tried to set the record straight. “Let me address one thing right off the bat,” Errol Samuelson, the company’s chief industry development officer, said in a video message at the time of the announcement. “We are not recruiting agents from other brokerages.”

But Wall Street liked what it saw. On the day of the announcement, Zillow’s stock price hit a record $100 per share. (It was at $105 per share as of press time.) And several analysts raised the company’s price target, suggesting they think the company’s value will go up. “The move should help Zillow improve unit economics,” Deutsche Bank’s Lloyd Walmsley wrote in a Sept. 23 note. He did not think the pivot would hurt Zillow’s lucrative Premier Agent business.

“In order to operate such a business at scale, it will be essential to drive as many costs out of the process as possible,” said Yousuf Hafuda, an analyst at Morningstar.

The full-court press on iBuying plays to what Rich Barton, who took back the CEO reins from Spencer Rascoff at Zillow last year, sees as essential to his company’s long-term prospects.

iBuying was “an existential threat because if it works and we don’t do it, we get displaced as the marketplace, theoretically,” he told the tech news website the Information last October.   

Zillow’s cash cow had historically been agent advertising, but Barton said home purchases had  “a mindbogglingly larger TAM [total addressable market]—$1.8 trillion of secondary market transactions happen a year in the U.S. of homes.”

That figure, however, may not be wholly relevant. In order to buy homes sight-unseen, iBuyers have strict criteria for homes they will purchase. In general, they look for cookie-cutter homes in good condition priced between $200,000 around $600,000. According to Columbia Business School’s Piskorski, the TAM for iBuyers is something like $300 billion — meaning the major players are fighting over a much smaller pot than advertised.

Piskorski also pointed to holding costs as a significant risk. “Owning an empty home is costly,” he said. Zillow declined to comment for this story. 

As the two dominant players, Zillow and Opendoor are racing to add ancillary services to boost revenue, including mortgage, title and escrow services.

In a Sept. 15 investor presentation, Opendoor itemized the contribution margin, on a per-home basis, for a menu of services, including title ($1,750), home loans ($5,000) and listing your old home with an Opendoor agent ($3,750). Eventually, it plans to launch services related to home warranties, remodeling, insurance and moving, which could bring in another $7,500 per home.

DelPrete was skeptical the additions would be a silver bullet. “That’s a whopping 60 percent revenue increase from what they’re currently getting,” he said on a recent webinar. “If it was easy, it would be done already.”

And the financial strains are immense. In 2019, Opendoor lost $339 million, up 41 percent year-over-year from $240 million, it revealed during its presentation. Revenues last year hit $4.7 billion — this year, projected revenue is $2.5 billion, a drop of over $2 billion. 

DelPrete noted that Opendoor had recently lowered its iBuying fee to 6 percent of the home price.

“If Zillow wants to compete, they’re going to have to lower their fees,” he said. “It’s almost like a game of chicken, profitability chicken. … Opendoor is going for it.”

The post Can iBuying go the distance? appeared first on The Real Deal South Florida.

Mayor Bud Scholl and EverWest CEO Rick Stone with 1101 East 33rd Street, Hialeah (City of Sunny Isles Beach, EverWest)

Mayor Bud Scholl and EverWest CEO Rick Stone with 1101 East 33rd Street, Hialeah (City of Sunny Isles Beach, EverWest)

A company tied to the mayor of Sunny Isles Beach and a fellow South Florida real estate investor sold a 160,000-square-foot warehouse in Hialeah for $13.1 million.

George “Bud” Scholl, elected mayor in 2014 and re-elected in 2018, and investor Steven M. Rhodes sold the industrial building at 1101 East 33rd Street, The Real Deal has learned.

EverWest Real Estate Investors, a Denver-based subsidiary of Canadian GWL Realty Advisors, bought the property, according to Andrew Gurewitsch of Windsor Realty Partners, who represented the sellers in the off-market deal.

Andrew Gurewitsch

Andrew Gurewitsch

The building is fully occupied with two long-term tenants: IC Industries, a South Florida corrugated box manufacturing and delivery service, and Schwarz Partners Packaging, part of an Indianapolis-based holding company with interests in corrugated paper and packaging, according to a release.

Built in 1956, the building has 18- to 22-foot clear heights. Scholl and Rhodes bought the building in March 2019 for $9.5 million, records show.

Rhodes’ past deals include selling a two-building industrial property in the West Little River neighborhood of Miami for $10.4 million in 2018, and selling the Orlean building at the entrance of the Miami Design District for $9 million in 2017.

Hialeah has been a popular market for industrial deals in recent months. In November, Gurewitsch represented the buyer in a $26.8 million deal for a 234,146-square-foot fully-leased warehouse at 1000 Southeast 8th Street in Hialeah.

Other recent industrial deals in the Hialeah area include the O’Donnell Group buying an industrial property near Hialeah for $7.6 million in April, and Zaragon buying an industrial facility near Hialeah for $7.55 million in May.

The post Sunny Isles mayor sells Hialeah warehouse for $13M appeared first on The Real Deal South Florida.

Starwood CEO Barry Sternlicht, InTown Suites CEO Ash Kapur and 1071 NE 28th Avenue in Homestead (Getty, Google Maps)

Starwood CEO Barry Sternlicht, InTown Suites CEO Ash Kapur and 1071 NE 28th Avenue in Homestead (Getty, Google Maps)

Starwood Capital Group secured $265 million in refinancing for a portfolio of 58 extended-stay and midscale hotels nationwide, representing a fraction of all the hotels it owns and operates.

Miami Beach-based Starwood hopes to execute the first lien mortgage about Oct. 28, according to a report from Kroll Bond Rating Agency. Starwood will use the funds to pay off existing debt, including a loan secured by 50 of the hotels that went into special servicing this summer.

Starwood owns and operates all of the 58 properties, including one in Homestead in South Florida, and others in Atlanta and Dallas. Fifty InTown Suites in 12 states total about 6,000 keys and 73.7 percent of the allocated loan amount, according to the report. Eight Uptown Suites properties in six metropolitan areas and five states total about 1,000 keys.

Starwood has spent $53.2 million on capital improvements on the properties since 2015, or about $7,000 a key. It has budgeted $14.2 million, or $2,000 a key, for renovations through the end of 2020 on rooms, lobbies and corridors at 44 portfolio InTown Suites properties, the Kroll report shows.

The portfolio had a 75 percent occupancy rate for the trailing twelve months ending in August, an average daily rate of $43.19 and revenue per available room of $32.41, according to the report.

An existing loan secured by the 50 InTown Suites went to special servicing in June, and received a modified six-month extension to January, with one more remaining six-month extension available, the report shows.

The Kroll report lists some concerns with the InTown brand. The brand lacks awareness among consumers and lacks a rewards program to entice them, according to Kroll. Almost half of the InTown properties feature outdated exterior corridors to guest rooms, which could prove difficult to rebrand the properties without capital improvements, if it comes to that.

The InTown properties were built between 1992 and 2007. The Uptown properties were built between 2017 and 2019 for $97 million.

Starwood bought its 50-hotel portfolio of InTown Suites from Mount Kellett Capital Management in May 2015. They are rebranded Sun Suites, Crestwood Suites and Home Towne Suites.

Starwood owns many more InTown Suites than it is currently refinancing. In 2013, Starwood bought 134 InTown Suites from Kimco and four Savannah Suites from Hospitality International in 2014 for $735 million.

According to Kroll, the lower-priced hotel markets in which InTown and Uptown operate fared better than the U.S. lodging industry as a whole under Covid-19.

Across the U.S., revenue per available room fell 80 percent in April, year over year, the worst month so far under Covid-19. It recovered somewhat to a 47 percent decrease year over year in August. Yet, the economy hotel market’s revenue per available room fell 43 percent in April, year over year, and 20 percent in August. And Starwood’s portfolio of 50 InTown Suites’ revenue per available room fell 13 percent in April, and 2 percent in August.

Kroll credits the InTown properties’ heightened performance to longer lengths of stay — 75 days on average — and limited amenities. Starwood CEO Barry Sternlicht previously referred to InTown Suites as like “quasi apartments.”

Almost all of the properties are in primary and secondary markets. Starwood’s Uptown hotel in Homestead, at 1071 Northeast 28th Avenue, is the largest property by allocated loan amount, at 4 percent. Nine properties are in the Atlanta area. Three are in the Dallas area.

The Homestead Uptown Suites is four stories with 127 keys. It opened in November 2018 and has an average length of stay of six days. Occupancy dropped to 44.1 percent in July, but rose to 58 percent in August. It has an average daily rate of $79.03 and revenue per available room of $47.66, according to the report.

Starwood also operates InTown Suites properties in West Palm Beach and Tamarac, but the report did not mention if these were part of the portfolio that was refinanced.

Overall, Starwood has had a tough time with Covid-19. In September, the real estate investment firm lost control of seven shopping centers after defaulting on Israeli bonds earlier this year. It handed over the keys to one of its suburban Chicago malls to its lender earlier this month.

In August, Starwood reported $139.7 million in second quarter earnings, or 49 cents per share, up 10 percent from $127 million, or 45 cents per share, in the same period of 2019. The REIT reported $265.6 million in revenue for the second quarter, down 14.6 percent from $311 million in the second quarter of last year.

Earlier this month, Starwood sued Ziel Feldman’s HFZ Capital Group, alleging that the developer defaulted on loan payments at an Upper West Side co-op conversion and failed to abide by a forbearance agreement.

In March, an affiliate of Starwood Capital Group bought the Villa Biscayne Apartments in Homestead for $28.3 million.

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A rendering of Adela at MiMo Bay, Michael Van Der Poel of ACRE, and QuadReal CEO is Dennis Lopez

A rendering of Adela at MiMo Bay, Michael Van Der Poel of ACRE, and QuadReal CEO is Dennis Lopez

UPDATED, Oct. 22, 7 p.m.: The developers of the American Legion property in Miami’s MiMo District launched leasing of the first phase and plans to break ground on the second phase next year.

Private equity firm Asia Capital Real Estate, also known as ACRE, QuadReal Property Group, the real estate investment arm of the British Columbia public employees’ pension, and Global City Development completed the first phase apartment complex Adela at MiMo Bay.

LMC, Lennar’s multifamily property management company, will manage and lease the 236-unit, five-story, waterfront apartment complex at 6445 Northeast Seventh Avenue.

The developers received a $51 million construction loan for the project in 2018. In a lawsuit filed the following year, Berkadia alleged the developers didn’t pay a $500,000 “success fee” for Berkadia’s help with arranging the financing. Court records show the the lawsuit was dismissed in November 2019.

The developers plan to break ground on the second phase, a 248-unit apartment building planned for the adjacent 3.5-acre development site, next year. Previous plans called for nearly 500 condos and three towers, and the developers sought to gain a Special Area Plan from the city, only to later call off the plan.

The development includes a new 15,000 square-foot American Legion facility.

Adela at MiMo Bay features a swimming pool, a 3,200-square-foot fitness center and a pet spa. Apartment rents range from $1,740 for a 620-square-foot studio to about $4,055 for a 1,553-square-foot, three-bedroom, two-bathroom unit, according to an online listing.

In August, ACRE lent Wood Partners $86.3 million to refinance the loan for its 387-unit apartment complex in Midtown Miami.

Adela at MiMo Bay joins a number of newly completed apartment buildings that have started to lease up during the pandemic in South Florida. AMLI Midtown Miami, a 719-unit complex at 3000 Northeast Second Avenue, near Miami’s Edgewater neighborhood, and Miami Plaza, a 36-story, 425-unit apartment tower at 1500 Northeast Miami Place, both launched leasing since March.

In June, QuadReal partnered with LaTerra Development to invest $250 million into multifamily properties across Southern California.

An earlier version of this story did not include one of the developers. 

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Ryan Serhant (Getty Images)

Ryan Serhant’s decision to launch his own brokerage last month reignited a popular debate in the residential real estate industry: What’s the best way to harness an agent’s star power?

Though Serhant’s breakaway embodies what brokerage leaders fear when a superstar agent and lead-generation machine needs the firm less than it needs him, it is the exception rather than rule. Most celebrity agents reject the idea of founding their own firm and dealing with the red tape that involves.

“What’s the benefit? I can’t even see it,” said Josh Altman, a top producer at Douglas Elliman and cast member of “Million Dollar Listing Los Angeles.”

Altman, who runs a 20-person team at Elliman with his brother Matt, cited a number of reasons not to leave the nest. From not having the liability of owning a business to the burden of hiring and managing a vast number of agents, Altman said paying his team’s split to Elliman was worth every cent.

“We’re going to leave that to Ryan Serhant,” agreed Tracy Tutor, a fellow “MDLLA” cast member.

Read related story: What Ryan Serhant’s new venture says about the future of brokerage

In 2017, Serhant had ruled out joining a competitor, saying that at Nest Seekers he had “a situation that I wouldn’t be able to have anywhere else.” But three years down the road, with an even greater following and a bigger book of business, he’s setting out to build what he hopes will be the future of the industry — a firm that’s equal parts brokerage, film studio and startup incubator, with business generated from his mass following.

“I think the age old way of getting a desk and you have to drive all your own business and it’s the brokerage’s brand first and your brand second … it will not last, it cannot last,” said Serhant. “Our model really exists to amplify our agents’ brands and create them.”

For example, Serhant envisions that his in-house production studio will give agents the opportunity to meet with sellers and developers and “say that they have their own show, which is something that I’ve been able to say for 10 years.” His venture-capital division will fund startups his staffers pitch him, which he hopes will enable them to build businesses to generate ancillary income.

That said, Serhant admitted that he expects 85 percent of his firm’s business to come through him, which, after all, is why it’s his name on the door.

“My last name is the franchise. It is synonymous with luxury real estate,” he said. “I am here for other people, to help them with that exposure.”

Stuart Siegel, who runs Engel & Völkers NYC, called the move ironic because the digital-first firm actually harkens back to “the old school where the top producer is basically the guy driving the revenues, and he’s saying he’d like to do that under his own shingle, his own brand.”

Siegel wondered whether Serhant is merely building a platform to support his own book of business or a true company that will be profitable in its own right. If it’s the latter, will Serhant recruit agents and build teams à la traditional firms, or will he follow a different path?

In the first year of business, Serhant expects the firm to pull in $18 million in gross commission income — about what the Serhant Team made in 2019 — plus another $9 million coming from his speaking engagements, licensing and endorsement deals and his new Ventures arm, which runs his real estate course. (Ventures also invests in a handful of other companies, such as office space search firm SquareFoot.)

Serhant also debuted ADX, a tool that tracks how his followers engage with his content, using location data to pinpoint his audience and show where they are most active. And he’s filed trademarks for a title insurance business and an IDX system, which allows websites to display listings from participating multiple listing services. His plans for those businesses and services remain unclear.

So far, Serhant is recruiting seasoned agents with a minimum of five years of experience and who’ve earned at least $500,000 in gross commission income over the past 12 months. He is self-funding all startup costs, which he says have already crossed $1.5 million, including the buildout of his new Tribeca office at 155 Duane Street.

Brokerage leaders — at least, the few who would talk — expressed enthusiasm for Serhant joining them in the executive trenches.

“I think this was a long time coming and that it was a great decision for him,” said Andrew Heiberger, founder of the now-shuttered Town Residential.

Heiberger doesn’t expect Serhant to follow a traditional brokerage model, however.

“The only way to be profitable on a national level is if he’s going to franchise,” he said. Heiberger pointed to discount brokerages such as Redfin, technology platforms like Zillow and Keller Williams’ profit-sharing model as the only residential firms that “work and make money” at scale.

Serhant “just took on a lot of busy work,” Heiberger said. “So I’m sure that he’s got a bigger plan.”

Serhant was cagey on his long-term plans but confirmed that replicating the Serhant Team on his own dime was the “last thing” he wanted to do.

“I do so many other things outside of just pure brokerage that influence the brokerage that it just didn’t make sense for me to do them all separately,” he said. “I’m not building this for today. I’m building this for 2030, and 2040, and beyond.”

The post Inside Ryan Serhant’s new brokerage appeared first on The Real Deal South Florida.

The Northeast is driving gains in building permits and housing starts (iStock)

The Northeast is driving gains in building permits and housing starts (iStock)

Building permits and housing starts in the U.S. jumped in September, largely driven by activity in the Northeast.

Privately owned housing starts reached a seasonally adjusted annual rate of 1.41 million units, up 1.9 percent from a revised August estimate, according to Inman. Single-family housing saw 1,108,000 units, up 8.5 percent from August, based on census data.

“Today’s U.S. Census data shows that permits, starts and completions were bolstered by record-high builder optimism, and a strong wave of buyer demand in September,” realtor.com senior economist George Ratiu told Inman in a statement. “However, homebuilders must balance the need to address an acute shortage of housing with the increasing costs of labor, materials and land.”

Building permits for privately owned housing units increased 5.2 percent from August, and single-family authorizations went up 7.8 percent. Month-over-month completions in both of these categories jumped 15.3 percent and 2.1 percent, respectively.

Activity in the Northeast largely drove the increases. New, privately-owned housing units authorized on a seasonally adjusted basis in the region were up by 25.8 percent from August, and the total number of new privately owned housing units started skyrocketed 66.7 percent.

[Inman] — Sasha Jones

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The party mansion at 1120 Sierra Madre Avenue, Glendora, Los Angeles (Credit: AirBnb and Google Maps)

The party mansion at 1120 Sierra Madre Avenue, Glendora, Los Angeles (Credit: AirBnb and Google Maps)

Two days after Airbnb announced a global party ban for all its listings, Davante Bell threw a big party at an Airbnb rental. Guests at the Los Angeles County home were invited to pre-order bottle service for the Aug. 22 bash. To maintain discretion, a shuttle would pick them and take them to the undisclosed location.

Hundreds of guests showed up at the property in Glendora, and Bell was later issued a $1,450 fine for violating city rules prohibiting large gatherings during the pandemic.

While that didn’t appear to stop him — Bell promoted another bash for the following month — the party may now be over.

Airbnb is suing the 26-year-old for misrepresentation, inducing breach of contract and other charges. The home-share startup filed the suit Friday in L.A. County Superior Court.

Airbnb claims that Bell “improperly threw ‘mansion parties’ fraudulently booked on Airbnb’s online platform in violation of Airbnb’s policy.” The company said it had permanently banned Bell from the platform and was now trying to block him from continuing to plan parties using other guests’ accounts.

“Airbnb has suffered and continues to suffer reputational harm and potential liability to third parties as a direct result of Bell’s actions,” the lawsuit said. It referred to him as a “self-described party promoter.”

Bell, who reportedly lives in Santa Monica, could not be reached for comment.

The party is one of many thrown at short-term rentals during the pandemic, as restless revelers and professional promoters look for ways to get around restrictions on social gatherings.

Cities and towns have been targeting so-called party houses, and companies like Airbnb have also cracked down. In August, Airbnb sued a different California guest for violating its rules against unauthorized house parties. That gathering in Sacramento County ended in violence when three people were shot.

Airbnb’s latest lawsuit comes as it heads toward an initial public offering later this year. The company has been addressing issues with its platform, including out-of-control parties and lingering regulatory disputes, which may give investors pause.

Bell’s event — marketed as the “100 Summers Mansion Party” — took place at a $1.5 million home listed for rent on its platform, Airbnb said in the lawsuit. The 5,300-square-foot Spanish-style home on East Sierra Madre Avenue features a large outdoor fountain, a fire pit and a putting green, according to Redfin. “The backyard includes several areas for entertaining friends and loved ones,” the description reads.

[contact-form-7]

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Adam Neumann and “Billion Dollar Loser” (Getty; Amazon)

Adam Neumann and “Billion Dollar Loser” (Getty; Amazon)

Real estate executives had their doubts about WeWork, but many weren’t willing to risk missing out on its success. They and others who kept their criticism to themselves helped enable and then felled the co-working giant once it became clear that its crash would be just as extraordinary as its ascent.

“They couldn’t explain WeWork’s valuation, but they were fearful that Adam [Neumann] might achieve his ambitions — nothing had stopped him thus far — and become more powerful,” journalist Reeves Wiedeman writes in “Billion Dollar Loser,” his new book about WeWork’s rise and fall. “No one wanted to be on his bad side.”

“Billion Dollar Loser” is more recap than a revelation, a breezy blow-by-blow of how WeWork grew from a business plan thrown together in one night to a juggernaut valued at $47 billion. The book is rich with details that help paint a fuller picture of ousted CEO Adam Neumann and those who surrounded — and enabled — him.

It also provides the kinds of colorful scenes we’ve come to expect from WeWork: Deals finalized with tequila shots, a questionable investment in a wave pool company, corporate retreats featuring Super Soakers filled with vodka. Wiedeman details how the company cycled through young employees, at first thrilled by WeWork’s energy but gradually disillusioned by its culture, lack of commitment to diversity and aversion to work-life balance. “Many of those who left described their departure as if they escaped Jonestown or Waco,” Wiedeman writes.

The landlords that partnered with WeWork — as well as its naysayers — are largely on the periphery of “Billion Dollar Loser.” Wiedeman recounts how Brooklyn developer Joel Schreiber helped introduce Neumann to New York City landlords, and lent credibility to WeWork’s early business propositions by being an early investor. It notes that Bill Rudin reached out to Neumann after Hurricane Sandy devastated 110 Wall Street, which ultimately sparked a major partnership. And Vornado Realty Trust’s Steve Roth makes a brief cameo to jokingly call Neumann an asshole.

Aside from some early-days negotiations, the book lacks behind-the-scenes conversations or details on how WeWork won over some landlords, but failed to do so with others. The “cult of personality” surrounding Neumann is fascinating, but the real estate industry’s role in WeWork’s rise, and how its fall might shape commercial real estate going forward, is largely missing.

“The real estate world had grown fat and lazy and was upset that WeWork had disrupted a comfortable system,” Wiedeman writes, referring to how Neumann framed the public reaction to his company’s planned IPO. “They were happy to take WeWork’s money when the company was riding high, but now that everyone smelled blood, they were on the attack, hoping things would go back to the way they were.”

Stories of the failed unicorn share a similar slow-burning horror film quality. You find yourself thinking: Don’t go in there! Can’t you see that there is no tech?! Watch out, that charming character pledging to save the world is actually a megalomaniac!

What makes these tales truly terrifying is as cautionary as they may seem, they inspire little confidence that they won’t be replicated. As recently noted by The Atlantic, entrepreneurs are bound to follow in Neumann’s (bare) footsteps. “The most important lesson in the rise and fall of WeWork has less to do with Neumann than with the ecosystem that nurtured him,” Vauhini Vara wrote in her review of the book.

There were so many red flags leading up to WeWork’s failed IPO: rapid growth, rising costs, a lack of meaningful tech and no clear plan for future profitability. Yet investors kept throwing money at the company, eager to collect another unicorn. Even Fidelity and SoftBank, which had initially dismissed WeWork, were won over after others bet on the company, ultimately dazzled by a big number and Neumann’s outsized personality.

Roughly one year after WeWork announced that it was backing out of going public, the company is now embarking on a new chapter. Neumann once presciently told an audience at a coworking conference, “If WeWork, God forbid, wouldn’t work out, I’m holding leases that are worth tens of millions,” Wiedeman writes. Neumann’s vision of WeWork didn’t pan out, and so with new leaders at the helm, the company is doubling down on its core business: Office leasing.

Last week, the company changed its name from the We Company back to WeWork. The former signaled the startup’s entanglement in various business ventures, as well as a lofty worldview that, at times, directly clashed with the company’s actions. Having weathered a crisis of its own making, WeWork is now tested by a global economic disaster, one in which the future of its core business is uncertain.

But Neumann, though “temporarily neutralized” by a pandemic that prevents him from holding court with a captivated audience, will almost certainly return. He’s already dipped his toes back in the water with a $30 million investment in a startup that provides services in apartment buildings. Wiedman writes that “unless the ironclad forces of capitalism had truly been broken,” someone will likely be willing to bet on Neumann once again.

[contact-form-7]

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In a recent conversation with The Real Deal, the cast of “Million Dollar Listing Los Angeles” had a lot to say about the luxury market — it’s hot. What about condos? Horrible. And the reason high-end buyers are choosing L.A. over New York City? Lifestyle.

Josh Altman and Tracy Tutor of Douglas Elliman, James Harris and David Parnes of The Agency, and Josh Flagg of Rodeo Realty gathered for a lively discussion with TRD’s Hiten Samtani on those topics and more.

The post WATCH: Million Dollar Listing LA stars dish on the luxury market appeared first on The Real Deal South Florida.

Michael Wohl & site plans

Michael Wohl & site plans

Coral Rock Development Group and Paragon Group of Florida are planning an affordable housing townhouse project in Pompano Beach.

The developers expect to break ground on the 138-unit development, called Highland Oaks, before the end of the year. The nearly 11-acre project, at 921 Northwest Third Avenue, would have 70 one-bedroom apartments sized at about 1,000 square feet, as well as 68 three-bedroom units of about 1,250 square feet each, according to a press release.

The Pompano Beach community will also include 305 parking spaces, a covered garage, a computer lab and gym. Coral Rock and Paragon expect to deliver the project by the end of next year.

Earlier this month, Miami-based Coral Rock, led by Stephen A. Blumenthal, David Brown, Victor Brown and Michael Wohl, secured a $53.5 million construction loan for a mixed-use project in Hialeah.

Wohl is a former partner of Pinnacle Housing Group, an affordable housing developer that is also active in South Florida. Pinnacle recently closed on nearly $31 million of financing to build an affordable housing development for seniors in south Miami-Dade County.

[contact-form-7]

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A rendering of the project with developer Gil Dezer

A rendering of the project with developer Gil Dezer

Dezer Development’s plan to redevelop the Intracoastal Mall property into a massive mixed-use project cleared another hurdle.

North Miami Beach commissioners approved ordinances for the complex on second reading in a 3 to 2 vote early Wednesday morning. Two commissioners were not present for the vote, which came after the public hearing stretched past 2 a.m. The commission voted on first reading in September to pass the zoning amendments and a 30-year development agreement between the city and developer. That meeting lasted until 3 a.m.

The project could eventually bring 2,000 units of housing, 375,000 square feet of retail, 200,000 square feet of office, a hotel, harbor and park to the waterfront site, transforming the nearly 30-acre property.

At the most recent hearing, opponents of the development said it was “incompatible” with the neighborhood. Some were critical of the traffic it could bring, echoing criticisms from last month’s meeting.

The project, called Uptown Harbour, will still have to go through the approvals process with the city and various government agencies. It calls for 1,750 condos in five towers, 200 apartments in a mid-rise building, and 50 townhouses to be built on the northern boundary of the property. Zyscovich Architects is designing the development.

As part of the approval, Dezer would also build police and fire substations, a community center, and infrastructure around the project.

Dezer’s recent projects include the Residences at Armani/Casa and the Porsche Design Tower, both oceanfront luxury condo towers visible from the Intracoastal Mall property.

[contact-form-7]

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Broookfield's Bruce Flatt (Brookfield, iStock)

Broookfield’s Bruce Flatt (Brookfield, iStock)

Brookfield Asset Management is looking to sell its life-sciences real estate portfolio for roughly $3 billion.

The investment giant is working with advisers to market the 2.3 million-square-foot portfolio, Bloomberg reported. Brookfield acquired the properties through its 2018 acquisition of Forest City Realty Trust.

The offer comes as Blackstone Group last week agreed to recapitalize a portfolio of life-science buildings for $14.6 billion. The transaction will generate $6.5 billion in profits, four years after Blackstone made its investment.

The life-sciences industry has significant barriers to working from home, which has helped stabilize property values. Alexandria Real Estate Equities, one of the largest owners of such properties, has weathered the pandemic relatively well. Shares of the company’s stock have fallen 2 percent this year, compared to a drop of 14.6 percent for the Bloomberg U.S. REIT Index. [Bloomberg] — Rich Bockmann

[contact-form-7]
 

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Rents are falling not only in New York but in cities around the world (iStock)

Rents are falling not only in New York but in cities around the world (iStock)

Across the country, rents are tumbling.

Sales have surged in the New York suburbs, and prices with them. But Manhattan apartments are the cheapest they’ve been since 2013. The number of listings have tripled from a year ago while the median rent has dropped 11 percent, according to Bloomberg.

Expensive cities have taken the biggest hit. In San Francisco, the median monthly rent for a studio has plunged 31 percent in a year to $2,285 in September. Nationally, that decline is just 0.5 percent.

“Maybe the drop in prices will bring a more equitable distribution in housing,” M. Christine Boyer, a professor of urbanism at Princeton University, told Bloomberg.

The United States isn’t the only country to see declines during the pandemic. In Toronto, rents were down 14.5 percent in the third quarter from the same period last year. In some of London’s wealthiest areas, rents were down 8.1 percent in the year through September, the steepest drop in more than a decade. The same is true in Singapore, where rents are 17 percent lower than their peak in 2013.

[Bloomberg] — Sasha Jones

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With third-quarter earnings seasons just around the corner, REIT analysts took a look at the sectors of the industry that are most likely to benefit from a Joe Biden win or a Donald Trump win. (Getty; iStock)

With third-quarter earnings seasons just around the corner, REIT analysts took a look at the sectors of the industry that are most likely to benefit from a Joe Biden win or a Donald Trump win. (Getty; iStock)

From the trajectory of the economic recovery to the finer points of local tax laws, the outcome of the 2020 election is expected to have a major impact on the real estate industry, including publicly traded real estate investment trusts.

With third-quarter earnings reports just around the corner, REIT analysts with Mizuho Securities USA looked at the sectors of the industry most likely to benefit from a Biden victory or a Trump re-election and selected a handful of representative companies for each scenario.

(Source: Mizuho Securities USA 3Q20 Earnings Preview, page 6)

(Source: Mizuho Securities USA 3Q20 Earnings Preview, page 6)

“We would view a Trump win as a net benefit for non-gateway markets, especially in the Sun Belt (red states), given Trump’s reluctance to provide federal funding to coastal, gateway ‘anarchist’ markets,” the analysts said in their third quarter earnings preview. (“Gateway” markets are loosely defined as “blue states” like New York and California.)

“The focus on domestic trade by the Trump administration also bodes well for the Sun Belt region given the heavier focus on manufacturing versus the coastal markets,” according to the report.

As such, Mizuho’s “Trump Basket” includes companies concentrated in non-gateway, Sun Belt markets like Houston multifamily REIT Camden Property Trust, Dallas single-family rental giant Invitation Homes and office REIT Highwoods Properties, based in Raleigh, North Carolina.

Another type of REIT that stands to gain from a Trump win is office landlords with government and defense tenants like Maryland’s Corporate Office Properties Trust, which mainly owns office buildings in Washington, D.C.

“Given the massive fiscal spending to combat the impact of the Covid-19 pandemic, the concern is that Biden would need to reduce the deficit and balance the budget, even though he is generally supportive of defense spending,” according to Mizuho’s analysts.

(While Biden has put forward a plan to raise taxes on households earning more than $400,000 and corporations, he is not expected to balance the federal budget, which was running an annual deficit of more than $1 trillion even before the pandemic and has not been balanced since the Clinton administration.)

On the flip side, the “Biden Basket” includes companies with more gateway-city exposure like Sam Zell’s Equity Residential and office landlord Boston Properties. (By the same reasoning, landlords like SL Green, Vornado Realty Trust, Paramount Group, and Columbia Property Trust would also fall in this basket, although they are not named in the report.)

Also at stake in the election is the fate of the Affordable Care Act, which could have an impact on health care REITs such as Birmingham, Alabama-based Medical Properties Trust, which owns hospitals in 34 U.S. states as well as six European countries and Australia.

(Source: Mizuho Securities USA 3Q20 Earnings Preview, page 4)

(Source: Mizuho Securities USA 3Q20 Earnings Preview, page 4)

A number of policies backed by the Biden campaign could have major impacts on the real estate world if enacted.

The proposed elimination of 1031 “like-kind” exchanges would be negative for REITs overall, reducing transaction volume and liquidity while increasing the gap between bids and asking prices, Mizuho analysts say. Triple-net lease REITs could take a major hit, given their appetite for acquisitions.

Meanwhile, the repeal of caps on deductions for state and local taxes, which is also a Democratic priority, would likely boost the residential real estate market in blue states with high taxes, notably New York, New Jersey and California.

The report also takes a close look at several ballot measures in California that are set to shake up the local real estate industry. Proposition 15, which would reassess the tax bills for commercial properties worth $3 million based on fair market value, has a lead in the polls and has received support from Biden.

Meanwhile, polling on Proposition 21, which would let counties and cities impose rent control on residential properties not built within the past 15 years, is more evenly split between supporters and detractors, with a large portion of voters still undecided.

Somewhat counterintuitively, Mizuho analysts note that tax policies supported by the Biden campaign could prove beneficial for REITs in particular, if not real estate in general, thanks to the tax advantages associated with them.

“An increase in corporate taxes and capital gains tax rate makes REITs relatively more attractive than other asset classes,” the report states. “A change in tax law, however, requires congressional action, suggesting that a ‘blue wave’ is further needed for REIT stocks to see any post-election momentum.”

Democrats need to flip four Senate seats to capture a majority of that chamber, but could also control it by flipping three and winning the White House.

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Jon Paul Pérez and Jorge Pérez

Jon Paul Pérez and Jorge Pérez

UPDATED, Oct. 21, 12:45 p.m.: Jon Paul Pérez was named president of the Related Group, taking over some leadership of the company from his father, Jorge Pérez.

Jorge, who founded the Miami-based real estate giant in 1979, will stay on as chairman and CEO when Jon Paul becomes president in November, according to a release.

Billionaire developer Jorge Pérez, known as the Miami condo king, has spoken about his succession plan in the past. Both Jon Paul and his brother Nick worked for the Related Companies in New York before joining the Related Group. Jon Paul joined in 2012, while Nicholas joined in 2018. Last year, Matt Allen, Related’s executive vice president and COO, said Jorge would hand over some control in 2020 and the firm said Jon Paul was expected to become CEO within the next year.

Jorge Pérez said in the release that Jon Paul “brings the same tireless energy that defined my early years,” as well as “a new way of thinking that will expand the business far beyond anything I could’ve imagined.”

The Related Group is South Florida’s most prolific condo builder. The company, which is moving its headquarters from downtown Miami to Coconut Grove, has also grown its mixed-use, commercial and affordable housing divisions over the years, expanding to other parts of Florida, the Southwestern U.S., and Latin America.

Jon Paul, who was most recently promoted to executive vice president, has increasingly taken the lead on developments over the past two years, including Residences by Armani/Casa, Wynwood 25, The Bradley in Wynwood (now known as Domio Wynwood), the company’s proposed Terminal Island development, and a new project proposed in downtown Miami. He will also be working with Related executives on Solemar, a luxury condo planned for Pompano Beach; the Ritz-Carlton Tampa; SLS Tulum; and affordable housing projects throughout Miami-Dade, according to the release.

In 2017, Jorge Pérez, who got his start in affordable housing, told The Real Deal he expected both sons to lead the firm when the time was right.

“I would hope that in the future they would be in the leadership of the company when they’re ready,” he said. “And [when] I’m ready.”

An earlier version of this story incorrectly stated that Jorge Pérez was handing over the title of president. 

[contact-form-7]

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(Getty, iStock)

(Getty, iStock)

The number of applications to buy homes dropped again last week, marking the fourth consecutive week of declines.
https://therealdeal.com/tag/housing-market/

The index tracking the volume of purchase mortgage applications fell 2 percent, seasonally adjusted, last week, according to the Mortgage Bankers Association’s weekly survey of the U.S. residential mortgage market.

The metric, known as the purchase index, was up 26 percent year over year, according to MBA. The index’s annual gains have been steady; it’s the 22nd week of annual growth.

The purchase index’s continued slide came as mortgage rates ticked up. The average 30-year, fixed-rate mortgage rose 2 basis points to 3.02 percent last week. Jumbo rates increased by 3 basis points to 3.33 percent.

MBA’s refinance index, meanwhile, was flat with a 0.2 percent uptick from the week prior but was up 74 percent year over year.

Joel Kan, MBA’s head of industry forecasting, maintained that despite the recent weekly declines, demand to buy and refinance remained strong “given the ongoing housing market recovery and low-rate environment.”

MBA’s index tracking all home loans dropped by 0.6 percent, as 66 percent of the loans surveyed were refinancings.

MBA’s weekly report covers 75 percent of the residential mortgage market and has been running since 1990.

[contact-form-7]

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Alfonso Munk and 100 Island Drive (Linkedin, Realtor)

Alfonso Munk and 100 Island Drive (Linkedin, Realtor)

UPDATED, Oct. 22, 10:45 a.m.: Hines executive Alfonso Jose Munk and his real estate agent wife bought a waterfront Key Biscayne mansion for $6.9 million.

Records show Munk and his wife, Catalina Mendez Jaramillo, bought the home at 100 Island Drive from Fred and Susan Joch.

Munk is chief investment officer for North and South America at Hines. With $144.1 billion in assets under management, Hines is one of the largest privately held real estate investors, developers and managers in the world, according to its website.

Jaramillo, a real estate agent for Berkshire Hathaway HomeServices EWM Realty, represented herself and her husband in the purchase. Brigitte Nachtigall with Great Properties International represented the Joch family.

The 6,987-square-foot home went on the market at $8.9 million in January 2019. The price dropped to $8 million six months later, and most recently was asking $7.8 million in May.

The Joch family bought the property in 2004 for $2.1 million and built a new home on the lot, records show.

The three-story house has six bedrooms and six bathrooms. It also features a three-car garage, 150 feet of waterfront, a 70-foot dock with a boat lift, and a pool.

Fred Joch is the co-owner of Legacy International Advisors, a Miami-based life insurance planning firm. Susan Joch is a real estate agent and developer. She developed the recently sold property, according to her LinkedIn.

Key Biscayne has been a hot market in October. A wealthy Brazilian family sold their waterfront mansion for $13 million, a founding partner of Platinum Equity sold his mansion for $15.5 million and the co-founder of a cryptocurrency asset company sold his condo at Ocean Tower Two for $5.8 million.

[contact-form-7]

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Ryan Serhant

Only one of New York City’s top agents has half of a firm’s listings: Nest Seekers International’s Ryan Serhant.

No one else is even close.

The celebrity broker’s team has $583.9 million of Nest Seekers’ $1.16 billion in exclusive listings in the city, according to an analysis of OLR data by The Real Deal. John Burger, with 14 percent of Brown Harris Stevens’ book, is a distant second.

The state of affairs has been a huge success for Nest Seekers, which has perfected the art of cultivating and channeling star power. But now that Serhant is striking out on his own, Nest Seekers is in a bind: His new firm will be a direct competitor, and clients from whom the two have profited over the past 12 years will pick sides.

“I made it very clear when I engaged with Nest Seekers that I was engaging with Ryan,” said developer Jordan Brill of Magnum Real Estate. “I don’t know where that leaves their firm. When Michael Jordan left the Chicago Bulls, you saw what happened.”

Read related story: Inside Ryan Serhant’s new firm

The Serhant story shows how brokerages can reap the financial and branding benefits of star agents. But his departure raises questions about Nest Seekers’ future and highlights the risk that residential brokerages face when they become dependent on star brokers. Still, Nest Seekers appears to be doubling down on the strategy.

Ravi Gulivindala, a broker and member of Nest Seekers’ executive team, said the firm has always served as an incubator for talent, knowing that some of that talent will one day walk.

“Eddie’s thing is always about helping the agent,” said Gulivindala, who likened founder and CEO Eddie Shapiro’s philosophy to building a sports team. “We can’t live under this concept of ‘What if we build somebody and they leave?’”

Tending the nest

In early 2008, Serhant could not have been further from the real estate world.

He had a hand-modeling contract with AT&T and was three years into his acting career, with roles in short films and “As the World Turns.”

But a chance introduction to Shapiro changed all that.

“I thought he was going to be the next Ryan Gosling,” said Jason Paulino, Serhant’s classmate in college theater, who connected him with the CEO in July 2008. When Paulino left Nest Seekers a few weeks after Serhant joined the firm, he still thought his friend was destined for the silver screen.

Serhant would eventually become a star, just not in Hollywood.

Since joining Bravo’s “Million Dollar Listing New York” in 2012,  the broker has become a brand unto himself. By 2015, Serhant’s 22-agent team held 57 percent of Nest Seekers’ listings, a dominance that still persists. He’s written a best-seller, “Sell It Like Serhant,” has another book on the way and last year launched an online real estate course. He’s also consistently been one of the top-ranking agents in the city by sales volume.

Shapiro declined to be interviewed for this article. “The Whole is greater than the sum of the parts,” he said in an email. “We live and operate by that philosophy.” (He also contested TRD’s analysis of listing data, but declined to provide further information.)

He did put forward 12 Nest Seekers executives and agents, many of whom said Serhant’s exit would have no impact on the firm’s more than 500-agent operation in New York City.

Still, a comparison of listings at the city’s five largest brokerages shows that no other New York agent even approaches Serhant’s percentage of his firm’s business.

After BHS’ Burger comes Serena Boardman, whose $427.3 million in listings account for 13 percent of Sotheby’s International Realty’s inventory. Carrie Chiang and Janet Wang’s team has $439.8 million in listings, nearly 11 percent of Corcoran Group’s haul. Fredrik Eklund and John Gomes’ team had $907.8 million worth of listings, or 8 percent of Douglas Elliman’s total. Leonard Steinberg’s team has $295 million in listings, only 3 percent of Compass’.  (The analysis, based on a one-day snapshot of active listings and contracts on OLR on Oct. 1, was only conducted for the most active listing broker at each firm, and did not count founder-dominated firms.)

Compass’ regional president, Rory Golod, was pleased that Steinberg’s business represented the smallest slice of the pie. It’s a big change for the firm: Five years ago, a TRD analysis found that Steinberg’s listings accounted for 51 percent of Compass’ inventory.

“As we’ve become bigger and hired more brokers, obviously the total listings volume of the company is not going to be tied so closely to [one broker],” Golod said.  “I think it’s a good thing if a company has a diverse set of agents that represent its inventory, because I think that’s indicative of the health of the company.”

Still, the loss of a star agent is always painful, according to Steve Murray, president of Real Trends, which analyzes the U.S. residential brokerage industry.

Even if a firm is financially insulated from the loss, he said, a top producer’s exit can hurt market share and the marketplace’s perception of the firm. Serhant’s departure was also notable, Murray said, because as of late, star agents usually jump to other firms rather than start their own. He said Serhant’s new firm could inspire others to consider a similar move, or agents to follow him.

Nest Seekers will need to make up for Serhant’s numbers as quickly as possible, Murray said, either by recruiting a new crop of top agents or allocating resources to develop in-house talent.

Shapiro claims he’s already several steps ahead. For starters, Serhant isn’t leaving right away, which will avoid a plummet in the firm’s business. Serhant will continue to service the clients he signed while at Nest Seekers through his old team there and will also promote his listings at Nest Seekers through his new firm’s platforms. Throughout September, Serhant continued signing new contracts with clients at Nest Seekers and said he and the firm will split the commissions.

Serhant declined to comment on why he left the majority of his 40-agent team at Nest Seekers, but said, “[Nest Seekers] and I made an agreement that puts our clients, listings and projects first and foremost.”

In an email, Shapiro called his agreement with Serhant “an example to others in the industry.” Serhant said it was a matter of loyalty and allowed him to avoid any “downtime” as he set up the new firm, which got its brokerage license on Oct. 1.

Life after Ryan

Shapiro hasn’t been betting all his money on a single jockey. He’s been actively grooming the next batch of star agents.

In 2018, as Serhant was getting his YouTube channel off the ground, he reached out to a local YouTube influencer, Erik Conover, to collaborate on a listing video.

That experience prompted Conover, a travel vlogger, to pivot to real estate.

Over the next two years, he and his business partner (and fiancée) Hanna Coleman began shooting videos of luxury homes. Last year, after passing 1 million subscribers, they began interviewing with brokerages.

“We saw that he wanted to uplift us,” said Conover of Shapiro. “He is so forward-thinking and willing to put resources behind something.”

Conover got his real estate license in the first week of October and joined Nest Seekers a few days later. On day one, Shapiro gave him $100 million in listings — including co-listings with other Nest Seekers agents —  and hired Coleman as the firm’s head of digital marketing.

Shapiro’s also been working on developing talent through other media. Take Netflix’s “Million Dollar Beach House,” which features only Nest Seekers agents and according to Shapiro has brought in a storm of leads. (Shapiro, an executive producer of the show, said the firm neither paid for nor received any funds from it.)

Rookie agent J.B. Andreassi said he learned that Shapiro was considering him for the show after he reached out to the CEO for a coffee meeting. Andreassi said he “absolutely” felt this was a chance for Nest Seekers to create a new Serhant.

“I think that was in the back of Eddie Shapiro’s mind,” he said.

“Obscurity is an agent’s biggest problem,” said Noel Roberts, another of the cast members. “Hands down, Netflix is where everybody wants to be.”

Nest Seekers and the cast haven’t found out if Netflix will renew the show for another season, but it’s far from the only source of leads courtesy of the streaming giant.

Shawn Elliott, a Long Island native who’s since established a base in Los Angeles, heads Nest Seekers’ “Ultra Luxury Division.” Elliott made several appearances on Netflix’s “Selling Sunset,” which is centered on the L.A.-based Oppenheim Group. He also hosted a miniseries in the U.K. for Channel 5 last year on the world’s most luxurious homes.

“I became a star in Europe,” he quipped.

As Elliott and the Hamptons cast reap the rewards of their TV presence, Nest Seekers is leveraging the shows to help its London-based division expand across Europe.

“I think what you’ve got to look at is the British and Europeans’ appetite for Americanisms,” said Daniel McPeake, who leads the European branch of Nest Seekers from London. “There’s an appetite here, in France, in Spain, to see the glitz and glamour of America.”

McPeake said the Netflix shows especially help him recruit because they’re all about the agents.

Specifically, “it shows how much money they make.”

“That’s the biggest thing that’s helped me,” he said.

Reality overload

The visibility-above-all approach isn’t embraced by everyone. Corcoran didn’t allow its agents to star in reality TV shows, though it made an exception when it hired “MDLNY” cast member Steve Gold after Town Residential closed in 2018.

Compass has also been critical of agents appearing on reality shows, though one of its own, Kirsten Jordan, was cast for “MDLNY” last year.

Compass’ Golod said the idea of using TV shows as a growth strategy for the firm is a nonstarter, despite the boost in exposure such opportunities bring for the individual agents.

“Television is not something that can scale. It takes time, and it’s selective,” he said. “Hundreds of agents can’t appear on TV.”

While not everyone loves the idea of having agents on screen, some brokerages are doubling down on the star broker by devising new business models that benefit both rainmaker and firm.

Take Side, the San Francisco-based firm that has raised more than $70 million in venture capital since its founding in 2017. The company — whose motto is “Not all agents, just the best agents” — acts as a white-label firm, or one without its own branding.

All agents at the firm get a 90-10 split. Side handles all back-end operations, while brokers cover most of their own marketing expenses. Agents even cover rent if they choose to have an office.

The practice already exists at more traditional firms, like Elliman, for certain top producers. For example, Eklund and Gomes’ team, which they run with Julia Spillman, taps company resources for all back-end work while maintaining its own marketing, branding and even office spaces.

Golod said Compass puts “a lot of effort” into helping agents develop their own brands.

“The brand of the agent is more important than the brand of the firm,” said Golod. “People don’t choose firms, they choose agents.”

But the business model of white-label brokerage is far from proven. Side has yet to be profitable, and for traditional firms, balancing the resources a star broker demands or expects with what the company can afford is a constant struggle, according to Stuart Siegel, who runs Engel & Völkers NYC.

“Do you want market share, or do you want EBITDA?” asked Siegel, referring to a company’s operating profitability.

Often, a firm’s efforts to gain market share involve undercutting competitors on price and offering top agents higher splits or signing bonuses — all practices that can take away from the firm’s profitability.

Murray, Real Trends’ president, said he’s not aware of any firm that is losing money to retain top producers, but he said the margins for the brokerage are thinner.

“They make a lot less than they used to off top producers because of competition for top agents,” he said, “whether that’s caused by Compass or eXp or other companies that are out aggressively recruiting top producers.”

For its part, Nest Seekers — with more than 1,000 agents worldwide now, thanks to recent expansions in Connecticut, Palm Beach, Miami, Los Angeles and London — is trying to have it all. The firm still operates like a traditional brokerage, driven by its recruiting efforts and recent acquisitions of smaller firms, but it’s augmenting that strategy with bold, agent-driven bids for market share and brand recognition.

Nest Seekers is also building out its new development division. The firm claimed it has $7.5 billion in new development projects on the market or in its pipeline. And in June, Shapiro appointed Michael Bethoney, a former member of the Serhant Team, to lead the newly minted team.

Gulivindala said that Nest Seekers has weathered the pandemic well and not had to make any demoralizing announcements, such as layoffs. But the brokerage has not revealed specifics about its finances, and as a private company, it doesn’t have to.

“Look, every firm has a very senior good agent,” he said, referring to Serhant. But the firm has positioned itself so that everyone at Nest Seekers benefits from being under the same “umbrella.”

In Serhant’s case specifically, Nest Seekers will retain a piece of his business for the foreseeable future.

“Our continued relationship revolves around servicing our vast portfolio of clients,” Shapiro said in an email. “We still have a journey ahead with that.”

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A rendering of the monorail

A rendering of the monorail

Plans for a monorail between the city of Miami and Miami Beach took a step forward on Tuesday.

In spite of calls for a deferral from Miami Beach, the Miami-Dade County Commission approved a contract of up to $14 million with Genting Group and Meridiam Infrastructure North America Corp. to study the feasibility of building the monorail within a year to 18 months. The commission would vote on a final plan and contract after the feasibility study is completed, according to a spokesperson for the project.

The resolution passed by a vote of 10 to 2, with commissioners Xavier Suarez and Rebeca Sosa dissenting. Mayor Carlos Gimenez, whose office pushed the proposal forward for a vote, declared himself “neutral,” and did not offer a recommendation on passing or rejecting the item.

The proposal was portrayed as a “baby step” by commissioner Esteban Bovo to explore the feasibility of moving forward with a larger $586.5 million agreement with MDM Partners LLC to build a monorail system across the MacArthur Causeway. MDM Partners LLC is led by Meridiam and Genting.

Meridiam built the $1 billion underwater PortMiami tunnel.

Genting, a Malaysian-based casino company, owns about 30 acres near the Adrienne Arsht Metromover station in Miami’s Omni neighborhood, including the former Omni Mall and the waterfront former Miami Herald site, with the intent of building a resort with a casino. So far, Genting has not been unable to secure legalization for a gambling operation on that land, but it did secure a deal with the county in 2017 to build a 300-room hotel and bus depot near the Metromover station.

In 2019, following a controversial meeting between Gimenez and Genting executives in Hong Kong, Genting made an unsolicited proposal to build a monorail between Miami and Miami Beach. An official request for proposals followed, in which Genting was the only bidder. From there, the issue stalled after the Miami-Dade Ethics Commission and the Office of the Inspector General produced reports on Gimenez’s meeting with Genting executives in 2018. Since then, Genting has reported financial difficulties and its stock value has plummeted.

A rendering of the monorail

A rendering of the monorail

Another partner in the venture is Rafael Armando Garcia-Toledo, president of G-T Construction, who served as campaign chairman for Gimenez’s mayoral re-election campaign. Gimenez, whose term ends in November, is now running for Congress.

Miami Beach officials have questioned why the county is pushing approval of the interim deal, and approved a resolution requesting a delay. The Civilian Independent Transportation Trust recommended approval by a vote of 7 to 4.

Commission Chairwoman Audrey Edmonson noted that the city has been talking about a rail connection between Miami and Miami Beach for decades. “I am feeling that here we go again, kicking the can down the road,” Edmonson said.

Edmonson and several other commissioners said they saw no harm in approving an interim agreement that they insisted the county could walk away from.

Alice Bravo, director of the county’s transportation and public works, said the contract is an $8 million engineering agreement that would allow the county to own the findings. If Miami-Dade decided not to finalize a contract with MDM, it would only be obligated to pay the partnership another $6 million for the work put into the bid.

The interim agreement will span 18 months, during which time engineers will consult with officials from Miami and Miami Beach, as well as the county.

Commissioners also expressed the desire to move forward with the county’s SMART transit plan. Earlier in the meeting, the commission approved resolutions to look at the feasibility of building stations in six places along the FEC tracks between the MiamiCentral and Aventura station for a commuter train instead of just three. However, the county deferred a deal between the county and Brightline that would allow for such a commuter station.

Gimenez said negotiations with Brightline have “hit a snag” and that he won’t be rushed “on a number that doesn’t make sense.”

Edmonson said she was open to calling a special meeting on approving a contract with Brightline prior to new county officials being sworn in on Nov. 17, but only if Gimenez closes on a deal.

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Reeves Wiedeman (Photos via Amazon; Reeves Wiedeman; iStock)

Reeves Wiedeman (Photos via Amazon; Reeves Wiedeman; iStock)

Marcum

Dream no small dreams, for they have no power to move the hearts of men — or venture capitalists.

Adam Neumann, the co-founder and former CEO of WeWork, certainly wasn’t guilty of small dreams. From being a broke émigré living rent-free in his sister’s apartment to building one of New York’s largest real estate companies to becoming the head of one of the country’s five most valuable startups to wanting to “elevate the world’s consciousness,” lack of ambition wasn’t his problem.

Rather, it was too much of it, coupled with frenzied spending and a slipshod approach to management, that brought the company crashing down, argues Reeves Wiedeman.

Wiedeman is a contributing editor at New York Magazine and a business journalist who’s written for the New Yorker, Rolling Stone and others. His new book “Billion Dollar Loser: The Epic Rise and Spectacular Fall of Adam Neumann and WeWork,” is out today.

He sat down with The Real Deal to discuss the book, the wacky world of New York real estate and the dangers of hypergrowth fueled by VC dollars.

You have this gift for diving into these complex, insidery worlds — sports, media — and finding narratives in them. In terms of characters per capita, where does New York real estate stack up?

Pretty hot. Much higher than athletes. The thing you realize is businesses, while you think they run on models and numbers, are just filled with characters. I think New York real estate in particular has attracted these kinds of people. It’s a business built on making big bets, taking risks, and that attracts a certain type of person of whom Adam Neumann is only the latest, maybe the most extreme example.

Adam Neumann stands out for the audacity of the bets he made and his ability to spit in the face of the traditional operators. From the beginning, he said, “Fuck you guys. I’m going to do this my way.” Was there a sense that industry insiders were going along with it because it made financial sense, or was there a sense that [WeWork] could actually be something?

There was a trajectory. Early on, WeWork had trouble getting the really nice spaces that it actually wanted. A lot of people who’d been in the business for a while had seen this business before, and they knew the office middleman, flex space world — the Reguses and others before them. So I think there was an early skepticism of [Neumann]. Around 2012, WeWork got a big investment from Silicon Valley, from Benchmark Capital. They started getting more and more investment. At a certain point, if you’re a landlord and you need to fill space and you’ve got someone who’s, frankly, willing to pay above market.… Once WeWork had a bunch of money and was spending it pretty freely, it’s hard to say no to that. Just like it was sort of hard for Adam to say no to SoftBank when they show up and offer him $4 billion.

By the time I started reporting on the company [in March 2019], there was a level of fear. While people couldn’t quite understand how Adam was making it work, how the numbers made sense, he kept being successful, and there was a feeling from people of, “Maybe he has cracked some kind of code.” There was a very real kind of fear. The stories that came out about Adam much later, they were around, and everyone had them. But when Adam and when WeWork were on the rise, people were pretty loath to actually share.

Most of the senior executives at WeWork were pulled in from everywhere — lots of friends and family — but he did make some hires that were hard-core industry insiders, like Wendy Silverstein, who ran ARK, or Sean Black, who was a top broker at JLL. Why would someone who understood the real estate business still go in on this?

For people who are in real estate, what WeWork offered was a chance to take part in the startup boom of the 2010s and the venture capital boom of this era. This also went for a lot of architects, designers, people in kind of related fields. You’re in the middle of your career. You’re a little bit bored. Then suddenly, there’s this company where it’s pretty fun to work. They throw fun parties. They claim to be really changing things. For a lot of mid-career people, it was a little bit of a risk, but it was an exciting one.

Then, of course, there was the potential for really significant financial reward. In real estate, stock options are not a thing, exactly, in the way that they are at a startup.

Was changing the world always part of Adam’s narrative, or did that really emerge post-SoftBank?

It was Adam from the beginning. I think Masa and SoftBank, what they did was enable it. And there was this interesting point in the company’s history around 2016, when it could have gone public. It was running out of money. There didn’t seem to be that many more places to go. Right at that moment, Masa showed up, and I think just kind of enabled Adam to really go for it.

WeWork had been growing, obviously, incredibly fast. Its revenue doubled year-over-year for 10 years — pretty remarkable. There was always this hope from the sort of tech investors who were getting into the company that WeWork was going to figure it out. Ultimately, that’s what they were never quite able to do.

When I read the book, I thought of Vice Media a lot — the glamour, the arrogance, the ability to attract big-name investors. Do you think there are similarities?

A few things: One, they were brands. They are brands. And that was the thing they sold as much as anything else: this feeling. Where I think both companies went off the rails was they both did a thing pretty well. With Vice, they made cool documentaries, but then suddenly they wanted to be the new CNN. And that’s a really hard thing to pull off. And it wasn’t really clear that they were most qualified to do that. I think a lot of the problems stemmed from this ambition to be something they weren’t.

At WeWork, where you got into trouble was the pace of growth. Adam himself bragged openly — and I think probably accurately — that this was the fastest physical expansion that any company had ever made. He joked that he wasn’t sure about Roman times, but at least since then.

And also the expansion of the mission from, “we make really nice flexible office spaces” to “we are elevating the world’s consciousness.”

From WeWork to We.

That transition really hurt the company. And the $47 billion valuation put a target on the company’s back.

Do you think there is an element of schadenfreude on the media’s part with the collapse of WeWork?

Absolutely. I’ll compliment you all; people who knew the industry were calling it as it looked, which is, “On the one hand, it keeps growing so we have to take it seriously. But there’s also a lot that doesn’t make sense to us.”

But some places are about glorifying the startup entrepreneur. And I think WeWork was, in many ways, this perfect story. So you would always have these sort of glowing articles with a paragraph or two about potential problems.

There’s been a real caricature that’s emerged of Adam and of the company, [that] it was all crazy to begin with. The thing was real. This was not Theranos. It wasn’t like the machine just didn’t exist. The offices were there, they worked.

You make a brief mention of the Rajneeshis, the spiritual cult founded by Osho, featured in “Wild Wild Country.” Neumann also had this cult of personality. Did you get drawn to that magnetism?

I think he’s a charismatic person. He gets into a room and he knows how to not only dominate a room, he knows how to read a room. He knew how to go in and figure out that whoever he was talking to, whether it was an investor, a landlord, [or] his employees, he had different messages for them. And he knew what buttons to press. It can get a little old, calling everything a cult, but I think in this case, it’s really true.

Let me ask you a dumb question. You talk a lot about height in the book; if Adam were six inches shorter, do you think he would have had the same success?

I think it’s fair; there are all the stats about how tall our presidents have been over the years. And I think there’s a real truth to it. It would be too simple to say all of Adam’s successes are because he’s tall, but it’s a part of who he is. It’s a part of what makes him an inspiring leader.

You talk a lot about Benchmark Capital, the first major venture capital firm to invest in WeWork. Did the elite of Silicon Valley not really understand the industry that they were investing in, and that’s part of why it went this way?

There’s truth to that. That goes for Benchmark, that goes for SoftBank. I’d talk to someone at Fidelity, and the real estate investors there were very skeptical and didn’t see the benefit in investing. And they passed and later came back and decided to invest because they bought into the story. It’s also probably too simple to say that, “Oh, these tech investors just didn’t get it.” I think they got it. But the flip side of that is that unlike a lot of the companies that they typically invest in, WeWork was making a bunch of money. Many tech companies, it’s years before they’re bringing in any revenue at all.

The venture capital world is predicated on these big bets. If you make 10 bets and nine of them don’t work out, but one of them is the next Uber [or] Airbnb, that’s fine.

I want to go back to one of the earliest investors in WeWork, Joel Schreiber, who is a bit of a mythical character in New York real estate. 

His involvement was the original sin of WeWork’s overvaluation. The way that happened was, WeWork didn’t have a space yet. Looking for a space, they just happened upon Joel, who was happy and interested to invest in the company. And his fateful, “I’ll give you $15 million for a third of a company,” that is now suddenly worth $45 million, out of nowhere.

They pulled that number out of their asses, right?

Adam and Miguel didn’t want an investor. They weren’t looking for someone. And so part of their game was, “Well if this guy wants in, let’s throw out something crazy, partly so he just walks away.”

What were some of the biggest fears for WeWork about being seen as a real estate company? Was that purely because of the earnings multiplier of real estate or was there more to it? 

That’s more or less it. There are limits to the real estate business and how much money you can make. It’s a very good business, but it’s set and there are models and this is how it works. Tech over the last 10 years has just broken out. Suddenly, you can make these truly insane amounts of money.

Adam would tell tech investors, “We’re a real estate company. Look at how much money we bring in. And look how big the market is.” And then he would tell people in the real estate world, “We’re bringing this tech part to what you’re doing.” He was able to play both sides a little bit.

This interview has been condensed and edited for clarity.

(Write to Hiten Samtani at hs@therealdeal.com. To check out more of The REInterview, a series of in-depth conversations with real estate leaders and newsmakers hosted by Hiten, click here.)

The post The REInterview: Reeves Wiedeman on the manic rise and fall of Adam Neumann and WeWork appeared first on The Real Deal South Florida.

Jon Paul Perez and Russell Galbut with renderings of the projects

Jon Paul Perez and Russell Galbut with renderings of the projects (Credit: ArX Solutions, Sieger Suarez Architects)

The Related Group, Crescent Heights and the Melo Group are seeking approval from the Miami Urban Development Review Board for projects in downtown Miami and Edgewater.

Related and its partner, ROVR Development, led by Oscar Rodriguez and Ricardo Vadia, are proposing The District at 225 North Miami Avenue in downtown Miami. The 37-story mixed-use project would have 343 residential units and nearly 2,300 square feet of ground-floor retail space.

A rendering of 225 and 233 North Miami Avenue (Credit: ArX Solutions)

A year ago, Related’s Parcel C LLC paid $8.8 million for the two lots at 225 and 233 North Miami Avenue, which total 15,000 square feet of land. Related said last year the tower would include micro condos.

The project, designed by Sieger Suarez Architects, would have hotel rooms and apartments, and residential amenities such as a gym, pool deck and rooftop spa, and lounges.

Crescent Heights, led by developer Russell Galbut and Sonny Kahn, is seeking approval of the first phase of its major mixed-use redevelopment in Edgewater. The developer proposed a 38-story residential and commercial tower at 2900 Biscayne Boulevard.

A rendering of 2900 Biscayne Boulevard

A rendering of 2900 Biscayne Boulevard

Renderings designed by Arquitectonica reveal it would be a Nema-branded building, with 588 residential units, 50,448 square feet of commercial space, and nearly 750 parking spaces.

The Urban Development Review Board will also vote on Downtown 1st, a mixed-use building planned for 22, 30 and 34 Southwest First Street, 35, 25 and 19 Southwest Second Street, and 112 South Miami Avenue. Melo Group is the developer.

Melo is proposing a 57-story tower with 570 apartments, and 10,000 square feet of office and ground floor retail space.

[contact-form-7]

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The best space heaters to warm up your workspace

Note: These items are independently selected by our team. However, TRD may receive a commission when you purchase products through affiliate links.

There are few office conflicts more common than the fight over the thermostat. Maybe it’s true that our brains think better when it’s cold out, but having to stay bundled up in the workplace can be a major distraction.

And for many, working from home is no solution. Some are reluctant to crank up the heat, while those living in big apartment complexes may be at the whim of their super.

Whether you have a drafty home office or you just run cold, TRD has put together a list of space heater options to help keep you toasty.

The best space heaters to warm up your workspace

TaoTronics 1500W Space Heater

We have to wait for so many things. Why wait to get warm? The TaoTronics space heater boasts a three-second warm up and wide-angle oscillation, helping it heat up areas quickly and evenly. It also has special safety features, including a 12-hour timer and an automatic shut-off if it tips over.

 

The best space heaters to warm up your workspaceCharmUO Space Heater

With this space heater you have three separate settings — including a cooling option — that make it a fixture in any office all year round. Plus, with an easy-to-move handle, you can transport it from home to work and back.

 

The best space heaters to warm up your workspaceAikoper Space Heater

This space heater is a great choice for the environment — and your electricity bill. Just activate its “eco” setting to have the heater automatically shut off when the room reaches the right temperature. And with overheating and tipping protections, it’ll give those with children or pets ease of mind.

 

The best space heaters to warm up your workspacePELONIS Ceramic Tower

If you like to plan ahead, this is the space heater for you. It’s programmable with three heating options, including an eco mode. It comes with a remote, saving you time and energy while you’re working. Plus this choice is quiet, making for one less distraction during your workday.

 

The best space heaters to warm up your workspaceBrightown Portable Electric Space Heater

With a range between 0 and 158 degrees, this heater has a wide array of options for every season. Compact in size, it’s a good fit for smaller spaces. And it can heat up to 200 square feet in a matter of minutes.

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Barry Sternlicht, Louis Joliet Mall (Credit: Google Maps and Cindy Ord/Getty Images for 1 Hotels)

Barry Sternlicht, Louis Joliet Mall (Credit: Google Maps and Cindy Ord/Getty Images for 1 Hotels)

Starwood Retail Partners is giving up on one of its suburban Chicago malls, handing over the keys to its lender after first defaulting on a loan payment in the spring. The move comes two months after parent company Starwood Capital Group lost control of a seven-property regional mall portfolio.

The Chicago property is the nearly 1 million-square-foot Louis Joliet Mall. Starwood last made a payment on its $85 million CMBS loan in March, and is over 90 days past due. The loan went into special servicing in May.

According to the latest report from Trepp, Chicago-based Starwood Retail is in negotiations for a deed in lieu of foreclosure or a foreclosure sale.

It has been a rough couple of years for the Joliet Mall, which is about 40 miles southwest of Chicago. One of its anchors, Carson’s, closed in 2018 and a year later, the Sears there shut down. The 40-year-old mall’s surviving anchor retailers, JCPenney and Macy’s, are facing severe problems of their own.

The mall was last appraised at $131.8 million in 2012, when Starwood Retail acquired it and the Chicago Ridge Mall as part of a larger deal.

The Joliet Mall loan is part of CMBX 6, a mortgage derivative index that is heavily exposed to debt tied to retail and mall loans. It has become a popular way for investors such as Carl Icahn to short regional shopping malls.

Starwood declined to comment through a spokesperson.

As the pandemic has worn on more owners have sought to give up on struggling malls, especially those with CMBS debt that is tricky to restructure because of covenants the servicers have with bondholders. Brookfield Properties is seeking to hand over the keys on a $90 million CMBS loan on its mall in Florence, Kentucky, while Namdar Realty has requested a deed in lieu of foreclosure for a $33 million loan backing a mall in Saginaw Township, Michigan, according to Trepp.

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Lord Balfour Hotel

Lord Balfour Hotel

The pandemic brought especially bad timing for the owner of a South Beach hotel, which purchased it last year, embarked on a multimillion-dollar renovation, and ended up losing its investment.

Leste Group and its partner, Moto Capital Group, last month foreclosed on the newly renovated Lord Balfour Hotel on Ocean Drive, The Real Deal has learned.

The mezzanine lenders completed an out-of-court UCC foreclosure of the 81-key hotel at 350 Ocean Drive, according to sources. Senior lender Värde Partners had an intercreditor agreement with Leste and Moto Capital, which held the mezzanine loan and assumed all obligations related to the property, and now control it.

Hotel borrowers nationwide are facing the threat of foreclosure by their senior lenders, as well as UCC foreclosures from mezzanine lenders, the latter of which are often faster.

In August of last year, the U.S. arm of Henley, a United Kingdom-based private equity firm, paid nearly $35 million for the Lord Balfour. Slated to become a Life House property, it marked the fourth deal for Henley and Life House.

At the time, Henley said it would invest more than another $5 million into the hotel for renovations. Henley completed renovating all the rooms, suites and common areas of the hotel, which was built in 1940. It was under renovation even prior to the pandemic, and remains closed.

The property’s unpaid debt totaled about $37 million, including Värde’s loan and the mezzanine debt, according to sources.

Leste, an alternative asset manager based in Brazil, and Miami-based investment management firm Moto Capital are considering multiple options for the property, the sources said.

Life House said in a statement that it looks forward to working with the future owner to open as a Life House “in good time.” A spokesperson said Life House is “excited to open the beautiful, contextual and landmark hotel,” but that it understands “the economic hardships faced by owners across the world during these unprecedented times,” according to a statement.

Henley did not respond to a request for comment.

More UCC foreclosures are expected in South Florida as some hotel owners opt to walk away from whatever equity they have in their properties. Experts say many highly leveraged borrowers are at a crossroads, deciding among selling at a discount, throwing the keys back to their lenders, or buying more time from lenders.

Without a federal bailout, an estimated 38,000 U.S. hotels could close permanently, while another 28,000 are at risk of being foreclosed on, according to the American Hotel & Lodging Association.

Last month, the Luxe Rodeo Drive Hotel in Beverly Hills closed for good, after having embarked on a full renovation just before Covid hit.

[contact-form-7]

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Despite record high office vacancies across South Florida, average asking rates hit new highs

Despite record high office vacancies across South Florida, average asking rates hit new highs

Despite record office vacancy rates across South Florida, average asking rents hit new highs in the third quarter, according to a newly released report.

Miami-Dade had the highest average asking rate, at $41.68 per square foot, according to the report from Colliers International, which only tracks office buildings of 10,000 square feet and larger. Broward had the lowest average asking rent, at $33.59 per square foot.

The report shows shorter-term and more flexible leases are on the rise, due to uncertainty caused by Covid-19 and the adoption of remote working. Subleasing activity has increased, and tenants have expressed interest in office space in the suburbs, where larger office space is available at more affordable rates.

Palm Beach County saw available sublease space increase 43.1 percent quarter-over-quarter, the highest jump among the three counties, according to the report. Miami-Dade’s available sublease space increased 42 percent and Broward’s grew 13.4 percent during the same period.

Here are other insights from the report:

Miami-Dade

Miami-Dade saw the lowest vacancy rate among the three counties, at 10.7 percent. Still, it was a record high rate, up from 9.6 percent the prior quarter and 9 percent in 2019’s third quarter.

Downtown Miami saw some of the highest office vacancy rates at 21.5 percent, driven by 25.6 percent vacancy among class B buildings. Some of the lowest vacancy rates were in the West Miami area with a 2.3 percent vacancy rate.

Miami-Dade had the most new construction delivered, 348,000 square feet. Most of that, or 299,000 square feet, was class A space delivered in Miami. Miami-Dade also had the most office space under construction, 3.6 million square feet. Of that, 674,000 square feet is office space in Miami.

As a result, Miami-Dade experienced the largest negative absorption in South Florida, at 837,000 square feet. That’s compared to a negative absorption of 526,000 square feet the quarter prior. During the third quarter of 2019, the county saw a positive absorption rate of 388,000 square feet.

Brickell saw the highest negative absorption, at 135,000 square feet, driven by a negative absorption of 102,000 square feet of class A office space. In the suburbs, the Miami Airport area saw a negative absorption of 154,000 square feet, again driven by class A office space.

Miami Lakes, South Dade and West Miami, however, saw positive absorption. Miami Lakes saw the highest amount, 46,000 square feet, driven by class B office space.

Miami-Dade’s highest office asking rent was $57.36 per square foot in Brickell. Class A was $63.49 per square foot, and class C was $29.86 per square foot. The lowest asking rent was $24.39 per square foot, in south Dade.

The largest office sale in Miami — and in all of South Florida during the third quarter — was $163 million for Brickell City Centre Two and Three. The county saw two class A and two class B buildings among its top sales. Only one of the top five sales was in the central business district.

Miami-Dade’s top lease signed during the third quarter was 40,000 square feet for Southeastern College at 5875 Northwest 163rd Street. Other notable leases signed include 30,000 square feet for Crown Castle in Flagler Corporate Center; 26,000 square feet for Lydecker Diaz at 1221 Brickell; 23,000 square feet for Kozyak Tropin & Throckmorton at 2525 Ponce De Leon Boulevard; and 21,000 square feet for Regus at 6303 Blue Lagoon Drive.

Broward

Among the three counties, Broward saw the largest lease signed during the quarter. Law firm Greenspoon Marder renewed a lease for 62,000 square feet at 200 East Broward.

Despite this, third quarter leasing square footage was half that of the same period in 2019.

Other large leases signed in Broward include 31,000 square feet for the Department of Juvenile Justice at Lakeshore Business Center; 19,500 square feet for Kawa Capital at Optima Towers; 19,000 square feet for Regus at Arcade I Building; and 12,000 square feet for Kubicki Draper at 110 East Broward Boulevard.

The largest office sale in Broward was $82.5 million for Bayview Corporate Tower at 6451 North Federal Highway in Fort Lauderdale, which equates to $199 a square foot. Only one of the top sales was in a suburban market and only one was a class A building.

Broward saw the lowest negative absorption in South Florida, at 487,000 square feet. That was higher than the 444,000-square-foot negative absorption of the previous quarter. The third quarter of 2019 had a positive absorption of 307,000 square feet.

The highest average asking rent was in Hallandale, at $52.69 per square foot, driven by $54.61 per square foot for class A. By comparison, class B was $28.38 per square foot, and class C was $28.88 per square foot.

Palm Beach

Palm Beach County saw the highest office vacancy rate among the three counties, at 11.4 percent. That’s a record high for the county since at least the first quarter of 2017. The rate was higher than the 10.6 percent rate in the second quarter, and the 10 percent rate of 2019’s third quarter.

The highest vacancy rate was in West Palm Beach’s central business district, at 15.3 percent, driven by a 17.7 percent vacancy in class A buildings.

The lowest vacancy rate in the county was in Jupiter, at 4.8 percent, driven by a 6.1 percent vacancy among class B buildings.

Palm Beach County’s top lease was 12,000 square feet of space for Media Direct in The Park at Broken Sound in Boca Raton. In July, a headquarters facility at the Park at Broken Sound sold for $51 million.

Other top leases inked during the third quarter include 9,000 square feet for an insurance company at 1401 Forum Way in West Palm Beach; 7,000 square feet for Humana at 2900 North Military Trail in Boca Raton; and 6,000 square feet for GenPsych LLC at 2505 Metrocentre Boulevard in West Palm Beach.

The largest office sale in Palm Beach County was $80 million for DiVosta Towers. Three of Palm Beach County’s top sales were class A buildings and three were in the central business district. According to the report.

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Adam Neumann and Marcelo Claure (Getty)

Adam Neumann and Marcelo Claure (Getty)

Adam Neumann’s controversial $185 million WeWork consulting deal is no more, according to Marcelo Claure, the company’s executive chairman.

“I don’t think that consulting agreement is still in force,” Claure said at The Wall Street Journal’s Tech Live conference Monday, according to the Journal. “I think Adam may have violated some of the parts of the consulting agreement, so that’s no longer in effect.”

The deal was part of the WeWork founder’s generous exit package from the co-working company, which called for SoftBank to buy about $1 billion of stock from Neumann, refinance a $500 million debt, and pay a $185 million consulting fee. The deal is now being disputed as SoftBank and WeWork try to stem their losses.

Claure did not explain how Neumann violated the consulting agreement, citing pending litigation. Claure added that Neumann was “incredibly helpful at the beginning” in aiding SoftBank to understand WeWork, according to the Journal.

Part of the consulting deal prevented Neumann from competing with WeWork for four years, the Journal reported.

Bloomberg reported that the payment depended on a deal by which SoftBank would acquire WeWork stock from Neumann and other shareholders. That agreement is now the subject of a lawsuit.

Neumann left WeWork last year after the company’s IPO failed to happen. Bloomberg reported that Neumann recently invested $30 million in Alfred Club, Inc., a startup that provides services — such as dog-walking, maintenance requests and rent-processing — in apartment buildings. It was his first venture since leaving WeWork.

Claure said WeWork looks to be profitable in 2021. He said the company only needs to exceed 67 percent to 68 percent in occupancy to be profitable.

[WSJ] [Bloomberg] — Keith Larsen

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Travis Kalanick (Getty; iStock)

Travis Kalanick (Getty; iStock)

Uber co-founder and ex-CEO Travis Kalanick has quietly amassed a real estate empire over the past two years.

Companies tied to Kalanick’s CloudKitchens, a startup that rents available space to food delivery businesses, have snapped up more than 40 properties across the country for more than $130 million, the Wall Street Journal reported.

Kalanick’s assets include closed restaurants, auto-body shops and warehouses in cities like Las Vegas, Nashville, and Portland, Oregon.

CloudKitchens is a “ghost kitchen” operation, which rents out non-traditional spaces to businesses that want to do food delivery without owning or leasing a restaurant space of their own. It’s similar to co-working or co-living, where companies can work with landlords on flexible terms at cheaper prices.

Reef Technology and Kitchen United, which are backed by SoftBank Group, are also emerging players in the ghost kitchen space.

Companies tied to CloudKitchens bought a vacant space in Miami Beach in May and paid $6.6 million for an industrial property in Queens in March, according to the Journal. (New York’s City Council has debated more oversight of these businesses.)

CloudKitchens raised $400 million from Saudi Arabia’s sovereign-wealth fund. The company’s acquisitions have been financed by Goldman Sachs with loans.

[WSJ] — Keith Larsen

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AMC’s financial woes have left the movie theater chain strapped for cash and facing in-court restructuring of its liabilities. (iStock; Getty)

AMC’s financial woes have left the movie theater chain strapped for cash and facing in-court restructuring of its liabilities. (iStock; Getty)

Movie theaters are reopening across the country, but that may not be enough to save some of the biggest cinema operators.

AMC Entertainment Holdings, one of the world’s largest movie theater operators, said it could run out of cash by the end of the year if it can’t find additional sources of liquidity, Reuters reported.

The company said in a filing on Tuesday that “substantial doubt exists about the company’s ability to continue as a going concern for a reasonable period of time.” In order to raise funds, it will issue shares, but it also said that it may still need to restructure its debt.

AMC has seen visitors to its theaters fall by 85 percent compared to last year, according to Reuters.

Movie theaters have been pummeled by the pandemic. Although some chains, including AMC, have reopened theaters, moviegoers remain skittish about going back to theaters due to concerns in contracting the virus.

Hollywood studios are also holding back big releases until next year, including MGM/Universal’s new James Bond film “No Time to Die,” giving people less incentive to head to theaters.

AMC’s rival Cineworld recently announced it would temporarily close its 663 theaters in the U.S. and England after opening its theaters back up.

[Reuters— Keith Larsen

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Ed Brown & 1115 Hillsboro Mile (Credit: Google Maps and Rick Dole/Getty Images)

Ed Brown & 1115 Hillsboro Mile (Credit: Google Maps and Rick Dole/Getty Images)

Ed Brown, former Patrón Spirits CEO, sold his oceanfront Hillsboro Beach mansion at a loss, for $16.5 million.

Brown and his wife, Ashley, sold their home at 1115 Hillsboro Mile to James R. Lambert, a trustee of the 1115 Hillsboro Mile Trust, according to records.

Luxury spec home developer Mark Timothy built the home in 2017, the same year the Browns bought it for $20 million.

Jack Elkins with William Raveis Real Estate handled the sale of the 12,562-square-foot mansion, which sits on an acre of land.

The Browns aimed high with their initial listing, putting the property on the market in February 2019 for $27 million. In January, the asking price dropped to $26 million, and eventually fell to $23 million.

The two-story house has six bedrooms, seven full bathrooms — including two master baths — and two half-bathrooms.

The mansion is situated between the Atlantic Ocean and the Intracoastal Waterway and has direct access to the beach on one side and a private dock with a boat lift on the other.

Brown stepped down as the CEO of Patron Spirits in 2018, after holding the position for 18 years. Brown, a former racecar driver, was announced as the executive director of Surterra Wellness, an Atlanta-based health and wellness company, in 2019.

Hillsboro Beach mansions have sold for big price tags this year. The president and CEO of Link’s Snacks, maker of Jack Link’s beef jerky, sold his Hillsboro Beach mansion for $12.5 million and a 14,758-square-foot mansion sold for $18 million.

[contact-form-7]

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Welcome co-founder Alec Hartman and rendering of a model home (Welcome)

Welcome co-founder Alec Hartman and rendering of a model home (Welcome)

Building a new home from the ground up may get easier thanks to a New York City startup that’s bringing the entire process online.

Welcome Homes, which officially launches this week, lets buyers choose a plot of land, select finishes for their new home and put down a deposit on the platform. The company has raised a $5.35 million seed round led by Global Founders Capital, and is available in Westchester County, Morris and Bergen Counties in New Jersey, and Greenwich, Connecticut.

Co-founder and CEO Alec Hartman said the idea for Welcome came from his own experience of looking for a new-construction home outside of New York City when he and his wife were expecting their first child. They encountered little inventory and bidding wars. “I don’t understand, ‘Why can’t I go online, click a few buttons and have a house,” Hartman recalled thinking. “That was a lightbulb moment.”

He said Welcome aims to make purchasing new construction simpler by streamlining the process on the back end. Currently, it offers one design for a four-bedroom, 3.5-bathroom home featuring an open floor plan. Through its platform, buyers also customize their homes with a menu of finishes. “In our attempt to be super turn-key, we did a ton of value engineering,” Hartman said.

Prices start at $969,000 for a 4,590-square-foot house, but go up based on the specific location.

As a developer, Welcome manages the construction in-house (using local contractors, according to Hartman) and sources all materials. Any change orders go through Welcome’s online system with strict parameters to keep costs in check.

But Welcome isn’t buying the inventory like iBuyers do; rather, it’s optioning plots of land. Buyers pay a deposit online for the home, and have the option of working with Welcome’s financing partner. “It’s a single closing process,” Hartman said. “It’s like buying a home but you’re really building it.”

Nationwide, demand for new homes has outpaced supply in recent years, boosting homebuilder confidence. New home sales rose 4.8 percent from July to August, according to the Commerce Department. There were 282,000 homes for sale at the end of August, representing a 3.3 month supply.

According to Hartman, Covid has given Welcome a tailwind, but he said demand existed before the pandemic. “There is a growing need for new inventory, especially among millennials cycling out of major cities,” he said. Within a few days of Welcome’s site going live, he said “hundreds” of people got on a waiting list for a new home.

[contact-form-7]

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Pretium CEO Don Mullen and Ares Management CEO Michael Arougheti (Photos via Pretium; Getty)

Pretium CEO Don Mullen and Ares Management CEO Michael Arougheti (Photos via Pretium; Getty)

Pretium and Ares Management have agreed to buy Front Yard Residential in a deal valued at $2.4 billion.

If it’s finalized, Pretium and Ares would own and operate more than 55,000 homes across the U.S., making the newly combined company the second-largest single-family home landlord in the country, Bloomberg News reported.

The deal highlights Wall Street’s growing interest in the single-family rental space since the onset of the coronavirus. Blackstone Group, Nuveen Real Estate, and JPMorgan Chase have all invested in the sector since the pandemic began, according to Bloomberg.

Don Mullen, the current chairman of Pretium and former Goldman Sachs partner, founded Pretium in 2012. It sought to invest in single-family rental homes at a scale that made rental housing easier to manage.

Front Yard, which owns 15,000 homes, has struggled this year with major shareholders calling for the company to liquidate itself. The company puts itself on the market after settling with an activist investor last year.

In February, Amherst Holdings was set to buy Front Yard back for $12.50 a share, or about $2.3 billion. But the deal crumbled in May due to the coronavirus.
[Bloomberg News] — Keith Larsen

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Housing starts and completions increased sharply in September 2020 in response to fierce demand to buy homes. (iStock)

Housing starts and completions increased sharply in September 2020 in response to fierce demand to buy homes. (iStock)

The number of homes under construction surged across the U.S. last month as homebuilder confidence kept rising.

In September, housing starts for single-family properties stood at 1.4 million, seasonally adjusted, according to the U.S. Census Bureau’s monthly report on residential construction. That’s a jump of about 11 percent year over year. The number is also up about 2 percent from August levels.

Housing starts fell in August by 5 percent, or 76,000 units, compared to July.

September also saw 1.5 million building permits issued for new housing units — seasonally adjusted — which was an increase of 100,000 permits year over year. It was also an increase of 77,000 units from August.

The number of houses completed last month also rose, 25 percent, year over year. In September, 1.4 million units of housing were finished compared to 1.1 million in September 2019, according to the report. September completions also exceeded August completion estimates by about 187,000 homes.

The increases in new residential construction comes as the supply of homes for sale hit a 40-year low in July and prices jumped.

With mortgage rates low, many homebuyers are forging ahead with plans despite those rising prices and heightened competition. Would-be buyers with poor credit, however, are increasingly finding themselves shut out of purchase financing.

[contact-form-7]

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Domio Wynwood, Gustavo Miculitzki, and Jon Paul Pérez (Credit: Alberto Tamargo/Getty Images)

Domio Wynwood, Gustavo Miculitzki, and Jon Paul Pérez (Credit: Alberto Tamargo/Getty Images)

The Related Group and its partner, Block Capital Group, are looking to sell their apartment-hotel in Wynwood, which has a whisper price of $90 million.

Domio has a master lease for the 175-unit mixed-use building at 51 Northwest 26th Street in Miami. The short-term rental operator signed a 10-year lease with two five-year extension options nearly a year ago for the building, its flagship location in Miami.

Roberto Pesant

Roberto Pesant

The property includes 28,700 square feet of retail space, which is about 18 to 20 percent leased, said listing brokers Roberto Pesant and Jaret Turkell of Berkadia. The two investment sales brokers are listing the building for sale with the whisper price, along with Berkadia’s Scott Wadler. Related declined to comment.

Block Capital, led by the Miculitzki family, and Related completed the building last year. It’s the first hotel to open and operate in Wynwood, though a number of projects are in the pipeline, including a Moxy by Marriott hotel at 255 Northwest 25th Street.

“There’s a huge market for this,” Pesant said.

Jaret Turkell

Jaret Turkell

Lenny Kravitz’s Kravitz Design designed the amenity spaces and public areas, and Arquitectonica designed the building. It includes a 233-space parking garage with bicycle storage; a rooftop terrace with a pool, amenity deck, outdoor kitchen and dining area; and a gym and health club. The units feature Italian kitchens and vanities, stainless steel appliances, washers and dryers, walk-in closets and keyless entry.

Domio Wynwood has performed “remarkably well,” Pesant said, opening last year in time for Art Basel, as well as operating during the Super Bowl in February. Throughout the pandemic, the building has been at least 50 percent leased, the brokers said. At one point, the building rented a number of units to Jackson Hospital to house employees.

Scott Wadler

Scott Wadler

The building was designed as a traditional multifamily building, and the developers decided to master-lease the property to a short-term rental operator during construction. Pesant and Turkell said it could eventually be converted back to multifamily.

Some hotel owners across the country are considering alternative uses for their properties, as occupancy and travel remain low, now seven months into the pandemic.

New York-based Domio entered the South Florida market in 2019 when it signed a $1.45 million deal to lease 45 units at the beachfront Monte Carlo in Miami Beach. It competed against companies such as Mint House, Sonder and Stay Alfred to lease the Wynwood building.

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Porch CEO Matt Ehrlichman (iStock; Porch)

Porch CEO Matt Ehrlichman (iStock; Porch)

Porch’s merger with a blank-check company will wipe out its history of losses and set the stage for massive revenue growth, according to the startup’s chief executive.

In an interview with The Real Deal, founder and CEO Matt Ehrlichman defended Porch’s finances after an IPO filing revealed $263 million in cumulative losses as well as liquidity concerns.

Ehrlichman said the deal would give Porch $200 million in cash and no debt. “It gives us a significant war chest, which we can use to play offense,” he said. In particular, he said, acquisitions would be a “meaningful” part of Porch’s strategy going forward.

Founded in 2011, the Seattle-based startup provides software to home-services companies in exchange for data on their customers; it then sells other home services to those customers.

In July, Porch disclosed it would go public by merging with PropTech Acquisition Corp., a special-purpose acquisition company led by Abu Dhabi Investment Authority veterans Thomas Hennessy and Joseph Beck.

Hennessy said PropTech tracked 300 companies before striking a deal with Porch, which he said has strong fundamentals, including 80 percent margins. But Porch’s accountants raised “substantial doubt” about its ability to stay in business, according to its S-4 filing. The company has been losing money each year, with $49.9 million in losses in 2018 and $103.3 million in 2019, according to the IPO filing. It is projecting a loss of $34 million in 2020.

Hennessy said that Porch’s losses are similar to any other fast-growing, VC-backed startup.

“The question is, can that business demonstrate that they have a proven revenue model?” he said. “Can they have real unit economics? Can they demonstrate they can get to EBITDA positive?”

“Porch has proven out all three of those things,” Hennessy said.

By growing its core business and adding new verticals, Porch is eyeing $1.5 billion in revenue within a few years, according to an investor presentation. The company is projecting $120 million in revenue in 2021, up from $77.6 million last year. And Ehrlichman said the company became profitable in June with $7 million in EBITDA by holding research and development expenses flat.

Porch started focusing on profitability last year as it planned a traditional IPO in 2021, according to Ehrlichman.

“I am not naturally a patient person,” he said. “The whole point in taking the company public through a SPAC versus going through a traditional IPO a year later is to be able to capitalize the business as well as we are, faster, so that we can go and be aggressive and take advantage of the M&A opportunities.”

The IPO filing also noted that without raising additional cash, Porch “will not have sufficient cash flows and liquidity to fund its planned business for the next 12 months.”

But Ehrlichman said many privately held startups are “almost always operating at less than 12 months cash.” The transaction will give Porch ample cash thanks to a $150 million PIPE — a private investment in public equity deal, which is when private investors can buy a publicly traded stock at a price below the current market value — led by Wellington Management.

In the investor presentation, Porch said it can grow its core business to generate up to $500 million in revenue in five to seven years. It outlined other revenue opportunities, including mover marketing ($200 million), insurance expansion ($400 million) and new home services ($400 million).

It’s not the first time Porch has made changes to its model. The company initially billed itself as a data-driven home services marketplace, but pivoted to a high-margin business model in 2015. “In retrospect it’s obvious, but the insight at that point was, ‘OK, people just don’t hire that many pros,’” Ehrlichman said. By providing software to home-services companies, Porch gets early access to their clients and can sell them products ranging from TV installation services to insurance.

Ehrlichman said adding verticals now is dependent on going public, so the company has “more capital and can be aggressive with M&A.” Since 2017, Porch has spent $38.2 million to acquire companies and build its platform, according to the IPO filing.

Porch is tracking 150 companies for potential M&A opportunities, and Ehrlichman said it is “deep in the negotiation phase” with seven firms representing $180 million in annual revenue.

[contact-form-7]

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Condo sales and closed dollar volume fell again last week in Miami-Dade County.

A total of 110 condos sold for $35.8 million last week, down from the 123 units that sold for $50.3 million the previous week. Condos last week sold for an average price of about $325,000 or $269 per square foot.

The most expensive sale was for unit 7633 at Oceanside on Fisher Island. The unit sold for $3 million, or $1,049 per square foot, after 566 days on the market. Saddy Abaunza represented the seller while Karla Abaunza represented the buyer.

The second most expensive sale of the week was for unit 705 at Murano at Portofino. The South Beach condo sold for $1.6 million, or $1,166 per square foot, after 73 days on the market. Candida Revilla represented the seller, while Lisa Van Wagenen represented the buyer.

Here’s a breakdown of the top 10 sales from Oct. 11 to Oct. 17.

Most expensive

Oceanside #7633 | 566 days on market | $3M | $1,049 psf | Listing agent: Saddy Abaunza | Buyer’s agent: Karla Abaunza

Least expensive

The Point #2110 | 53 days on market | $552K | $325 psf | Listing agent: Victor Zylbersztajn | Buyer’s agent: Ana Aizenstat

Most days on market

Oceanside #7633 | 566 days on market | $3M | $1,049 psf | Listing agent: Saddy Abaunza | Buyer’s agent: Karla Abaunza

Fewest days on market

Brickell Flatiron #2901 | 1 day on market | $1.1M | $750 psf | Listing agent: Adriana Brito | Buyer’s agent: Giovanni Freitas

Eleven in the Roads #301 | 1 day on market | $850K | Listing agent: Oscar Teran | Buyer’s agent: Daniel Marinberg

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Through a sprawling web of associated entities, Brookfield is one of the country’s biggest real estate investors, particularly in office and retail (Illustration by Maciej Frolow)

Standing in front of a mostly virtual audience in a fitted dark suit with slicked-back salt-and-pepper hair, Brian Kingston attempted to calm investors’ nerves about the coronavirus’ impact on real estate.

“Ultimately, this is temporary,”  the CEO of Brookfield Property Partners said at the firm’s investor day in late September. “We will recover, we’ll come out the other side of it.”

The numbers were concerning: As of Sept. 18, only about 10 percent of Manhattan workers had returned to the office, according to CBRE. An August survey of hundreds of CEOs by KPMG showed that 69 percent of them planned to downsize their long-term space requirements. Brookfield Property Partners is among New York City’s largest office landlords — it controls about 27 million square feet in the city —and is in the midst of building an office megacomplex known as Manhattan West.

The company’s U.S. retail portfolio — a mall-heavy 120 million square feet — was also coming under stress. Just days before the investor conference, the firm told employees it was cutting roughly 20 percent of its retail staff and suggested it would shed some of its assets.

While most retail and office landlords have been hit by the coronavirus, Brookfield Property Partners has far more leverage than its American peers. But as a Canadian company, it can value its assets differently.

At the heart of these differences is the company’s accounting. Unlike its American rivals, who report under GAAP, Brookfield Property Partners uses IFRS, an accounting standard commonly used by foreign companies. Under IFRS, the company has greater discretion over its real estate asset valuations — it does not have to base its valuations on independent third-party appraisals and can instead devise them based on internal assessments. To put it simply: The listed values of its properties may not reflect current market conditions if Brookfield’s leaders choose not to sufficiently adjust them.

In a rising market, those distinctions may not matter. But given that the company collected just about 35 percent of its retail rents in the second quarter and long-term office occupancy is in flux, the question becomes: Does Brookfield’s balance sheet fully reveal the health of its assets?

We the North

Brookfield declined to make executives available for an interview, but provided written responses to The Real Deal’s questions.

Brookfield Property Partners is one of the largest commercial landlords in the U.S., but its roots are deeply Canadian. Edper Investments, precursor to Brookfield Property Partners’ parent company Brookfield Asset Management (BAM), was founded by members of the Bronfman family of the Seagram liquor fortune.

This Canadian pedigree gives the firm a competitive advantage over local U.S. real estate investors. IFRS allows Brookfield Property Partners to rely on its management’s own judgment.

“Even though you have a reasonable amount of discretion in the United States, you even have a hell of a lot more with IFRS,” said James Cox, a securities law expert at Duke University.

Under IFRS, Brookfield Property Partners does not need to turn to third parties to assess the value of its real estate assets. Instead, the company can base valuations on its internal assessments. Meanwhile, companies that report under GAAP usually base valuations on historical cost — i.e., how much the assets traded for. 

Al Rosen, a Toronto-based forensic accountant who predicted the collapse of Canadian telecom giant Nortel Networks, likens IFRS to an 8-year-old preparing their own report card.

“The rules themselves allow you to pick the numbers,” said Rosen, speaking generally about IFRS and not specifically about Brookfield. “This bullshit does not get exposed enough in Canada.”

Brookfield Property Partners said it uses third-party appraisers to “compare the results of those external appraisals to our internally prepared values.”

And those numbers, according to the firm, match up pretty closely. In its most recent quarterly report, the company said it used external appraisals on 14 percent of its office portfolio, and that those appraisals were within 0.5 percent of management’s valuations. But there is no mention in the report of whether Brookfield conducted these appraisals for its retail portfolio. Retail was among the sectors hardest hit by the pandemic, and thus retail properties were at greater risk of losing value.

Over the years, BAM and its subsidiaries have faced scrutiny for how they value assets. Roddy Boyd at the Foundation of Financial Journalism first highlighted these issues in 2013. A September report by Dalrymple Finance, an investment firm run by short seller Keith Dalrymple, also flags some of these concerns.

Given the pandemic, some of Brookfield’s peers wrote down their asset values substantially.

A look at Brookfield Property Partners’ second-quarter financial statements, however, reveals that the company did not follow suit. (The company says its valuations are “compared to market data, third-party reports, research material and broker opinions” for Brookfield to review. )

Brookfield Property Partners’ joint venture in the Ala Moana Center, a 2.2 million-square-foot retail center in Honolulu, saw its carrying value decline just 3.75 percent to $1.87 billion in June from December. Hawaii’s tourism has fallen off dramatically since the state ordered mandatory quarantines for out-of-state travelers in March. Neiman Marcus, one of the center’s anchor tenants, filed a WARN notice Sept. 21 announcing plans for mass layoffs at the store and stated that “there is no realistic prospect for store revenues to recover to a sustainable level in the foreseeable future.”

Mahattan West

Some of Brookfield Property Partners’ valuations even went up during the height of the pandemic.

In Las Vegas — where the unemployment rate is above 15 percent and the Strip shut down for the first time since the JFK assassination in 1963 — the company reported increases in its carrying values of its retail properties. In the six-month period ending in June, its valuation of its stake in the Grand Canal Shoppes rose to $423 million from $414 million, while its stake in the Fashion Show Las Vegas shopping center also increased in value, to $846 million from $832 million.

A Brookfield spokesperson said the change in the Las Vegas valuations “was a result of several recently signed leases at above expected rents.”

Overall, Brookfield Property Partners claims that its “proportionate fair value” of its core retail properties declined by just 3.35 percent to $34 billion over the first half of 2020, according to the company’s second-quarter supplemental report.

Compare that to U.K. real estate REIT British Land, which also reports under IFRS and marked down its U.K.-centric retail portfolio by about 26 percent to 3.9 billion pounds. Unibail-Rodamco-Westfield, a Paris-based mall conglomerate that uses IFRS, wrote down the valuations of its U.S. mall portfolio by about 5 percent.

“We have made substantial progress in reaching agreements with tenants in regards to their rental arrears, and current collection rates are materially higher,” a Brookfield spokesperson said of the health of its retail portfolio since its most recent filing.

In September, Kingston told financial news publication PERE that the dire prognostications about retail mirrored what was being said in 2010, when BAM invested in retailer General Growth Properties (GGP) to pull it out of bankruptcy. That bet, Kingston said, turned out to be lucrative.

“We’re looking at this period of time the same way,” he said. “There is clearly disruption happening in the market. But ultimately we take a long-term view that high-quality real estate assets will hold their value and recover when the economy recovers.”

Flatt out investing

Toronto-based BAM is a closely held conglomerate with interests in everything from railroads to hydroelectric dams to office buildings. With about $550 billion in assets under management, there are few companies with such resources, reach and power.

The SoNo Collection

From the 1970s to the 1990s, the company, then known as Edper, was led by Jack Cockwell, a tough South African-born accountant. Edper almost collapsed under its debt, but survived and expanded its real estate holdings by acquiring the assets of the failed Canadian conglomerate Olympia & York in the mid-1990s. Those properties included the World Financial Center in Lower Manhattan, later rebranded as Brookfield Place.

In 2002, Cockwell handed over the reins to Bruce Flatt, a fellow accountant from the Canadian province of Manitoba. That leadership transition marked the beginning of one of the world’s most aggressive investment sprees. A 2017 Forbes cover story described Flatt as the “Billionaire Toll Collector of the 21st Century.” 

BAM and its subsidiaries are now among the world’s largest property owners. The investment giant has a major stake, along with the Qatar Investment Authority, in the Canary Wharf megadevelopment in London. (QIA is a substantial investor in Brookfield Property Partners, owning roughly 7 percent of the company as of the end of 2019, filings show. It is also a significant investor in the firm’s Manhattan West development, owning 44 percent.)

In 2018, Brookfield Property Partners acquired the rest of GGP for $9.25 billion in cash, making it one of the largest mall owners in the U.S. This August, Flatt disclosed that BAM had raised a record $23 billion in the second quarter, with over half of that earmarked for distressed-debt investing.

In New York, Brookfield is a commercial behemoth with a penchant for rescuing high-profile players from struggling projects: In April 2018, Brookfield Property Partners paid Somerset Partners and the Chetrit Group $165 million for a sprawling waterfront site in the South Bronx, a project for which the developers had struggled to land financing. A month later, BAM was in advanced talks to take over the ground lease at Kushner Companies’ albatross, a 41-story office and retail skyscraper at 666 Fifth Avenue; it closed on that transaction over the summer.

“We like them, we like their culture, it’s very similar to our company culture,” Charlie Kushner, founder of the firm, said of Brookfield in a 2018 interview with TRD.

All in the family

The Brookfield name is ubiquitous in U.S. real estate, but it can be difficult to discern which arm of the organization owns which property. That’s because Brookfield Property Partners often makes deals with other Brookfield entities.

(Click to enlarge)

These transactions — known as related-party deals — are sparsely disclosed in quarterly filings with securities regulators.

Take, for instance, Brookfield Property Partners’ 2018 sale of a 27.5 percent stake in a New York office portfolio for $1.4 billion to BAM.

“The only reason we did that,” Flatt told the Financial Times, speaking of the sale in a profile of the company in 2019, was that “it [BPY] needed some extra capital. And this was an easy way to do it.”

While Brookfield Property Partners disclosed the sale in its quarterly filings, it did not disclose a comprehensive list of the properties included at the time.

In response, a Brookfield spokesperson said, “the specific assets within that portfolio are well known to our investors and industry participants and easily accessible on our website and in other public-facing materials.”

In August 2019, Brookfield Property Partners sold an 81 percent stake in its 700,000-square-foot SoNo Collection mall in Norwalk, Connecticut, in a deal it said was worth $419 million.

“This is a fully stabilized mall in one of the highest-income demographics in the United States. We made a lot of development profit on this one,” Kingston said during the company’s third-quarter earnings call.

The deal was, in fact, between two related parties: Brookfield Property Partners and a BAM-controlled investment fund.

Kingston briefly mentioned this on the call, and Brookfield Property Partners did disclose a related-party transaction for a retail asset, but did not specifically identify the asset in its third-quarter report. The deal was disclosed as a related-party transaction and the asset was named, however, in Brookfield Property REIT’s annual filing.

“We have a robust process in place for managing all related-party transactions to ensure that any potential conflicts of interest are handled appropriately,” a Brookfield spokesperson said.

Such moves have attracted government attention in the past. In the summer of 2017, the SEC asked Brookfield Property Partners for clarification on a series of transactions the firm had first disclosed in its 2015 annual report.

Sixteen Brookfield senior officers invested $2 million in an entity called 9165789 Canada Inc., which held an indirect minority interest in a Downtown Los Angeles office portfolio, the company’s disclosures show. The transaction appeared to give Brookfield senior officers total control over the entity.

“The arrangement,” Brookfield said in the report, was to “align executives’ interests with those of the partnership.”

Brookfield did not disclose who these officers were or how much money they would make from the deal.

Bills, bills, bills

Asset valuation disclosures are important because they help illustrate a company’s financial health.

And understanding Brookfield Property Partners’ current health is important for its investors, because the firm has a hefty debt burden, with $9 billion of its nearly $48.9 billion in debt obligations coming due this year and in 2021, its second-quarter supplemental filing shows.  (The second-quarter filings show $13.6 billion of secured debt coming due; the company said the discrepancy is because the supplemental filing only reflects the debt associated with the company’s specific interests in properties.)

The firm may be poised to take on more debt in the near future, as it and Simon Property Group are finalizing a $1.75 billion deal to buy J.C. Penney — a key anchor tenant at both operators’ malls — out of bankruptcy.

In May, BAM announced a “retail revitalization program,” which would recapitalize struggling retailers in markets where Brookfield is active. The company said it was targeting seed funds of $5 billion for the initiative. 

In July, Moody’s downgraded its rating of Brookfield Property REIT (not to be confused with Brookfield Property Partners), which owns 122 retail properties across the U.S. The agency cited the REIT’s “elevated leverage entering the pandemic and the high likelihood of weakening operating income” as reasons for the downgrade, but said the high quality of its assets and the backing of its parent  companies were credit positives.

As it stands, Brookfield Property Partners is far more leveraged than other major U.S. mall owners. Its debt-to-EBITDA ratio — a common measure of leverage — was 16 in the second quarter, according to Yahoo Finance. That’s compared to 7.1 for Simon Property Group and 12.2 for Taubman Centers in the same period.

Brookfield Property Partners’ access to BAM, of course, gives it firepower those rivals cannot count on. For that privilege, Brookfield Property Partners pays BAM a minimum annual fee of $50 million, plus an “equity enhancement fee,” according to its annual report.

At the September investor day, many of these issues surrounding its leverage didn’t come up. Instead, executives pitched their stock as a value opportunity. Like real estate, they argued, buying at the bottom of a cycle allows more upside than buying at the top.

“Today, our shares trade at a significant discount to the underlying value of our real estate,” Kingston said.

The value of that underlying real estate? That’s up to Brookfield.

The post Does Brookfield’s balance sheet fully reveal the health of its real estate? appeared first on The Real Deal South Florida.

Investors worry that New York City’s battered commercial real estate sector is indicative of larger issues nationwide with hotels, restaurants and retail. (iStock)

Investors worry that New York City’s battered commercial real estate sector is indicative of larger issues nationwide with hotels, restaurants and retail. (iStock)

Investors are betting that trouble in New York City’s commercial real estate market will spread nationwide.

Prices for debt backed by hotels, restaurants and retail in New York City — among the hardest-hit sectors as the pandemic emptied out tourist destinations this year — have fallen and new loans have slowed, leaving bankers and the real estate industry bracing for further declines, the Wall Street Journal reported.

Daniel McNamara, a principal at MP Securitized Credit Partners, said he is betting prices for some CMBS indexes will fall, according to the Journal.

“Distress in financial markets was all about residential mortgage-backed securities in 2008 and energy in 2015,” McNamara told the Journal. “In 2021 it will be all about commercial real estate and the securities linked to it.”

Citing Trepp, the Journal reported that more than $3 billion worth of loans backing commercial property in the five boroughs are delinquent, and loans in creditor negotiations amount to an additional $4 billion.

Other investors say trouble may be more property-specific. For example, a subsidiary of Brookfield Asset Management in September successfully placed a $1.8 billion loan backed by One Manhattan West into CMBS. The 67-story tower is more than 90 percent leased with major tenants including consulting firm Accenture and the National Hockey League.

“Any property that looks destabilized needs to lease up,” Matt Salem, head of real estate credit at KKR, told the Journal. “That doesn’t mean we’re redlining parts of New York City, but we need to make sure there’s durable cash flow for the near future.” [WSJ] — Akiko Matsuda

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Richard Swerdlow and Bruce Goldstein 

Richard Swerdlow and Bruce Goldstein

Miami-based Condo.com founder Richard Swerdlow and South Florida developer Bruce Goldstein are partnering to launch an online platform for bulk condo deals, The Real Deal has learned. They’re betting on the growing distress of condo markets across the country and developers’ desire to keep their offers confidential.

Swerdlow and Goldstein are rolling out their nationwide website, BulkCondoDeals.com, so that developers and other sellers can post their bulk deals – defined as more than one condo unit – on the site with detailed financial information. That will include annual cash flow, fixed costs, cap rates, discounts, building information and projected returns.

However, the listings will exclude building names and addresses, so that developers won’t compete with their own existing retail inventory. The venture will act as a broker for the deal, taking commissions ranging from 1 percent to 5 percent, co-founder Swerdlow said.

The veiled listings will also allow sellers to “avoid the appearance of distress to the financial markets,” while offering discounts of up to 50 percent, said Goldstein, partner and CEO of Miami-based Bulk Condo Deals. The discounts aren’t available to end users, and the goal is to appeal to bulk buyers.

“This does not negatively impact the retail buyer, nor would he take advantage of it,” Goldstein, a former hotel and condo developer, said. “It’s a totally different mindset.”

The website has about $100 million worth of listings and about $500 million in the pipeline in major U.S. markets, as well as in Latin America. Live listings include an 85-unit bulk condo in Miami and a 185-unit condo deal in Chicago, and the partners plan to list a deal in New York City.

They said that amid the pandemic, there’s an oversupply of investors looking to purchase discounted deals.

Condo.com brokered deals in the last recession as a lead generator for other brokerages that had listings, but its website didn’t provide sellers with confidentiality, and it did not focus on helping investors analyze deals, Swerdlow said. (Condo.com provides weekly condo data to TRD.)

Swerdlow and Goldstein said their goal this time is to help sell remaining condo inventory so that developers can move on to their next projects. At first, they planned to launch a consumer-facing platform for developers to sell directly to consumers, but the pandemic accelerated the existing distress in the market. Now, they say they are looking to appeal directly to funds, insurance companies, family officers, and other institutional investors.

Developers appear more motivated than before the pandemic to move on. During the past six-plus months they have offered a number of incentives to prospective buyers, including furniture packages, covering homeowners association fees, and offering rental income on empty units.

One Sotheby’s International Realty broker Fernando de Nuñez y Lugones said that some condo projects have been in the works for six years or more, and it’s time for developers to get rid of their inventory. “It’s a quiet and silent way of distributing this without hurting the retail sales,” he said.

Peter Zalewski, principal at Condo Vultures Realty and a bulk condo investor, said that the 50 percent deposit structure in effect this cycle has forced buyers in the Miami market to close on their units, leaving fewer bulk opportunities this time around.

Swerdlow and Goldstein expect distress to accelerate as the pandemic continues. Developers will need to sell in bulk to avoid having their property foreclosed on or having their loans enter special servicing. Once distressed pricing becomes public, retail sales can fall apart.

“The last thing they want is the broker to have access — and blast it to the media,” Swerdlow said.

[contact-form-7]

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Brian Kingston and Merrick Park

Brian Kingston and Merrick Park

Nordstrom and Neiman Marcus may be closing stores across the country amid the pandemic, but at the Shops at Merrick Park in Coral Gables, the retailers appear to be in for the long haul.

Brookfield Property REIT owns the roughly 850,000-square-foot property at 358 San Lorenzo Avenue, which consists of a three-story open-air shopping center as well as a five-story office building.

The property opened in 2002, and was acquired by GGP and JPMorgan Asset Management two years later. Brookfield Property Partners, a subsidiary of Toronto-based Brookfield Asset Management, fully acquired GGP in 2018. Last fall, Brookfield bought out JPMorgan’s stake in Merrick Park with the help of a $390 million CMBS refinancing provided by Bank of America.

Loan documents associated with that securitization provide an inside look at the finances of the mall and office complex.

As of December, the Shops at Merrick Park was 96 percent leased to more than 90 retail and restaurant tenants and three office tenants. Nordstrom and Neiman Marcus have been open since 2002, and as anchor tenants pay significantly less rent per square foot than other tenants.

Average rent at the complex comes out to $46.40 per square foot. Excluding the 10 largest tenants, that figure more than doubles to $99 per square foot.

By total base rent, the largest tenant at Merrick Park is office tenant Bayview Asset Management, a mortgage investment firm that oversaw $14.9 billion in assets as of September 2019. Other major tenants include Related Companies’ Equinox Fitness Club and a seven‐screen Landmark Theatres.

According to servicer commentary, the landlord is planning to provide rent deferral to Neiman Marcus, which recently emerged from bankruptcy after shedding $4 billion of debt and closing stores, including its recently opened flagship in New York’s Hudson Yards. Before coronavirus, Merrick Park was home to the highest-performing Neiman Marcus in Brookfield’s portfolio, with over $86.9 million in gross sales.

The servicer also notes that Nordstom closed two other locations in South Florida, at Dadeland Mall and at Waterside Shops in Naples, which will have a positive impact on the retailer’s fully remodeled space at Merrick Park.

Over the summer, Brookfield began taking legal action against deadbeat tenants at the complex, suing the Diane Von Furstenberg store for more than $200,000 in unpaid rent and Irving Padron’s Submarket Realty for more than $94,000 in unpaid office rent.

Brookfield Properties recently moved to lay off 20 percent of its retail division, or about 400 employees. The cuts were made “to align with the future scale of our portfolio,” according to an internal document shared with CNBC.

[contact-form-7]

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Mike Napoli and 2501 Delmar Place (Getty, Coldwell Banker)

Mike Napoli and 2501 Delmar Place (Getty, Coldwell Banker)

Retired first baseman and catcher Mike Napoli sold his mansion in the Seven Isles neighborhood of Fort Lauderdale for $7.3 million.

Records show Napoli, a Broward County native, sold the waterfront home at 2501 Delmar Place to Andrew Dumke, the founder, chairman and CEO of CloudBreak Capital.

CloudBreak Capital is a San Diego-based private equity fund focused on lower middle market buyouts, according to its website. Dumke is also a board member of the San Diego Air & Space Museum.

Napoli was drafted by the Anaheim Angels (now the Los Angeles Angels), and during his 12-year career, played for the Texas Rangers, Boston Red Sox and Cleveland Indians. He won a World Series with the Red Sox in 2013, and retired from baseball in 2018, the same year he bought the 8,120-square-foot home for $7 million.

Napoli listed the property in June for $8 million. Jonathan Postma with Coldwell Banker had the listing. Kim Hackett of Compass represented Dumke.

The six-bedroom, nine-bathroom home was built in 2016 and has a gym, loft, office and a four-car garage. The outdoor area includes a gazebo, a saltwater pool and jacuzzi, gas fire pits and boat lift.

Among other recent nearby sales in Fort Lauderdale, John Moran Jr., the CEO of a warehousing, logistics and transportation company, bought a waterfront house in the Harbor Beach neighborhood for $7.5 million; a software CEO bought a Seven Isles home for $6.1 million; and a Phoenix auto magnate bought a waterfront Fort Lauderdale house for $9 million.

[contact-form-7]

The post He’s out: Baseball’s Mike Napoli sells waterfront Fort Lauderdale mansion for $7M appeared first on The Real Deal South Florida.

Stuart Elliott

Here’s a quick rundown of where the country’s top real estate market is at, more than six months into a pandemic that has upended our lives.

The troubling numbers tie into two of several big themes this issue: How our largest cities are undergoing their greatest change in decades and how the full impact of the pandemic might not be showing up in companies’ books as it should.

In New York:

—About 10 percent of Manhattan workers have returned to the office.
—There’s been a roughly 500 percent year-over-year increase in the number of people moving out of the borough.
—The number of rental apartments on the market has tripled from a year ago.
—Manhattan office leasing is down 50 percent, with this year’s total on track to be the lowest since the turn of the century.
—The average revenue per room in the city’s hotel market has tumbled 70 percent.
—The pandemic has shaved $16 billion off projected construction spending in 2020 and 2021.
—The mortgage delinquency rate has tripled from a year ago.
—One bright spot: Industrial leasing is up 70 percent compared to last year.

Based on these numbers, New York and many other big cities are going to have their work cut out for them — particularly when it comes to their commercial districts. As reporters Kathryn Brenzel and Rich Bockmann write in our story “The Metamorphosis of the Metropolis,” there’s “an existential question confronting New York and other alpha cities: Post-pandemic, can their central business districts survive?”

Right now, workforces have been distributed far and wide as the majority of employed Americans work remotely. The key to the future will depend on how cities approach long-term planning and how the office market shakes out after the economic crisis. 

Part of the long-term thinking for New York, according to some experts, should be to create more business hubs outside Manhattan. Along the same lines, an idea emerging in Europe is the notion of a “15-minute” city, where residents should be a short walk or bike ride away from most of their core needs. That includes being close to work, negating the need for a lengthy commute (one of the big hindrances to workers returning to offices today).

Obviously, this would involve immense changes to our cities, but on the other hand, we are going through a time of immense change already.

Meanwhile, our cover story this month looks at the behemoth landlord Brookfield Property Partners, examining how accurately its financial statements reflect the downturn in the retail and office markets. The questions hinge, perhaps surprisingly, on the fact that Brookfield is a Canadian company and therefore not subject to the same standards as firms based in the U.S.

Despite the outlook for malls plummeting, Brookfield claims that its core retail portfolio declined by less than 2 percent in the first half of the year.

And in Las Vegas — where the unemployment rate is above 15 percent and the Strip shut down for the first time in a half-century — the company actually reported the value of its investments going up since the pandemic hit.

It turns out Brookfield isn’t required to hire outside appraisers to determine the value of its properties — the company itself can decide how they are booked. While Brookfield claims that it uses third-party appraisers to value parts of its portfolio, one forensic accountant told The Real Deal more generally that the shortcomings of the foreign accounting system it uses can be “bullshit” that “does not get exposed enough in Canada.” Oh, Canada.

Elsewhere in the issue, we have a “survival guide” for American mall owners, which looks at some possible solutions to the problems facing shopping centers. One retailer mentioned using more space for voting booths and community meetings, which doesn’t sound that lucrative.

Lastly, for your final election fix, check out our latest coverage on the contentious race between Joe Biden and Donald Trump. It’s hard to believe that by the time our next issue comes out, we’ll know (hopefully) who the country’s president is for the next four years.

Enjoy the issue.

The post Editor’s note: An urban identity crisis appeared first on The Real Deal South Florida.

Jamie Rose Maniscalco and Daniel Ades with the property

Jamie Rose Maniscalco and Daniel Ades with the property

A family foundation paid $5.3 million for 3.9 acres of land near Miami Shores to build a private, non-profit Jewish day school, The Real Deal has learned.

The Ades Family Foundation, the philanthropic arm of Aventura-based Kawa Capital Management’s managing partner and chief investment officer Daniel Ades, bought the assemblage at 855, 975 and 995 Northwest 95th Street and at 900, 910 and 920 Northwest 96th Street.

Jamie Rose Maniscalco with Apex Capital Realty brokered both sides of the deal. The entire assemblage is in an Opportunity Zone.

Ades told TRD that he hopes to build a 60,000-square-foot, as-yet-unnamed school that would open in 2023. Construction will likely start a year from now on the middle and high school, he said.

His family’s foundation bought the 95th Street land, totaling 3.44 acres and $4.7 million, from the Peroni Family Trust, records show. George Peroni was an electrical engineer and inventor who died in February at age 93, according to his obituary.

The foundation bought the 96th Street land from Sunshine Realty Enterprise for $620,000, according to records. Sunshine, led by Giancarlo Gutierrez, Enrique M. Socias and Pieor Pezzia, had bought the land as part of a 2018 deal for $415,000, records show. The land features some buildings constructed in the 1950s.

Past Kawa real estate deals include $42.5 million to acquire a development site in downtown Miami in 2016.

In August, Kawa became the first to sign a lease for office space at Onyx Tower, which is under construction at 1010 South Federal Highway in Aventur. It is part of the Optima office complex.

Among other recent South Florida land deals, a company tied to the Easton Group bought an 8.4-acre property in Hialeah Gardens for $8.2 million, and the Melo Group picked up another site in Miami’s Arts & Entertainment District near Edgewater.

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Nextdoor CEO Sarah Friar (Getty; iStock)

Nextdoor CEO Sarah Friar (Getty; iStock)

Nextdoor, a social network for neighbors sharing information or trading goods and services, is evaluating options to go public, Bloomberg News reported, citing anonymous sources.

The company is targeting a valuation in the range of $4 billion to $5 billion, the sources told the outlet. Nextdoor is considering going public through a direct listing or by merging with a blank-check firm, one of the sources with knowledge of the matter told Bloomberg.

The San Francisco-based social network didn’t respond to Bloomberg’s request for comment.

Nextdoor has raised about $470 million and was last valued at $2.2 billion about a year ago, according to PitchBook. The company’s platform includes 268,000 neighborhoods globally, including one in every four in the U.S., according to Nextdoor.

While the social network is typically used by neighborhood residents to share tips and other information, it’s also gotten attention from the real estate industry. Brokers can buy ads on the platform, and Nextdoor also has products for local businesses that agents can use to reach potential customers, including a “sponsor a neighborhood” option that targets specific ZIP codes. [Bloomberg News] — Akiko Matsuda

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(iStock)

(iStock)

Black homeowners in the U.S. are paying thousands of dollars more for mortgage payments than their white counterparts, according to a new study.

The report, co-authored by MIT Golub Center for Finance and Policy executive director Ed Golding, found that Black borrowers pay $13,464 more over the life of a home loan, with higher interest payments, mortgage premiums and property taxes. In all, these differences amount to a loss of $67,320 in retirement savings for black homeowners.

Bloomberg News first reported the study.

The study, which draws on data from the American Housing Survey and the Home Mortgage Disclosure Act (HMDA), shows how disparities in mortgages have led to stark financial inequalities between white and black Americans.

It also shows that while mortgage rates are at record lows, a large swath of borrowers are being left out from this opportunity.

For one, Black homeowners pay about $250 more per year in interest charges for home purchase loans, with their average interest rate about 12 basis points higher than it is for white homeowners, according to the study. Higher interest rates could be a result of guidance imposed after the great recession by Fannie Mae and Freddie Mac’s regulator, the Federal Housing Finance Agency. This led to lenders charging higher fees to borrowers with lower credit, the authors said in the report.

Black homeowners also have fewer options to refinance their mortgages and are more likely to be turned down for refinancing requests. As a result, Black homeowners pay about $475 per year more than white homeowners, according to the study.

When it comes to insurance, Black homeowners pay an average of $550 more per year than white homeowners, resulting in a loss of $23,000 in retirement savings. Black homeowners also pay more in property taxes than white homeowners, with property taxes 13 percent higher than white homeowners in the same area, according to the study.

The study states that if these extra mortgage costs were eliminated the $130,000 wealth gap between Black and white Americans at retirement would drop by half.

The study comes amid a boom in mortgage originations and refinancings, with millions of Americans seeking to take advantage of 30-year fixed mortgage rates below 3 percent.

But at the same time, some banks like JP Morgan have raised their borrowing standards on getting a loan, making it more difficult to get lower-income Americans to obtain mortgages. Similar measures have been taken by Ginnie Mae, which guarantees loans predominantly for lower-income borrowers and first-time homebuyers.

The post Black homeowners pay $13K more for home loans: study appeared first on The Real Deal South Florida.

The National Association of Home Builders Housing Market Index reached a record high for the second consecutive month in October 2020. (iStock)

The National Association of Home Builders Housing Market Index reached a record high for the second consecutive month in October 2020. (iStock)

Homebuilders are feeling record levels of optimism, according to a new report.

The National Association of Home Builders/Wells Fargo Housing Market Index reached 85 in October, seasonally adjusted, the highest reading in the monthly metric’s 35-year history.

After experiencing a sharp decline in the spring, the NAHB index has been steadily rising — and even breaking records — ever since: In September, the NAHB index hit the prior record high with a reading of 83. Before that, the previous high was 78, which it first reached in December 1998, and hit again in August.

The index tracks homebuilder confidence in current and future single-family home sales and traffic of potential homebuyers on a monthly basis. A reading of more than 50 indicates a positive outlook; a reading under 50 indicates a negative outlook.

This month, sentiment toward home sales hit 90, the highest level recorded so far this year; last month, the reading was 88. The outlook for home sales in six months similarly jumped to 88 from 85 in September. Activity among would-be homebuyers was unchanged from September at 74.

The northeast and western regions of the country saw the largest month-over-month gains in sentiment.

All components and regions measured by NAHB’s Housing Market Index saw significant year-over-year gains, underscoring the strength of the housing market this year.

Low mortgage rates and diminished housing supply has unleashed a flood of demand that drove up prices and prompted a surge in homebuilding.

The influx of demand has predominantly been from homebuyers with higher income levels. Those who have bad credit, who are often at lower income levels or have experienced job losses, are increasingly locked out of the market.

[contact-form-7]

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Russell Weiner with 12520 Seminole Beach Road and 12395 Banyan Road (Redfin)

Russell Weiner with 12520 Seminole Beach Road and 12395 Banyan Road (Redfin)

Rockstar Energy Drink founder Russell Weiner likely got a boost of energy after he flipped his North Palm Beach homes for more than $48 million — reaping a 45 percent gain in one month.

The billionaire entrepreneur bought the properties from Swedish model Elin Nordegren, the ex-wife of golfer Tiger Woods, for nearly $33 million in September. Property records show he sold the oceanfront mansion at 12520 Seminole Beach Road for $41.8 million to Tranquil Sunrise LLC and the non-waterfront home across the street at 12395 Banyan Road for $6.4 million to Calm Sunset LLC.

Weiner flipped the properties for $15.3 million more than he paid last month. The buyers are both Delaware companies.

Nordegren purchased the waterfront property in 2011 following her much-publicized $100 million divorce from Woods and built a new mansion in 2014. The new house has 11 bedrooms, 15 bathrooms and three half-baths. It features rooms with retractable glass walls, a roof deck, wine cellar, theater, two kitchens and a gym. Along with a pool, the home has 200 feet of ocean frontage, a putting green and a basketball/pickleball court. A separate guest house includes two separate apartments, each with a kitchen and living room.

Records show she acquired the smaller house across the street in 2013 for the same price she sold it to Weiner for: $4.25 million. Together, the lots total about 3.3 acres.

Last month, after Nordegren sold her North Palm Beach properties, she paid $9.9 million for a six-bedroom mansion in the Old Palm Golf Club community of Palm Beach Gardens. That house previously belonged to billionaire developer Donald Soffer.

Weiner is worth about $3.7 billion, according to Forbes. He sold Rockstar to PepsiCo for $3.85 billion earlier this year.

[contact-form-7]

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October 2020 Issue is Live

The Real Deal’s October national issue is live for digital subscribers and will start hitting doorsteps around the country soon.

Covid-19 has catalyzed an identity crisis for major cities and their commercial hubs. Malls, hotels and office buildings must reimagine their role in this new economy. And with less than three weeks to go, we’re nearing the end of one of the most polarizing election seasons in history.

Here are some of our biggest stories this month:

  • The pandemic’s growing impacts on Brookfield Property Partners (you wouldn’t know it from the investment giant’s books)
  • An inside look at Opendoor’s big plans for iBuying and Beijing-based Beike Zhaofang’s meteoric rise in proptech
  • What superstar agent Ryan Serhant’s departure from Nest Seekers means as he gets ready to go head to head with his former brokerage
  • How cities will evolve in the era of social distancing, and what they’ll have to do to survive
  • New possibilities for repurposing struggling hotels as many are forced to permanently shutter
  • Vornado veteran Wendy Silverstein on her more than 30 years in finance and real estate, working for WeWork, and launching her new firm Silver Eagle

… And much more! Subscribe today and check out the new issue here.

The post TRD’s October issue is live for subscribers! appeared first on The Real Deal South Florida.

Subversive CEO Richard Acosta (Photos via ICSC; iStock)

Subversive CEO Richard Acosta (Photos via ICSC; iStock)

Cannabis-focused Inception REIT will soon become a publicly traded real estate investment trust.

Subversive Real Estate’s merger with Inception REIT is part of a $183 million transaction to turn the special purpose investment vehicle into a real estate investment trust, allowing it tax benefits and the ability to receive more capital, Bloomberg News reported.

The transaction is expected to close at the end of this month, making Inception the second publicly traded cannabis REIT, following the success of Innovative Industrial Properties.

A REIT structure will help cannabis companies in need of cash, as well as investors who want to invest in the growing cannabis industry without having to manage property.

“We unlock capital for operators,” Subversive CEO Richard Acosta told Bloomberg.

Innovative Industrial Properties, which was founded in 2016, has fared better than other commercial real estate sectors since the onset of the pandemic, since dispensaries have been able to operate during lockdowns, whereas other facilities — like restaurants or movie theaters — have not.

But how the REIT structure can distribute risk remains to be seen. If marijuana becomes legal at the federal level, companies may not need to operate facilities in each state, as they are required to do now, and cultivation plots and processing facilities in some states may become unnecessary. [Bloomberg] — Akiko Matsuda

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Marcus & Millichap CEO Hessam Nadji and Mission Capital principal David Tobin (Photos via Marcus & Millichap; Mission Capital)

Marcus & Millichap CEO Hessam Nadji and Mission Capital principal David Tobin (Photos via Marcus & Millichap; Mission Capital)

Marcus & Millichap has inked a deal to buy the debt and equity brokerage Mission Capital Advisors.

The publicly traded Marcus, which has a market capitalization of $1.2 billion, entered into an agreement to buy Mission Capital, the company told The Real Deal.

Marcus & Millichap CEO Hessam Nadji said Mission Capital’s loan sales and consulting divisions will “expand our lender relationships and client service offerings” and called Mission’s debt and equity team “highly complementary to [Marcus & Millichap’s] core mortgage brokerage business.”

Financial terms of the deal were not disclosed. The purchase is set to close in the fourth quarter.

The deal comes at a time when there are more rumblings about mergers and acquisitions in the commercial brokerage space. Cushman & Wakefield recently made an offer to buy Newmark Group, which the latter rejected, according to a report. Cushman also had discussions about selling itself to JLL, sources told TRD.

Talks between Marcus and Mission Capital began last year, but the deal was delayed by the coronavirus. In the meantime, a number of Mission Capital dealmakers have left the company for competing firms.

[contact-form-7]

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Tere Blanca and the Aventura office complex (Credit: Google Maps)

Tere Blanca and the Aventura office complex (Credit: Google Maps)

Four companies signed leases for a total of 36,000 square feet at Optima, a three-building office complex in Aventura, including the first tenant of the complex’s 28-story tower that is still under construction.

Blanca Commercial Real Estate, which brokered the deals, declined to disclose lease terms for space at the complex at 21500 Biscayne Boulevard.

But brokerage founder Tere Blanca said that Class A office market rental rates in Miami-Dade County haven’t been negatively affected by the pandemic. “We expect continued leasing momentum at Optima as companies evaluate their next move,” she said via email.

Blanca added that the leases are not short-term deals. “We are finding that most companies are eager to get back to the office, and are looking ahead to provide a long-term workplace experience that especially gives employees flexible spaces to work safely,” she said.

Kawa Capital, an asset management firm, was the first to sign a lease in August for Onyx Tower, which is under construction at 1010 South Federal Highway in Aventura, according to a press release.

The tower has an expected delivery of the first quarter of 2021. An online listing for the tower says 15,200 square feet of space starting at the tower’s 10th floor are available in January. Rents from the 10th floor to the top of the tower range from $55 a square foot to $60 a square foot, according to the listing.

WM Partners, a middle-market private equity firm focused on the health and wellness industry, signed a lease in March for 11,401 square feet of the finished nine-story White Tower. Aurele Properties, a real estate investment firm, signed a lease in August for 2,000 square feet of space at the tower.

Medical spa and clinic Makeover Aesthetics signed a lease in September for 4,000 square feet of space in the finished four-story medical office building called the Red Tower.

Other tenants in the Optima complex include Luxe Residential, Soffer Health Institute, SimpleMD and the headquarters of Benihana.

Developers Jose Bromberg and Ariel Bromberg acquired the 1.6-acre site for $5.5 million in July 2008, records show.

Employers are signing office leases despite Covid-19 leading to more remote work. Investment management firm J. Goldman & Co. recently signed a lease expansion at a South Beach office building for $92 per square foot, reportedly a record for South Florida.

And even with an onslaught of new office supply and the economic impact of coronavirus, office landlords did not give tenants a rent break during the second quarter, according to a report from JLL.

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3187 Royal Road, Coconut Grove (Realtor)

3187 Royal Road, Coconut Grove (Realtor)

A pop-up private marina behind a commercial developer’s home in Coconut Grove is disrupting Ransom Everglades’ aquatic learning experiences, according to a recently filed lawsuit.

The private school is suing Caroline Weiss, CEO of the Weiss Group of Companies, in Miami-Dade Circuit Court, in an attempt to stop her from allowing private boats from docking along the seawall of her nearly 2-acre estate at 3187 Royal Road. It neighbors the Ransom Everglades campus.

John Shubin, the lawyer for the school, said Ransom Everglades has a policy of not commenting on pending litigation.

Weiss’ attorney Michael Schlesinger said his client plans to vigorously fight the lawsuit. He also criticized the timing of the complaint, noting it was filed a few days before Ransom Everglades and Weiss were to have a mediation meeting in connection with a separate lawsuit she filed against the school.

“My client is a tough lady who has a reputation all of her life for standing up against bullies,” Schlesinger said. “And she has no plans to stop now.”

According to the school’s lawsuit, Weiss recently began operating a small-scale marina operation by allowing boaters to rent space along the southern side of her property that abuts a canal.

The complaint contains photographs taken on Sept. 30 showing at least a half dozen boats by the seawall of her estate. Ransom claims the vessels are unlawfully docked and pose a navigational and safety hazard for school staff and students that traverse the canal to enter Biscayne Bay.

“Since its inception, Ransom has viewed Biscayne Bay as an extension of the classroom, and has developed a full suite of experiential learning opportunities by sailing, kayaking, canoeing, snorkeling, testing water samples, and learning navigational skills,” the complaint states. “Ransom instructors also frequently take their classes out on powerboats to study and explore Biscayne Bay.”

The lawsuit alleges Weiss is violating a 1965 agreement that stated that neither the Ransom property nor her estate would hinder use of the canal.

Weiss sued Ransom Everglades in 2018 to stop the school from implementing its special area plan through a permanent injunction. In her lawsuit, Weiss alleged Ransom Everglades reneged on an agreement to support the closure of Royal Road. The special area plan would allow Ransom Everglades to expand its total lot area to 801,319 square feet, as well as increase its maximum student enrollment, staff size and number of parking spaces.

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Can Porch get off the deck?

As it prepares to go public with a blank-check company, Porch.com disclosed recurring losses, liquidity concerns and “substantial doubt” by accountants over its viability.

But founder and CEO Matt Ehrlichman and the company’s investors say proceeds from the deal will leave it with more than $200 million in cash and no debt, allowing Porch to grow its business twentyfold within five to seven years.

Founded in 2011, the Seattle startup provides software to home-services companies in exchange for info on their customers; it then sells other home services to those clients. In July, Porch disclosed it would go public by merging with a SPAC led by Abu Dhabi Investment Authority veterans Thomas Hennessy and Joseph Beck. According to an IPO filing, Porch generated $77.6 million in revenue last year. It’s projecting $120 million in pro forma revenue in 2021.

Here’s what else the filing said:

🔻 Porch has accumulated $263.5 million in losses and its accountants raised “substantial doubt” about its ability to stay in business given the red ink building up. The IPO filing adds that without raising additional cash, Porch “will not have sufficient cash flows and liquidity to fund its planned business for the next 12 months.”

🔻 The profitability question is real, with losses of $50 million in 2018 and $56 million in 2019. On an EBITDA basis, Porch said it entered positive territory in June 2020 and it projected $7 million in EBITDA in 2021. Losses will narrow, but are still expected to total $34 million this year and $11 million in 2021.

🔺 In an investor presentation, Porch said the business has an upside of $1.5 billion. By growing its core business 20x, Porch projects it could generate up to $500 million in annual revenue from it. Other revenue opportunities include mover marketing ($200 million), insurance expansion ($400 million) and new home services ($400 million).

🔺 The capital structure of the deal will leave a newly-traded Porch with zero debt and $205 million on its balance sheet to fund operations.

“We want to be strategic. We want to be innovative. We want to be impactful. We want to be WeWork.”

CEO Sandeep Mathrani, on WeWork’s new, old name 

Adam Neumann is back

He was down, but Adam Neumann is not out. The controversial WeWork co-founder just invested $30 million in Alfred, a startup that provides services such as dog-walking, rent-processing and maintenance in apartment buildings.

The check, from Neumann’s family investment office, was part of a $42 million Series C for the startup, also known as Hello Alfred, which has raised $100 million since 2014. Alfred claims to be in 100,000 units in 20 markets and bills itself as an “operating system” for apartments. Prior backers Spark Capital, New Enterprise Associates and Greystar also participated in the round.

Meanwhile, WeWork is returning to its roots. It is changing its name back from the We Company, a moniker meant to reflect its expansion into co-living, which stalled at two buildings, and education, which was sold to Neumann’s wife, Rebekah Neumann.

 

Masa Son jumps on SPAC train

Forget Vision Fund 2. SoftBank’s next move is a blank-check company.

The Japanese tech giant is planning to launch a special purpose acquisition company in the upcoming weeks, according to Rajeev Misra. The SPAC’s target size has yet to be determined, but SoftBank plans to combine outside funds with some of its own money, sources told Bloomberg. SoftBank will be looking to merge with a company outside its existing portfolio, Axios reported. SoftBank portfolio company Opendoor is going public in a $4.7 billion SPAC deal with Chamath Palihapitiya’s Social Capital.

Knock Knock …

It was bound to happen: Startups Knock and EasyKnock are facing off in court over alleged trademark infringement and unfair competition.

According to court docs, Knock — which helps owners buy new homes before selling their old ones — incorporated August 2015 and has been using the mark “KNOCK” since 2016. The company, started by Trulia co-founder Sean Black, applied for a trademark last month.

EasyKnock — which buys homes and leases them back to the owners — incorporated in October 2016 and filed two trademark applications for “EASYKNOCK” in June 2017. “Our legal action is more than defending a trademark,” EasyKnock CEO Jarred Kessler told Inman. “We have built a strong company because our programs work. Their company is responsible for creating a confusing product.”


STAT OF THE WEEK

-31%

Drop in median rent for a San Francisco studio in the past year


Mortgage in a snap

With the mortgage business booming, Snapdocs has raised $60 million to meet demand for digital paperwork. The Series C was led by YC Continuity with participation from Lachy Groom, Maverick Ventures and Docusign, plus prior backers Sequoia Capital and Founders Fund.

Founded in 2012, San Francisco-based Snapdocs serviced 170,000 home sales totaling $50 billion in August, or about $300,000 per home. It projected 1.5 million in deals this year, nearly double its 2019 volume. CEO Aaron King declined to disclose the company’s valuation but told TechCrunch that Snapdocs has raised $103 million — most of which is still in the bank.



Show me the smart money

“Smart” hospitality startup Casai has raised a $48 million debt and equity round led by Andreessen Horowitz. The round includes $23 million in equity and $25 million in debt. Alongside Andreessen, other investors are Kaszek Ventures, one of Latin America’s largest venture funds, as well as Global Founders Capital and others.

Casai was started in 2018 by CEO Nico Barawid and hotel industry veteran María del Carmen Herrerías Salazar. Google alum Andrés Páez Martínez, the CTO, is building custom products for Casai apartments.

Each unit has features such as keyless entry, smart TVs and Google Home thermostats, which can be controlled by a hardware hub called Butler. The company uses technology to boost efficiency in other ways, including an app called Breezeway to manage housekeepers. On the marketing front, it relies on data-driven digital ads that take into account things like airline schedules. Casai currently has 200 units in Mexico City and will launch in Brazil as part of an international expansion. The company has a combination of leases and revenue-share agreements with landlords.


Small bytes

🏨 Hospitality startup Kasa Living, which operates units in vacant hotel rooms and apartments, raised $30 million.

💰 Startup PassiveLogic raised $16M for smart-building design.

💰 Cove.tool raised $5.7M to sustainability-focused building design.

🎬 Zillow named Hines executive Claire Cormier Thielke to its board, making good on a pledge to diversify its directors.

🌬 Breather, which rents office space one day at a time, is testing a membership program starting at $1,500 a month.

⏲ iBuyer Offerpad is partnering with relocation company Aires, extending cash offers to select clients.

🤖 OJO Labs, an AI startup whose digital assistant works with homebuyers, acquired personal finance startup Digs.


 
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The post Future City: Blast from past as Neumann’s back; Hospitality startup raises $48M appeared first on The Real Deal South Florida.

Nicosia (Credit: iStock)

Nicosia (Credit: iStock)

Cyprus is ending a citizenship program after an undercover investigation found elected officials were willing to help criminals get passports if they made real estate and other investments.

The Cypriot government announced Tuesday the Cyprus Investment Programme would end Nov. 1, according to Al Jazeera.

The statement came just a day after Al Jazeera published a report implicating high-ranking officials in schemes to help convicted criminals obtain Cyprus passports, which allow access to the rest of the European Union and its markets.

The citizenship program granted passports to anyone who invested at least $2.5 million into the country. The program has attracted $8 billion worth of investment in Cyprus since 2013.

The program has been criticized in the past, including by European Union officials, who said it allows criminals to launder stolen assets and dirty money.

In August, Al Jazeera published 1,400 documents showing that Cyprus officials failed to comply with its own laws meant to prevent criminals and fugitives from obtaining passports.

Al Jazeera reporters posed as representatives of a Chinese national seeking a passport through the program. They were open about their fictional client’s prison term for money laundering, which legally precluded him from participating in the program.

Several parties including a real estate developer, a parliament member, and the speaker of parliament told them that the prison term wouldn’t be an issue if their fictional client invested enough money in the country.

“You can tell him that he will have, without mentioning my name or anybody else’s, full support from Cyprus,” said parliamentary speaker Demetris Syllouris. “At any level — political, economic, social, everything.” [Al Jazeera]Dennis Lynch

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Rachel Brosnahan and the property (Credit: Jose Perez/Bauer-Griffin/GC Images)

Rachel Brosnahan and the property (Credit: Jose Perez/Bauer-Griffin/GC Images)

An Upstate New York resort that has been featured in Amazon’s “The Marvelous Mrs. Maisel” is hitting the market for the first time in its 150-year history.

The 1,000-acre Scott’s Family Resort in the small town of Deposit has been listed for $6 million after an auction ended without a qualified bid, according to the New York Post.

The lakeside resort has served as a summer getaway for the fictional character of Miriam Maisel in the Amazon comedy, which is set in the 1950s and 1960s. The property is called the Steiner Resort in the show.

The property has much of the old school charm seen in the show, including a ballroom, a 1900s-era bowling alley with hand-set pins, and an ice cream and soda fountain. The grounds have courts for tennis, volleyball, and shuffleboard. Oquaga Lake is steps away from the main building.

The resort has 134 rooms set across several buildings and small cottages. It’s usually open from Memorial Day to Columbus Day but has been closed this year because of the pandemic, which has devastated the hospitality industry nationwide. It remains open for private events.

The owners are now in their 90s and are selling to pay off lingering debts, among other reasons, according to the report. [NYP]Dennis Lynch

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Blackstone’s Stephen Schwarzman, Roku CEO Anthony Wood and Coleman Highline in San Jose (Blackstone; Wikipedia Commons; Coleman Highline)

Blackstone’s Stephen Schwarzman, Roku CEO Anthony Wood and Coleman Highline in San Jose (Blackstone; Wikipedia Commons; Coleman Highline)

A few months after making a blockbuster deal in Hollywood, Blackstone Group is making another big bet on streaming video with the purchase of a San Jose office property leased to Roku.

Blackstone’s non-traded real estate investment trust, BREIT, will pay $275 million, or around $770 per square foot, for two buildings in the Coleman Highline development, Bloomberg News reports.

Roku moved its headquarters to the property last year and has nine more years on its lease. The digital media company rents 730,000 square feet of office space at the complex, which was developed by Hunter Properties.

In August, Blackstone bought a 49 percent stake in Hudson Pacific Properties’ $1.65 billion Hollywood production studio and office portfolio.

Netflix leases 31 percent of the space, and ABC, Disney and CBS/Viacom lease are among the other main tenants.

San Jose has attracted attention from major Bay Area companies in recent years, according to the Mercury News. Adobe is expanding its office complex in downtown San Jose. Not far away, Google has proposed a 79-acre office-heavy mixed-use development near San Jose’s Diridon Station. Apple has been buying properties for an 85-acre campus in north San Jose.

[Bloomberg] — Dennis Lynch 

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Kaufmann Desert House (Courtesy Coastal Luxury Living)

Kaufmann Desert House (Courtesy Coastal Luxury Living)

One of modernist architect Richard Neutra’s most famous homes is hitting the market in Palm Springs.

The Kaufmann Desert House, located at 470 West Vista Chino in Palm Springs, has listed for $25 million, the Wall Street Journal reported.

The home was built in 1946 for Edgar J. Kaufmann, the department store magnate who also happened to be a huge fan of modern architecture. (He also commissioned Frank Lloyd Wright’s Fallingwater.)

Gerard Bisignano of Vista Sotheby’s International Realty has the listing.

Kaufmann commissioned the Palm Springs property as a summer home, and Neutra — who started his career working for Wright — created what has since become an example of desert modernism. The five-bedroom, six-bathroom house is anchored by a central living and dining room, with four wings that extend out from the center. One holds the master bedroom, while another is home to a guest suite, and another has a pool. The home spans about 3,200 square feet and is set on a two-acre property.

Its current owners, who bought the property in the 1990s, worked with design firm Marmol Radziner on an intense renovation of the home, according to the Journal. Several out-of-character additions were made over the years, so the firm consulted the Neutra archives at UCLA to ensure it was being restored to its original mid century glory.

Two decades later, the home is considered the “crown jewel” of Palm Springs, The Agency’s Jeff Kohl told the Journal. If it sells for the full ask, it would be the most expensive property sold in the area, according to the Journal. [WSJ] — Amy Plitt

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IKEA Chief Sustainability Officer Pia Heidenmark Cook (IKEA, iStock)

IKEA Chief Sustainability Officer Pia Heidenmark Cook (IKEA, iStock)

Got an old Billy bookcase or Poang chair to get rid of? Good news: Ikea will take them back, no questions asked.

The Swedish giant will begin a buy back program on November 24 to coincide with what is traditionally Black Friday in the U.S. retail market, Reuters reported.

Customers who sell furniture back to the company will get a voucher to use in the future, with the value based on the condition of the item being returned.

Furniture will have to be returned fully assembled and will be resold at discount prices; if an item can’t be resold, it will be donated.

IKEA is marketing the move as part of its wider effort to become “a fully circular and climate-positive business by 2030,” according to Reuters. The company has previously been criticized for environmentally unfriendly supply chains.

The growth in popularity of cheap flat-pack furniture over the last decade and a half has also coincided with an increase in furniture waste, or “f-waste,” in landfills, according to Curbed.

The timing of the program’s launch isn’t a coincidence; in a press release, the company said it “hopes that the initiative will help its customers take a stand against excessive consumption this Black Friday and in the years to come.” [Reuters] — Dennis Lynch

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San Francisco and New York (iStock)

San Francisco and New York (iStock)

Rents are free-falling in the country’s most expensive market.

The median monthly rate for a studio in San Francisco in September was $2,285 per month, Bloomberg reported, citing data from Realtor.com. That’s 31 percent lower than it was a year prior. In comparison, rents fell about 0.5 percent nationally.

Median rents for one-bedroom units were down about a quarter year-over-year, while two-bedrooms dropped in price by 21 percent, according to Realtor.com.

Santa Clara and San Mateo, both in the Bay Area, also saw big drops in their median studio rents — 19 and 18 percent, respectively.

San Francisco’s rent drops are among the largest in the country since the coronavirus pandemic began. Its vacancy rate has risen, too; it was at 6.2 percent as of May.

Even though that trend hasn’t borne out nationally, it has in the country’s other ultra-expensive rental market: In Manhattan, studio rents have fallen by 15 percent to $2,495 per month, and the vacancy rate recently hit a historic high of 5 percent.

The precipitous drop in rents in some markets can be directly attributed to the pandemic, which has led more employees to work remotely. “Renters are likely heading to more affordable areas where they can get more space at a cheaper price,” said Realtor.com chief economist Danielle Hale.

Some companies have taken notice. San Francisco-based Stripe is among the firms that want to cut salaries of employees who move out of cities like San Francisco, Seattle and New York, and offer a one-time bonus instead. Facebook and Twitter are reportedly considering similar moves.
[Bloomberg News] — Dennis Lynch

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James Loewenberg, with the Vista and Aqua Towers (Magellan)

James Loewenberg, with the Vista and Aqua Towers (Magellan)

Developer James Loewenberg, whose vision for architecture and livable neighborhoods helped shape the modern Chicago skyline, died at 86. The cause was pancreatic cancer, according to Crain’s.

Loewenberg’s recent achievements include developing the Aqua and Vista skyscrapers downtown, which he did as co-CEO of Magellan Development Group, Crain’s reported.

Loewenberg created Lakeshore East development, an 83-acre site stretching from Michigan Avenue to Lakeshore Drive with high-rise residential towers flanked by shops, parks and transportation. It “forever changed Chicago,” said Lynn Osmond, president of the Chicago Architecture Center, according to the Chicago Tribune.

Last year, Loewenberg resigned as co-CEO of Magellan, and with partner Joel Carlins, sold his stake in the company to BLG Capital Advisors of Chicago and Winter Properties of New York, according to Crain’s.

Under the leadership of Carlin’s son David, Magellan recently bought out the 90 percent ownership share of Vista Tower, held by Chinese developer Dalian Wanda Group, for $270 million. Magellan is now the 100 percent owner.

Construction of that 101-story building at 375 E. Wacker Drive, with a 191-key hotel and roughly 400 condos, is nearly complete. With Wanda’s exit, it’s unclear what will happen to the hotel portion; the hotel sector has been particularly hard hit by the pandemic.

Magellan continues to hold a partial ownership stake in Aqua Tower. The 86-story building has 474 apartments and 224 condos above a 334-key Radisson Blu Aqua Hotel.

Born in 1934, Loewenberg received his architecture degree from the Massachusetts Institute of Technology in 1957 and later joined his family’s architectural firm in Chicago. Crain’s listed among his development projects Gallery on Wells, Wolf Point West apartments, Grand Plaza and One Superior Place in River North, and two buildings — Cirrus and Cascade — still under construction in Lakeshore East. [Crain’s, Tribune] — Orion Jones

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Blackstone’s Kathleen McCarthy with 440 Saw Mill River Road, Ardsley, New York and 1000 Gateway Boulevard in San Francisco, California (left) (Blackstone; BioMed Realty)

Blackstone’s Kathleen McCarthy with 440 Saw Mill River Road, Ardsley, New York and 1000 Gateway Boulevard in San Francisco, California (left) (Blackstone; BioMed Realty)

Blackstone Group sold a portfolio of 93 life-science buildings to a separate fund the asset manager controls for $14.6 billion, in a transaction that represents a $6.5 billion gain in value from when it acquired the properties in 2016.

The New York-based commercial real estate behemoth said that rather than cash out of the BioMed Realty Trust holdings, which is the second-largest owner of life science buildings in the U.S., it sold it to a subsidiary because investors wanted to stay in, the Wall Street Journal reported.

Blackstone’s profit in the sale is the third-largest it has achieved in any fund it manages. Prior to the transaction, which is the first of its kind Blackstone has carried out, the firm considered taking BioMed public or selling the company.

BioMed’s properties are concentrated in the San Francisco Bay Area, San Diego, Boston, Seattle and New York, as well as Cambridge in the United Kingdom, according to its website. Investment bank Morgan Stanley will also seek bids to determine if a higher offer exists.

The demand for life-science buildings has intensified, especially as new treatments are developed by startups instead of at large pharmaceutical companies. The existing demand for space intensified with the onset of Covid-19, as researchers work to develop a vaccine.

Kathleen McCarthy, Blackstone’s global co-head of real estate, said that the BioMed life sciences portfolio has not suffered the drops in rent collections that have plagued other sectors. The portfolio’s occupancy stands at 97 percent, McCarthy told the Journal, and about half of its tenants are working on Covid-19 testing or vaccines.

Although the sector does face risks of high maintenance costs for labs, and there can be a significant lag time between research and selling treatments to the public, other investors are bullish on life sciences, too.

In San Francisco, Ventas, a publicly-traded healthcare REIT based in Chicago, acquired a life-sciences campus from Bain Capital Real Estate for $1.02 billion. Bain acquired the Genesis South San Francisco campus in 2015.

“Strong and growing capital flows into the life science sector are accelerating innovation and discovery,” said Ventas CEO Debra Cafaro.

[WSJ] — Georgia Kromrei

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121 N Hibiscus Drive (Realtor)

121 N Hibiscus Drive (Realtor)

UPDATED: Oct. 17, 5:20 p.m.: Paul Wallner bought a Hibiscus Island waterfront mansion for $7.8 million, records show.

Wallner bought the Miami Beach home at 121 North Hibiscus Drive from Marlon Meir Avneri, according to records.

Danny Hertzberg with Coldwell Banker Realty represented Avneri, who bought the property in 2017 and listed it the following year at $13 million. After price chops, it was most recently asking $7.9 million in September.

The home, built in 1998, sits on nearly half an acre of land and has seven bedrooms and nine-and-a-half bathrooms. It also features a pool, 120 feet of water frontage and a private dock with a boat lift, according to the listing.

Nearby, Miami Beach’s Venetian Islands have seen several pricey sales recently. Among them, two c-suite executives at different companies bought a Venetian Islands mansion for $12.8 million, a Brazilian billionaire sold a waterfront home for $10.2 million and a former Ford executive sold his estate for $18 million.

Correction: A previous version of this story incorrectly identified a different Paul Wallner as the buyer.

[contact-form-7]

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Seritage CEO Benjamin Schall, CTO CEO John Albright, and 1460 West 49th Street, Hialeah (Credit: Google Maps)

Seritage CEO Benjamin Schall, CTO CEO John Albright, and 1460 West 49th Street, Hialeah (Credit: Google Maps)

Seritage sold a 108,000-square-foot shopping center formerly anchored by Kmart in Hialeah for $21 million.

A Daytona Beach-based publicly traded real estate company, CTO Realty Growth, bought the shopping center at 1460 West 49th Street, records show. The company changed its name from Consolidated-Tomoka Land Co. to CTO in May. The sale equates to $194 per square foot.

Publicly traded Seritage was spun off five years ago from Sears. In June, Seritage announced it would terminate the master lease covering 12 of the remaining Sears and Kmart stores in its portfolio.

Seritage’s sale of the Hialeah property is a sale-leaseback. The company signed a lease for 25 years, ending in 2045, according to records. The center was built in 1968.

The company transformed the shopping center from a Kmart-anchored center about a year ago, as part of its statewide plan to repurpose old Sears and Kmart stores since the department store retailer filed for bankruptcy in 2018 and closed more than 100 stores in the U.S.

Current tenants at the Hialeah shopping center include Aldi, Ross Dress for Less, dd’s Discount and Bed, Bath & Beyond. The center is on about 8 acres of land. CTO bought the land through a 1031 exchange, with funding from $12 million generated from previously announced property deals and with CTO’s line of credit, according to a press release.

CTO has completed over $185 million of income property acquisitions in 2020 at a weighted average cap rate of about 7.8 percent, according to the release.

The sale comes at a difficult time for the retail market. Bed, Bath & Beyond has been closing stores this year nationwide, though the Hialeah store is open and has not appeared on any list of the company’s locations slated to close. Bed, Bath & Beyond reaffirmed plans to close 200 stores during its quarterly earnings call this month.

Earlier this month, Seritage sold more than 180,000 square feet at the Shops at SouthBay Pavilion in Carson, California.

In May, Seritage Growth Properties stopped construction at Esplanade at Aventura because of the pandemic, resulting in a lawsuit by Mexican restaurant Carolo, seeking to break its lease.

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The Internal Revenue Service is going after foreign real estate investors as part of a broader sweep to collect revenues amid the pandemic.  (iStock)

The Internal Revenue Service is going after foreign real estate investors as part of a broader sweep to collect revenues amid the pandemic.  (iStock)

In the past month, the Internal Revenue Service has announced two new audit campaigns targeting overseas investors who own or hold interests in U.S. property.

The campaigns focus on foreign investors selling their interests in U.S. real estate and those who receive rental income from their American properties.

The IRS generally expects to collect 15 percent of the amount a foreign seller realizes off a transaction, though exceptions can be made if the property is sold at a loss or the price is under $300,000, among other factors. The taxes the IRS collects from foreign investors earning rental income ranges depending on how the property is owned, but can go up to 30 percent annually.

Audit campaigns began in 2017 as a way for the IRS to target issues it determines to be at a high-risk of noncompliance. The campaign issues also represent areas where the federal agency believes it has a good chance of recovering unpaid taxes.

When the IRS debuted the strategy, it announced 13 campaigns, a number that has since ballooned to nearly 60. Though the number and focus of the audit campaigns fluctuate over time, tax professionals take heed because once a target is announced, businesses and clients operating within that area have a higher likelihood of having the IRS dig through their returns.

The IRS declined to comment on the new campaigns or its expectations for funds recovered from foreign investors.

William Kambas, a tax partner at Withers, said the agency’s new property investor-focused campaigns are a factor of the pandemic.

“The restraints and constraints on the government now financially has put a new focus on collecting whatever is due,” Kambas said. “Now is the time that the IRS has decided to pursue more rigorous audits.”

The IRS’ aggressive strategy will likely hit the mid-market institutional, private equity investors the hardest, said Kenneth Dettman, a managing director at tax firm Alvarez & Marsal.

Another group that may particularly feel the crunch is foreign investors who own second homes in markets where property values have soared during the pandemic, such as South Florida.

In recent months, Dettman said he’s seen an influx of overseas clients looking to sell their U.S. homes in such markets — and many aren’t aware the IRS levies a tax on the sale, which is indicative of a larger problem.

“From the perspective of foreign persons investing in the U.S., there is a general sentiment that they’re foreign and they’re not subject to the U.S. tax net,” he said. “Their fear of enforcement activity is not very high and therefore they’re very quick to turn a blind eye to it.”

He said the new audit campaigns will likely work hand-in-hand with the IRS investigating the history of a property being sold by a foreign investor to ascertain whether they collected rent.

Most overseas landlords and their stateside tenants deal in all-cash transactions without any rental platform as a middleman, Dettman said, so the IRS has no visibility into the rental income generated off a foreign-owned U.S. property unless it undertakes a major audit.

Vasiliki Yiannoulis-Riva, a real estate partner at Withers, agreed. “There’s a lot of money to be made,” she said. “They’re not actually collecting what they could be collecting.”

According to CBRE, investment in U.S. commercial real estate accounted for nearly half of the global volume in 2019, despite more than half of foreign investors pulling back on pouring money into the U.S.

Not everyone’s concerned, however. Michael Kosnitzky, a partner and co-leader of Pillsbury Winthrop Shaw Pittman’s private wealth group, said the IRS campaigns confounded him.

“I’m just surprised that there’s such a gross lack of compliance,” he said. Kosnitzky’s clientele includes institutional investors and ultra-wealthy individuals, who he said come with a phalanx of lawyers and accountants hired to ensure compliance.

There are also doubts about the agency’s ability to execute. In recent years, the number of audits conducted by the agency have fallen. Of the audits that were conducted by the large business division, only about half closed without the agency collecting any additional revenue, according to a report released earlier this year.

If the IRS can follow through, however, Dettman believes the audits have the potential to change attitudes among mid-level property investors.

“The results of bad audits find their way into social circles in clusters in foreign countries,” he said. “[If there are] audits that come out with very harsh results, I do think it could instill a bit more fear.”

[contact-form-7]

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Eighty Seven Park (iStock)

Eighty Seven Park (iStock)

A penthouse at Eighty Seven Park sold for $37 million, marking the highest price sale at the Miami Beach luxury condo tower.

Records show that the developer, Terra, through 8701 Collins Development LLC, sold the unit, PH1, to Miami 360 LLC, managed by Joseph M. Hernandez, who chairs the real estate practice group at Weiss Serota Helfman Cole & Bierman.

The developer also provided $20 million in financing, records show.

The six-bedroom, eight-bathroom penthouse has 12,410 square feet of interior space and 18,247 square feet of outdoor terraces. It also features a service suite, a private gym, home theater and a rooftop terrace with two 45-foot long infinity pools, summer kitchens and an outdoor theater.

The Renzo Piano-designed Eighty Seven Park in North Beach had much higher hopes for the sale price of the penthouse. The two-story unit went on the market with an asking price of $68 million in 2018. It sold for 46 percent below that asking price.

Eloy Carmenate of Douglas Elliman leads sales of the 18-story tower that was completed last year. He declined to provide any information about the buyer. Elliman’s Oren Alexander represented the buyer.

Records show the next priciest condo sold to date at Eighty Seven Park is unit 1702, which sold for $18.2 million in April.

Features of Eighty Seven Park include an underground parking garage, a gym/spa and a rooftop terrace.

The tower was built on the site of the former Howard Johnson Dezerland Hotel, which was originally known as the Biltmore Terrace. Terra bought the property for $65 million in 2013.

Buyers at Eighty Seven Park include Michael Huffington, who paid $7.5 million for his unit; Daniel Glass, a music industry executive and managing director of Goldman Sachs, who bought multiple units for a combined $18.3 million; and the wife of former Domino’s Pizza CEO, who paid $11.45 million for a unit.

[contact-form-7]

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Alejandro Velez, CEO of Midtown and 9315 Northwest 112 Avenue, Medley (Credit: Google Maps)

Alejandro Velez, CEO of Midtown and 9315 Northwest 112 Avenue, Medley (Credit: Google Maps)

South Florida real estate investor Leo Ghitis sold a warehouse near Medley for $7.5 million.

Ghitis sold the nearly 50,000-square-foot building at 9315 Northwest 112 Avenue on 3 acres of land inside Flagler Station Industrial Park, according to records. The price equates to about $152 a square foot.

The buyers are entities that share an address with Midtown Capital Partners, a Miami-based real estate investment and asset management firm led by Alejandro Velez.

Ghitis bought the building for $5.2 million last year from Honeywell, the Fortune 100 company best known for its thermostats, sensors and security systems. The company continues to lease some office and warehouse space at the building, constructed in 2002, records show.

CBRE had the listing. Its online listing for the property had an asking price of $8.5 million, or $172 a square foot. Honeywell pays base rent plus their pro rata share of the operating expenses, according to the listing. Rent for 36,000 square feet of open space is $12.95 a square foot a year.

In 2019, Ghitis sold a seven-story Class A office building in Fort Lauderdale’s Cypress Creek market for $24.1 million. In 2017, he bought a vacant industrial warehouse at the Weston Park of Commerce for $8.1 million.

Ghitis is also part of the joint venture developing a lakefront apartment complex called EDEN Crystal Lake in Port Orange, a city just south of Daytona Beach.

In 2018, Midtown Capital Partners bought Downtown Dadeland for $78.2 million, one of the biggest retail deals of that year. That same year, Midtown Capital Partners paid $14.75 million for a Coral Gables office building as part of a sale-leaseback deal.

In 2017, Midtown Capital Partners bought Pembroke Pointe 880, a 144,000-square-foot office building at 880 Southwest 145th Avenue, for $42 million. That same year, Midtown Capital bought a portion of an office park in Plantation for $56.6 million.

Among other recent industrial deals in Miami-Dade County, a 3.7-acre site at 13391 West Okeechobee Road sold for $5.1 million earlier this month. In August, The founder of a high-performance saltwater fishing boat manufacturer sold three warehouses in Opa-locka for $11.4 million.

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Jeffrey Soffer and Fontainebleau Miami Beach (Getty)

Jeffrey Soffer and Fontainebleau Miami Beach (Getty)

Miami-Dade County’s largest resort is no longer in special servicing.

The $975 million commercial mortgage-backed securities loan for Jeffrey Soffer’s Fontainebleau Miami Beach returned to the master servicer on Sept. 23 following successful negotiations with lenders, according to Trepp data updated this week.

The loan was transferred to the special servicer as “a matter of procedure” in April following a modification request, the borrower said at the time. Payments on the loan remained current throughout the special servicing period, so it was never delinquent.

The owners are optimistic about the future. “We’re fortunate to be located in South Florida, which is on the better end of the recovery curve,” Fontainebleau Development President Brett Mufson said. “We expect the season to be a strong one.”

According to servicer commentary, the forbearance agreement will defer monthly furniture, fixtures and equipment (FF&E) reserve payments to 2021, and exclude the property’s 2020 financials for the purposes of calculating debt yield. Fontainebleau will continue to make regular debt service and escrow payments as before.

FF&E reserves amount to 3.5 percent of gross receipts each month, or about $12 million per year, according to loan documents.

The CMBS debt on the Fontainebleau is quite new. Soffer’s firm secured it as part of a $1.175 billion refinancing from Goldman Sachs, Morgan Stanley and JP Morgan last fall. The 15-acre oceanfront Miami Beach property includes two hotel towers with 846 rooms and two condo towers with 748 units, the majority of which can also be rented to hotel guests at any given time.

At this stage of the pandemic, South Florida’s hotel market appears to be faring much better than most of the country, according to a recent Trepp analysis.

The Miami area’s $4.3 billion in outstanding CMBS hotel debt is the second largest in the country after Las Vegas, but only 8 percent of that is currently delinquent. By contrast, the delinquency rate is 32 percent in New York, 55 percent in Chicago, and 26 percent in Los Angeles. Meanwhile Las Vegas, which entered “phase two” of its reopening as early as May, has a negligible delinquency rate of less than 0.1 percent.

[contact-form-7]

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Carl Esrey & 119 E Inlet Drive (Credit: Google Maps)

Carl Esrey & 119 E Inlet Drive (Credit: Google Maps)

The founder of a Texas real estate lending firm paid $5.8 million for a Palm Beach house.

Records show Carl Esrey of Dallas-based BMC Capital, bought the home at 119 East Inlet Drive from Suzan J. Mitchell, an unmarried widow.

Esprey founded BMC Capital, a direct lender and mortgage brokerage, in 1991. BMC specializes in financing commercial real estate from $500,000 to $15 million. Esrey also serves as the CEO of BMC Bancshares, the holding company of Titan Bank N.A., and serves as Mineral Wells, Texas-based Titan Bank’s chairman, according to BMC Capital’s website.

Mitchell had bought the property for $5.2 million in 2015, one year after it was built, records show.

Lynn Warren with Sotheby’s International Realty represented Mitchell, and Dana Koch of The Corcoran Group represented Esrey.

The 5,066-square-foot, four-bedroom, four-and-a-half-bathroom house was not on the market for long. According to Realtor.com, the home was listed in July for $6.1 million.

This sale is among a surge in high-priced home sales in Palm Beach during the pandemic. This month, the former MagicJack Chairman Donald Burns sold his longtime Palm Beach estate for $28 million. Last month, the former president and CEO of Sotheby’s bought a newly built Palm Beach home for $7.7 million.

[contact-form-7]

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While some Americans have benefited from low mortgage rates, others find themselves locked out (iStock)

While some Americans have benefited from low mortgage rates, others find themselves locked out (iStock)

Not everyone is reaping the benefits of a low-mortgage rate environment.

As mortgage lenders tighten their belts, available housing credit has hit the lowest level since February 2014, leaving hopeful homebuyers with poor credit scores struggling to qualify for loans, Bloomberg News reports.

The Mortgage Bankers Association’s index tracking available housing credit monthly has fallen eight of the nine months this year. The index is down 35 percent year-over-year.

One of the starkest examples is the tightening measures taken by Ginnie Mae, which guarantees loans predominantly for lower-income borrowers and first-time homebuyers.

In January 2019, 44 percent of Ginnie Mae’s purchase loans were issued to borrowers with FICO scores below 700 and debt-to-income ratios over 40 percent. This January, that number fell to 38 percent and by August it had slipped to 36 percent.

For Ginnie Mae’s refinance loans for borrowers of that same profile, the agency cut the number of loans from 38.5 percent in January 2019 to 12.8 percent this January. In August, those borrowers represented just 5 percent of Ginnie Mae’s refinance loans.

Ginnie Mae’s tightening up has meant its issuance of mortgage bonds has dropped by $3 billion, year-to-date, compared to the previous five years, according to Bloomberg News.

Meanwhile, the mortgage market overall is humming for borrowers with good credit, who’ve rushed to take advantage of low rates to buy or refinance. The supply of mortgage bonds is set to reach its highest level since 2003 this year with $2.8 trillion in gross issuance.

[Bloomberg] — Erin Hudson

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Multifamily project in Palm Beach County advances

Multifamily project in Palm Beach County advances

A proposed 348-unit multifamily project between Lake Worth Beach and Wellington received approval from Palm Beach County officials, but it still has a long way to go before construction begins.

The Palm Beach County Planning Commission last week voted 8-to-5 to approve zoning changes, with some board members concerned about the number of residential units and the building height proposed for the project.

Staffers wanted to cap the number of future units at 284 and limit the building height to three stories. The project would be built on land currently used for agricultural and equestrian purposes and owned by companies managed by Sheldon Rubin.

Jennifer Morton of JMorton Planning and Landscape Architecture told The Real Deal that the project has another public hearing Oct. 28. After that, Palm Beach County commissioners would decide on adoption and rezoning aroundt March. She estimates that the project is still two years away from starting construction.

Morton told the county’s planning board at its meeting last week that capping the number of units would affect the project’s success, saying the developer originally sought 378 units. The cap would mean 64 fewer total units and 16 fewer workforce housing units.

The developer agreed to staffers’ desire for a quarter of the units to be dedicated workforce housing and agreed to reduce commercial space at the development from 140,000 square feet to 26,000 square feet, Morton said.

Called “Polo Gardens,” the development would have 17.5 units an acre on about 26 acres, more units per acre than other residential developments in the area.

Nearby Lake Worth Royale has 14 units an acre, with 370 total multifamily units on almost 50 acres. Fields at Gulfstream Polo has about 10 units an acre, with 140 townhouse units on almost 16 acres.

The board heard a letter from the Lake Worth Road Coalition opposing the project, fearing the area was becoming too congested. The coalition also sought a ban on fast food in the new development. Morton said the developer had agreed to the coalition’s demand to not allow a gas station at the development.

Rubin acquired the land from various owners starting in 2014, spending at least $7 million, according to records.

Among other proposed developments in Palm Beach County, a mixed-use project with a 158-bed, 117,000-square-foot adult living facility in Boynton Beach scored a $27 million construction loan in April. And an apartment complex on part of the Boca Dunes Golf & Country Club, developed by The Richman Group, scored a $57.4 million construction loan, also in April.

The post Multifamily project in Palm Beach County advances appeared first on The Real Deal South Florida.

Beike Zhaofang founder Zuo Hui (Getty; iStock)

Beike Zhaofang founder Zuo Hui (Getty; iStock)

Beike Zhaofang, the Beijing-based online real estate platform, hit the New York Stock Exchange on Aug. 13 with a gargantuan “pop” as they say on Wall Street — despite all tensions between the United States and China.

Through its parent company KE Holdings, the Chinese housing intermediary backed by SoftBank sold 106 million shares at $20 each during its initial public offering, while first-day trading opened 75 percent above the offer price and would end the day up 87 percent.

This made for an even bigger splash than Twitter saw on its first day of trading in 2013, and marked the largest first-day pop for a billion-dollar IPO in the U.S. this century, according to investment adviser Renaissance Capital.

After two months of trading, Beike’s stock price has continued to soar, and the firm’s market capitalization stands at $75 billion as of mid-October, making it the world’s most valuable real estate tech company. By comparison, CoStar’s market cap is about $35 billion.

Despite the Trump administration’s trade war and attempted crackdown on WeChat and TikTok, as well as increased scrutiny of some U.S.-listed Chinese companies, Beike and many others have continued to raise capital in the states without incident, netting Wall Street banks hefty fees in the process.

Beike’s impressive stock performance is a clear indication that investors are buying into its vision — one driven by the growth potential of China’s housing market coupled with ambitions to reinvent the country’s still underdeveloped and somewhat chaotic brokerage landscape.

Representatives for Beike and KE Holdings did not respond to requests for comment.

Beike’s “successful debut reaffirms the advantages of listing in the US, the world’s deepest capital markets,” Renaissance Capital wrote about the firm’s IPO, “particularly for large and fast-growing Chinese issuers.”

Open sesame

With 2.1 trillion renminbi (more than $300 billion) worth of deals completed in 2019, Beike is now China’s second-largest internet online marketplace — just behind industry leader Alibaba Group.

And the e-commerce giant founded by Jack Ma is quickly emerging as one of Beike’s most serious competitors.

Last month, Alibaba launched Tmall Haofang, which means “good home” in Chinese, a real estate channel within its popular cross-border B2C platform Tmall. Alibaba partnered with the publicly traded Chinese real estate agency and big data provider E-House.

In August, Alibaba had invested $107 million in E-House, upping its stake in the 20-year old company from 2 to 8 percent.

“In China, the infrastructure for the housing transactions and services market had been significantly underdeveloped.”

Beike Zhaofang’s prospectus

This move was seen as opening up another phase in Alibaba’s long-running competition with WeChat owner Tencent, Beike’s largest outside shareholder with a 12 percent stake.

At a time when the pandemic and geopolitical tensions have made cross-border business all the more complicated, observers note that China’s domestic real estate market presents a safer growth opportunity for the country’s tech giants.

“Alibaba and Tencent are huge in scale, and they must continue to get involved in new businesses to fill the gap and maintain high-speed growth,” Meng Shen, a director at boutique Beijing investment bank Chanson & Co., told the trade publication Mingtiandi.

The idea of tech giants like Google and Amazon going head-to-head in a market dominated by firms like Zillow, Douglas Elliman, Redfin and Realogy would certainly seem far-fetched in the U.S.

But the brokerage landscape in China is very different.

“In China, the infrastructure for the housing transactions and services market had been significantly underdeveloped,” Beike notes in its IPO prospectus. “For example, the lack of an industry-wide listing inventory similar to the Multiple Listing Service in the United States makes it challenging for housing customers and agents to easily access reliable and authentic property listings.”

The absence of a framework for exclusive listings in China has led to a fragmented market with low productivity and high agent turnover, while fake or duplicate listings are still widespread, according to the online brokerage platform.

But the opportunity in the market is also huge, with the country’s urban population expected to grow by another 150 million people in the next decade, according to a report by China Insights Industry Consultancy (CIC) that Beike cites extensively.

For now, Beike still has the upper hand over competitors like Tmall on several fronts, said Robert Cowell, an analyst with Shanghai-based equity research firm 86Research.

“Beike is the market leader in terms of customer experience, data utilization, and software for brokerage operations,” Cowell said.

Lianjia lineage

Beike Zhaofang — which means “seashell house-hunting” — started as Lianjia, a more traditional residential brokerage founded in Beijing in 2001 with just 37 employees. Lianja is now one of several brokerages on Beike’s platform that handle both sales and rentals.

As of June, Lianjia had about 7,700 brokerage offices and more than 134,000 agents across 29 cities in China. Beike as a whole, meanwhile, has 260 real estate brands, more than 42,000 stores, and over 456,000 agents in 103 cities, according to its prospectus.

The company’s founder, Zuo Hui, had arrived in China’s capital from the northwestern province of Shaanxi to study computer science at a local university, and spent a decade struggling to make his way in insurance marketing before getting into the real estate business.

Zuo also brought with him first-hand experiences with some of the problems that some renters and first-time buyers face in China’s housing market.

“I graduated university in 1992 and bought my first apartment in 2004,” he said at a panel in 2017. “In the 12 years in between, I rented ten different apartments, and I know what it’s like to get scammed big-time.”

By 2009, Lianjia had become the largest real estate brokerage in Beijing, according to the CIC report.

Zuo’s next move was to take his business online.

In 2008, the company created its Housing Dictionary, a database of verified listings that grew to 226 million properties in more than 300 cities by 2020. In 2010, Zuo brought in Peng Yongdong, a senior consultant of strategy and evolution at IBM, to serve as the brokerage’s vice general manager.

Peng is now Beike’s CEO, while Zuo serves as its chairman.

A new “playing field”

Starting in 2014, Lianjia began expanding beyond its home base in Beijing and buying up competitors across the country.

The brokerage also began attracting investor interest around this time. Tencent made its first investment in the company in 2016, and international venture capital players like Softbank’s Vision Fund, Sequoia Capital and Gaw Capital participated in subsequent funding rounds.

By 2018, Lianjia had established a presence in 29 cities across China and the company made its next big move by expanding its services into an open platform, Beike, and reorganizing its corporate structure under a new holding company, KE.

“As the brokerage industry is still developing in China, consumers look to brokerage brands as a powerful signal of service quality,” 86Research’s Cowell said. “As such, Beike’s main [first-party] brand, Lianjia, has been able to consolidate over 15 percent share of China’s existing home market.”

The expanded platform, according to Zuo, would enable brokers to collaborate on transactions with the goal of improving service quality, similar to an MLS in the states. In particular, Beike’s Agent Cooperation Network would serve to “foster a culture of transparency, collaboration and shared success” in the industry, he noted.

But some competitors were skeptical.

Since Lianjia would be going head to head with other brokerages on a platform it controlled, critics argued that the company was trying to be “both player and referee.” A group of major brokerages formed an “anti-Beike alliance,” vowing to resist its unconventional and anti-competitive tactics.

Zuo rejected these claims, and responded by expanding on the analogy.

“We’re building a playing field, in the hope that more and more people will come play ball, and the rules get better and better,” he told local media in 2018.

A year later, Century 21’s Chinese franchise defected from the anti-Beike alliance, delivering the platform a major win. The move signaled to brokers across the country that the material benefits of joining Beike could outweigh concerns about unfair competition.

“This influx of new connected brokerages is helping Beike to consolidate [market] share in large cities and expand into lower tier cities,” Cowell noted.

Cross-border contentions

At the same time, other challenges were mounting on a global scale as Trump’s trade war with China rattled financial markets.

Just a week before Beike’s blockbuster IPO, the Trump administration put forward a plan that would require all U.S.-listed Chinese companies to comply with financial audits by U.S. regulators, or be forced to delist.

Similar legislation had passed both houses of congress earlier this year with bipartisan support, and California Democratic representative Brad Sherman emphasized to the Wall Street Journal that “This is not an anti-China provision. This is an investor-protection provision.”

In the light of recent debacles like that of the former Nasdaq-listed Luckin Coffee — a one-time Starbucks competitor that was revealed this spring to have fabricated more than $300 million in sales — concerns over Chinese firms’ accounting practices do have some basis.

And as the White House has put pressure on apps like TikTok and WeChat over national security concerns, these moves have become another point of contention in deteriorating relations between the two countries.

Some Chinese companies have already started to back off.

This summer, 58.com, “the Craigslist of China” and the owner of Beike competitor Anjuke, finalized an $8.7 billion deal to go private and delist from the NYSE. Alibaba established a secondary listing in Hong Kong last fall in part as insurance against U.S. delisting measures, and its fintech subsidiary, Ant Financial, is foregoing the U.S. altogether with a dual listing in Shanghai and Hong Kong.

Geopolitical rhetoric aside, however, nearly as many Chinese firms — more than 100 — have listed in the U.S. during Trump’s four years in office as Barack Obama’s eight years in Washington, according to data from research firm Dealogic. Seven Chinese firms have launched IPOs in the U.S. in the third quarter alone, including two electric vehicle makers and two education companies, according to Renaissance Capital.

Unlike companies with transnational business interests like TikTok and Tencent, the fact that Beike’s business is contained within China’s borders may have helped shield it from global uncertainty.

But the firm acknowledges that could change.

“If we plan to expand our business internationally in the future,” Beike’s prospectus notes, “any unfavorable government policies on international trade, such as capital controls or tariffs, may affect the demand for our products and services, impact our competitive position, or prevent us from being able to conduct business in certain countries.”

The post Inside the world’s most valuable proptech company appeared first on The Real Deal South Florida.

Real Estate's guide to the 2020 election

With three weeks to go until Election Day, the nation’s first developer-in-chief is trailing in the race when it comes to donations from his own industry.

But little is surprising in an economy reeling from the pandemic, raging wildfires and civil unrest.

To get an idea of where real estate players are putting their money as President Donald Trump and Joe Biden prepare to square off on Nov. 3, The Real Deal has pored over Federal Election Commission data. We have compiled a live, searchable database ranking the biggest contributions from real estate — those exceeding $5,000.

Some industry playersprivate equity firms included — say Trump’s chaotic first term has pushed them away.

Despite the president having raised roughly $2 million less than Biden in real estate cash, he still has a camp of loyal followers, particularly in South Florida. In Los Angeles, Trump has one very deep-pocketed real estate donor, though the former vice president has pulled in campaign contributions from a broader range of the city’s industry players.

Who are the biggest contributors from the industry in 2020 and what do they stand to gain? Click here to find out.

A cheat sheet on the issues

1031 exchanges

As part of a broader plan to roll back Trump-era tax cuts, Biden has proposed making 1031 exchanges available only to those making less than $400,000 a year. The change would help raise revenue for Biden’s $775 billion plan to fund child and elderly care over the next decade. While many in the industry are skeptical that Biden would follow through with restricting 1031s, they assert that doing so would hurt an already struggling economy.

Property taxes

The Tax Cuts and Jobs Act of 2017 implemented a $10,000 cap on deductions of state and local taxes. That aspect of the law disproportionately hit high-tax states such as New York and New Jersey, where tax bills typically exceed $10,000, putting a chill on the residential market in those areas.

If Congress were to pass a measure to raise or eliminate the cap, Biden likely would sign it. Trump has promised to veto earlier attempts, although he was initially surprised and pledged to look into the deduction cap when Democratic leaders complained to him directly about it.

Opportunity Zones

The program, which offers capital-gains tax breaks to developers who invest in one of more than 8,700 designated areas, has drawn criticism for benefiting deep-pocketed developers without enriching the targeted communities.

In response, Biden has indicated that he would reform the program. The former vice president has proposed requiring recipients of the tax breaks to make public disclosures of their investments and the impact on local residents in terms of housing affordability, poverty and job creation.

Fair housing

Trump repealed the Affirmatively Furthering Fair Housing rule, touting that doing so would save suburbs from having to welcome low-income housing. The 2015 rule required local governments receiving federal housing financing to identify discriminatory housing practices in their communities and devise a plan to combat them. Biden has said he would reinstate the rule.

Foreign investment

The Trump administration has raised the prospect of banning Beijing-based ByteDance, the parent of social media app TikTok, as well as Chinese messaging app WeChat. Though Biden has reportedly instructed his own staff to delete TikTok over security concerns, given his reputation as a moderate, he could offer landlords some hope that their Chinese tenants won’t be banished from the country. That would be welcome news for the Durst Organization, which agreed to lease 232,000 square feet to TikTok, and to any residential agents communicating with foreign buyers over WeChat.

Cheat sheet by Kathryn Brenzel

The post Real Estate’s guide to the 2020 election appeared first on The Real Deal South Florida.

Mahnaz Zahedi pictured with her parents in 1962 (inset) and  444 E Alexander Palm Road (Getty, Zillow)

Mahnaz Zahedi pictured with her parents in 1962 (inset) and  444 E Alexander Palm Road (Getty, Zillow)

UPDATED, Oct. 16, 12:50 p.m.: The owner of a European hotel chain bought a waterfront Boca Raton home for $5.5 million from an Iranian princess who is the granddaughter of the former Shah of Iran.

Mikhail Avrutin bought the house at 444 East Alexander Palm Road from Mehrdad Fallah-Moghaddam and Mahnaz Zahedi, according to records.

Zahedi is the daughter of Shahnaz Pahlavi, a princess of Iran and the first child of the former Shah of Iran, Mohammad Reza Pahlavi and Princess Fawzio Faud of Egypt, according to published reports.

The buyer, Avrutin, is the owner and developer of Baltic Hotel Group, a hotel chain that operates two hotels in Estonia. Avrutin is also listed on his Linkedin as the president and founder of AFP of North America.

Records show Zahedi and her husband, Fallah-Moghaddam, had purchased the home in 2001 for $1.9 million.

Jackie Feldman  and Geri Penniman of Premier Estate Properties brokered the deal. The home was first listed in 2018 at $6.3 million and after a few price changes, was most recently listed for $6 million in September of this year, according to Realtor.com.

The 5,248-square-foot house was built in 1980. It has five bedrooms, four-and-a-half bathrooms and is on the Intracoastal Waterway.

This summer, the 12,000-square-foot New York mansion of the princess’ aunt, Princess Ashraf Pahlavi, sold, after a legal battle.

Among other recent sales in Boca Raton, the COO of a South Florida-based real estate investment firm sold his house for $5 million, a mansion in the Royal Yacht & Country Club sold for $9.4 million and a plastic surgeon paid $5.5 million for a home.

[contact-form-7]

The post Iranian princess sells her waterfront Boca Raton home for $6M appeared first on The Real Deal South Florida.

San Francisco Mayor London Breed (Getty)

San Francisco Mayor London Breed (Getty)

San Francisco Mayor London Breed didn’t mince words in telling a leading podcast of her city’s tendency to torpedo new housing developments.

On this week’s edition of Freakonomics, Breed blamed progressives for limiting the supply of dwellings, which she said drives up housing costs.

San Francisco has a very, very, extremely left group of people on the Board of Supervisors more loyal to a ‘lefty movement’ than San Francisco’s residents,” said Breed, who is allied with Democrats.

She accused the board of undermining her efforts to build more housing despite the high costs of renting and buying in the city, as well as rising homelessness.

“The problem we have, and why we are seeing even more homeless people than we have in the past, has a lot to do with the fact that we have not kept up pace with building more housing,” she said on the popular podcast.

Her remarks were part of a two-part series on New York City’s economic crisis and why cities such as San Francisco are so expensive. It also featured economist Ed Glaeser, a professor at Harvard and an expert in how cities function and grow economically.

“I know how to make New York affordable,” Glaeser said in the first episode. “You build 100,000 new units a year.” A recent study found that over a decade, only 19 dwellings were created for every 100 new jobs in the city.

One way to build more housing is by rezoning to allow for more density. But that should not be the only remedy, according to Dan Doctoroff, who was New York City’s deputy mayor of economic development under Michael Bloomberg. Doctoroff, on the same episode as Breed, said the Bloomberg administration rezoned 140 tracts of land to support more dense construction, but it “didn’t do nearly enough.”

Earlier this year he said on a TRD Talk that Bloomberg’s 70 contextual rezonings, which froze current densities in place, should be revisited to find opportunities for growth.

Doctoroff is now CEO of Sidewalk Labs, which tries to make cities work better. But its flagship project, remaking a waterfront neighborhood in Toronto to showcase solutions to modern urban problems, met with opposition and was canceled after the pandemic hit.

In San Francisco, Breed established “neighborhood preference” to tamp down gentrification fears. The policy sets aside 25 percent to 40 percent of new affordable units for people already living in that neighborhood. But in New York City, a similar policy has been criticized for curbing diversity in neighborhoods.

The podcast episodes also highlight how cities might thrive again after the pandemic, and give an overview of the political changes that happened in the 1970s and ’80s that contributed to today’s housing costs. Renters’ rights movements, for example, made apartments safer but at a financial cost.

The episodes explore potential solutions to the housing crisis, such as assembly-line homebuilding with composite wood and digital electricity.

[contact-form-7]

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460 N Mashta Drive & David Siddons of Douglas Elliman

460 N Mashta Drive & David Siddons of Douglas Elliman

A wealthy Brazilian family sold a waterfront Key Biscayne mansion to West End Advisors for $13 million, The Real Deal has learned.

Records show Hallow Holdings, managed by British Virgin Islands company POA Management LTD, sold the home at 460 North Mashta Drive to West End Advisors LLC, a trustee of the Monta I.V. trust.

POA Management LTD lists Christiane Possa Marroni as its director. Marroni is the legal director and compliance officer at Grupo Gerdau Empreendimentos Ltda in Porto Alegre, Brazil, according to her LinkedIn.

David Siddons of Douglas Elliman represented the seller, which he described as a “very wealthy” Brazilian family, but declined to identify them. Philippe Neumann of Fortune International Realty represented the buyer, but declined to provide an identity.

The 10,875-square-foot mansion hit the market in 2019 at $19.5 million and then dropped to $15.5 in July, according to Realtor.com.

The seller bought the home in 2007 for $7 million, according to records. The seven-bedroom, nine-bathroom mansion was originally built in 1971, but was rebuilt in 2015. The mansion, which sits on 0.8 acres, has 200 feet of water frontage, two boat docks, a four-car garage and a pool.

Other recent Key Biscayne sales include a founding partner of Platinum Equity selling his Key Biscayne waterfront mansion for $15.5 million, a cryptocurrency exec selling his oceanfront condo for $5.8 million and the former CEO of Burger King selling his waterfront property for $8.2 million.

[contact-form-7]

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Unibail-Rodamco-Westfield CEO Christophe Cuvillier and Express CEO Timothy Baxter (Getty)

Unibail-Rodamco-Westfield CEO Christophe Cuvillier and Express CEO Timothy Baxter (Getty)

Act of God? Mall operator Unibail-Rodamco-Westfield said its lease agreements with Express cover such events, and still require the retailer to pay the rent.

Now Unibail is suing Express, saying the retailer owes $30 million in skipped rent across 27 locations throughout the U.S. Fourteen of those stores are in malls in California, according to the suit, filed in Los Angeles County Superior Court.

Many struggling retailers have argued the pandemic allows for missed rent under force majeure clauses included in many leases.

But Unibail says its leases with Express specify that even in “acts of God” cases, “governmental laws,” or other similar instances beyond reasonable control, rent is still due, according to the lawsuit.

Express did not pay rent at the 27 stores in April, May and June, according to the lawsuit. In some locations, it hasn’t made payments for September or October, either. Unibail sent the retailer notice of defaults in April.

Unibail declined to comment on ongoing litigation. Express did not respond to a request for comment.

In addition to California, the stores are located in New York, New Jersey, Florida, Illinois, Maryland, Connecticut and Washington state.

In some areas of California — where Unibail is the largest retail center operator — indoor malls were only recently cleared for reopening. The company has been aggressively pushing for its properties to reopen, and filed a lawsuit in late September against Los Angeles County, which had kept indoor malls closed because of coronavirus restrictions. Days later, the county said it would reopen malls.

[contact-form-7]

The post Unibail-Rodamco sues Express over $30M in missed rent appeared first on The Real Deal South Florida.

Gary Offner of Nasdaq Ventures (inset) and Dealpath's Mike Sroka (Linkedin, Google Maps, Dealpath)

Gary Offner of Nasdaq Ventures (inset) and Dealpath’s Mike Sroka (Linkedin, Google Maps, Dealpath)

Dealpath, the data management startup backed by the likes of Blackstone and JLL, received a new capital injection from Nasdaq’s investment arm.

Nasdaq Ventures provided Dealpath with the new funding to help the proptech company to expand its cloud-based platform that manages the workflow on investment transactions, the companies told The Real Deal.

Nasdaq declined to divulge the size of the investment.

The latest cash injection follows investments from real estate players like Blackstone, JLL Spark, 8VC, GreenSoil Investments, Goldcrest Capital, LeFrak, Milstein and Bechtel.

Gary Offner, the head of Nasdaq Ventures, said Dealpath is the first real estate company out of the 14 firms the venture capital arm has invested in.

“Our focus is on investments in market infrastructure,” he said. “Commercial real estate is a huge asset class, but it’s a market that’s very different from our core markets.”

Offner added that Dealpath solves some of the main problems Nasdaq Ventures is looking to solve, like managing workflow and reducing friction between different steps. The company’s software allows investors to move data from different sources like CoStar and combine them with, for example, financial models created in Excel or Argus.

Dealpath clients include Blackstone, AEW, Rockpoint Group, Oxford Properties, Bridge Investment Group, Manulife, L+M Development and Hutton. The company recently announced a partnership that allows its software to be used by buyers with JLL, which invests in Dealpath through its investment arm, JLL Spark.

Dealpath was founded in 2014 by Mike Sroka, Kenter Wu and Andy Lee.

[contact-form-7]

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2290 and 2328 10th Avenue N, Lake Worth

2290 and 2328 10th Avenue N, Lake Worth (Avison Young)

A Miami-based real estate investment firm sold a pair of office buildings near Lake Worth Beach for $10.9 million.

The seller is a company managed by Daniel Stuzin, president and principal of SF Partners. The selling entity shares an address with SF Partners, according to records.

SF Partners bought the two six-story medical office buildings, called Concept II, at 2290 and 2328 10th Avenue North for $8.6 million in 2015, records show.

At the time, they were 77 percent leased. Now, they are 82.5 percent occupied, with collection rates similar to pre-pandemic levels, according to a press release.

The buyer is local real estate investor Allen Chelminsky, according to the release.

The towers, built in the 1980s, total 97,000 square feet. Tenants include software company Safeway Security Services and healthcare services provider Praesum. Office space at the building is asking about $12 per square foot per year, according to an online listing.

Avison Young’s David Duckworth, John K. Crotty, Michael T. Fay, Brian C. de la Fé, Emily Brais and Berkley Bloodworth brokered the deal.

Both the buyer and seller have been active in the commercial real estate market in South Florida.

Last year, Chelminsky bought two medical office buildings in Lauderhill for $5 million. In 2018, he sold an apartment community in North Miami for $13 million.

Last year, SF Partners sold a West Palm Beach office building for $8.5 million.

Other recent big-ticket office sales in Palm Beach County include $80 million for the DiVosta Towers in Palm Beach Gardens, and a Palm Beach Gardens office complex built by Jack Nicklaus’ development company sold for $49.8 million.

The post Lake Worth Beach office buildings sell for $11M appeared first on The Real Deal South Florida.

Developer Camilo Miguel Jr. and renderings of the project

Developer Camilo Miguel Jr. and renderings of the project

Developer Camilo Miguel Jr. won initial approval for a shorter, 85-foot tall version of his planned 4000 Alton Road condo project in mid-Miami Beach.

The Miami Beach City Commission on Wednesday passed on first reading three ordinances that will enable Miguel’s Mast Capital to build an 85-foot tall building with as many as 216 units. The proposal will be heard once again by the city’s planning board on Oct. 27, then the commission is expected to vote on second reading Nov. 18.

It’s the latest proposed iteration — and second slash in height — for the proposed project near the Julia Tuttle Causeway.

On Aug. 25, the planning board unanimously voted against a height increase that would have enabled him to build a 12-story, 140-foot tall high-rise with 128 luxury condos in an area that only allows 85-foot tall buildings. Three months earlier, Miguel had proposed a 290-foot-tall tower with 160 condo units.

At the commission meeting, Miguel said he is no longer looking for a height increase due to backlash from several residents in the surrounding Mid-Beach area. “Listening to the community, we decided to abandon any request for height relief at this time,” he said.

Instead, Mast Capital asked for revised setback requirements that would allow the building to be between 10 feet and 15 feet from the street. The setbacks would provide space between the future residential project and Talmudic University, according to Miguel’s attorney, Michael Larkin. “We want to give [Talmudic University] the appropriate breathing space,” Larkin said.

Mast Capital is still pursuing a change in zoning of an adjacent 17,680-square foot plot of land from government use to residential multifamily, medium intensity, as well as a similar change in the city’s comprehensive plan for the parcel.

Miguel is contracted to buy the land from the Florida Department of Transportation in order to boost his development rights. The price of that parcel has not been disclosed, although Miami Beach City Manager Jimmy Morales told Mayor Dan Gelber and commissioners that FDOT was trying, at least several months ago, to sell the surplus land for between $1.5 million and $2 million.

Mast Capital’s new application didn’t specify how many residential units would be built on site. However, Tom Mooney, the city’s planning director, estimated that, by including the FDOT parcel, between 30 and 41 additional units could be added to the 175 units Miguel is already entitled to build as of right.

During the commission meeting, four people spoke in favor of the project, including Rabbi Yochanan Zweig, president of Talmudic University.

Yet, although the height was reduced, six people spoke against the Mast Capital project, including Father Roberto Cid of St. Patrick’s Church, which is across the street from the development site. Cid complained that the new project will make traffic even worse in the surrounding area.

“The level of service at the intersection of Alton Road and 41st Street is [already] unacceptable,” Cid said, later adding: “I beg the commission to listen to [the planning board] who unanimously voted against these requests. Listen to the clamor of homeowners’ associations, and disregard the [positive] recommendation of the outgoing city manager. Vote for the public good. Vote against this project.”

(Morales, who recommended in favor of the zoning changes, recently announced his intention to resign by Feb. 1.)

Robert Arkin, head of the Arkin Group, a Miami Beach-based construction and development company, said he opposed the setback variances. Arkin, who said he lived 100 yards from the site, claimed that allowing such a building so close to the street would be an eyesore. “The setbacks should remain as far away from the street as possible,” he said.

Commissioner Ricky Arriola, who previously expressed support of Miguel’s earlier 290-foot-tall condo tower design, said the developer has a right to build something on the site, and by approving the setback changes, the city will be getting a better project.

“If they do it as of right, they’re going to smush a building up against Talmudic University,” Arriola said. “I, for one, don’t think that’s a good project.”

But commissioners Mark Samuelian and Micky Steinberg thought the item should be kicked back to the planning board before the elected body votes on it at all. They also wanted to see an actual proposed building design, and not just a massing study depiction. “I’m uncomfortable moving this forward,” Steinberg said.

Commissioners Steve Meiner and Michael Gongora said they would vote ‘yes’ on first reading if the planning board looks at the entire “package” prior to second reading. “This is a difficult item,” Gongora said, noting the unanimous vote against the project by the planning board and opposition from the surrounding community.

Mayor Dan Gelber agreed that he would feel better if the planning board opined on the new version of Mast Capital’s project.

When the vote was taken, the variance request and the change in zoning for the FDOT parcel passed 5 to 2, with Samuelian and Steinberg dissenting. The change in the city’s comprehensive plan for the FDOT parcel passed 6 to 1 with Samuelian dissenting.

Miguel purchased Talmudic University’s 1.9-acre parking lot and basketball court for $17.1 million in October 2014, eight months after the city agreed to increase the site’s height limit from 60 to 85 feet. In February 2016, Mast Capital launched sales for what was then planned as an eight-story, 78-unit condo called 3900 Alton. Those plans were eventually scrapped.

The post Mast Capital wins initial approval for shorter Mid-Miami Beach condo project appeared first on The Real Deal South Florida.

Porch CEO Matt Ehrlichman (iStock; Porch)

Porch CEO Matt Ehrlichman (iStock; Porch)

In Porch.com’s IPO filing, the home-services startup touts one of its core values: “No Jerks/No Egos.”

But the “nice guy” approach has brought the firm to the brink of financial ruin, the filing shows. Unless it’s able to raise additional capital, the company “will not have sufficient cash flows and liquidity to fund its planned business for the next 12 months.”

The disclosure, filed with the Securities and Exchange Commission Wednesday, was made ahead of Porch’s merger with a blank-check company led by Abu Dhabi Investment Authority veterans Thomas Hennessy and Joseph Beck. The deal, announced in July, values Porch at $523 million. According to the IPO filing, Porch generated $77.6 million in revenue last year, up from $54.1 million in 2018.

Abu Dhabi Investment Authority veterans Thomas Hennessey and Joseph Beck

Abu Dhabi Investment Authority veterans Thomas Hennessey and Joseph Beck

Founded in 2011, Porch sells software to home-services companies in exchange for data on homebuyers. It then sells additional home services, such as contractor services and TV and internet, to those clients.

But the company’s accountants have raised “substantial doubt” about the cash-strapped company’s ability to stay in business, the filing shows. The Real Deal took a closer look at the 581-page prospectus to learn more; here’s what we found:

Accounting woes. Porch is not yet profitable. As of June 30, its balance sheet listed $3.9 million in cash, plus $46.4 million in assets and $63.2 million in debt. The company also had a total deficit of $263.5 million.

Alarmingly, Porch also said that in preparing its 2019 financials, it identified a “material weakness” in its financial reporting. In particular, it lacked “qualified personnel to prepare and review complex technical accounting issues.” To remedy the situation, it hired a CFO in June and controller in July and is working with outside consultants.

(More) about those losses. Porch sells software to 11,000 home-services companies. On average, it generated $556 per account during 2020’s second quarter. In the first half of this year, Porch’s revenue dropped 14.3 percent to $32.2 million. Its losses narrowed to $24.6 million, compared to $67.9 million during the first half of 2019.

Who’s in control. CEO Matt Ehrlichman will hold a 24.9 percent stake in the company after the deal closes, according to the filing. Hennessy, Beck and their partners will hold a combined 18.3 percent stake.

Payday for Porch execs. Until February 2020, Ehrlichman’s annual base pay was $1, but this year, it was bumped up to $420,000. In connection with the merger, he and Matthew Neagle, Porch’s chief revenue officer, will also get one-time bonuses, ranging from $200,000 to $500,000 for Neagle and $500,000 to $1.5 million for Ehrlichman. Ehrlichman will also get one million shares of company stock that will vest based on those shares hitting certain price targets.

Sweetening the deal. To get the merger done, Ehrlichman struck a deal with investor Valor Equity Capital, which agreed to approve the arrangement in exchange for $9.5 million in shares. Valor also demanded a caveat: Post-merger, if its stake is valued at less than $44.2 million, Ehrlichman will transfer additional shares to make up the difference. At closing, Ehrlichman agreed to pay Valor $4 million in cash.

Selling Lowe’s. Home-improvement giant Lowe’s led Porch’s $27.6 million Series A in 2014. But in May 2019, the retailer sold 16.1 million shares back to Ehrlichman for $0.25 a share, or just over $4 million.

The IPO filing notes the price was “below fair market value,” and a check with Pitchbook shows that Porch shares had been priced at $8.66 in a 2018 funding round. For accounting reasons, the company was required to recognize the Lowe’s stock deal as a “compensation expense” of $33.2 million. According to Pitchbook, Porch’s share price dropped after the Lowe’s deal. It closed a $20.62 million round in January that priced shares at $3.50.

One more small problem. In the IPO filing, Porch said it plans to expand into insurance, as well as new home products and new locations, as part of its growth plan. Currently, Porch sells products and services in all 50 states. However, it is “qualified to do business only in Washington, Texas and Delaware,” the IPO filing said. Failure to get licensed could lead to fines, plus the company could be subject to back taxes and contract disputes in non-licensed jurisdictions.

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Stuart Miller of Lennar & a map of Arden community

Stuart Miller of Lennar & a map of Arden community

Lennar Homes paid $13.7 million for land at Arden, a planned community in western Palm Beach County.

Records show Miami-based Lennar bought multiple lots through three deeds at 1226 Arden Park Drive from Highland Dunes Associates Property LLC.

Highland Dunes Associates Property is a Delaware entity tied to Boston-based Freehold Capital Management. Freehold has been developing housing projects in California, Georgia, South Carolina, Tennessee, Texas and Florida, according to its website.

Arden is described as an “agrihood,” a community centered around a 5-acre farm open to residents. Arden will have full-time farmers and allow residents to volunteer on the farm, according to its website.

Other developers, including D.R. Horton and Kenco Communities are also building homes at the 1,200-acre master-planned community.

Last year, Lennar also bought land in Arden: first 40 lots for $5 million and then 50 lots for $6.1 million. According to Arden’s website, Lennar is responsible for three different communities.

The most recent purchases, according to Arden’s community map, as well as the Palm Beach County Property Appraiser, is more of a green space surrounding a lake. Lennar was not available for comment.

Other developers are leaving the pricier urban areas of Palm Beach County and heading west. Minto Communities is building a 3,800-acre master-planned community with about 4,500 homes.

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(Getty)

(Getty)

A ratings agency predicts as much as a 50 percent hit to landlords’ bottom line at unsubsidized affordable apartments, which may lead to evictions when federal moratoriums expire.

Fitch Ratings predicts “full, on-time rental payments” for affordable properties subsidized by the government, which includes federal rental voucher programs such as Section 8. But properties that don’t receive subsidies could see a total discount to their debt service coverage ratio of as much as 40 to 50 percent, due to a 30 percent drop in rent payments as well as a pandemic-driven jump in operating costs.

Both subsidized and unsubsidized affordable multifamily properties are likely to see a 10 to 20 percent increase in operating expenses, Fitch predicts.

For the time being, few borrowers with multifamily mortgages tracked by Fitch are behind on payments, despite high unemployment levels and widespread economic distress. Only 0.56 percent of borrowers whose loans are in CMBS transactions were delinquent in September, compared with 0.41 percent prior to the pandemic.

Overall, multifamily has not suffered as much as other sectors, such as hospitality and retail, which have scrambled to lure travelers and shoppers back while government orders limit their ability to do so.

But a true assessment of the current state of the multifamily market has been hindered by programs that allow property owners to defer payments on a short-term basis. Until the end of the year, multifamily properties with federally-backed mortgages can apply to defer their debt payments for three or six months. Banks which lend to multifamily property owners have offered deferral plans, too, but many of those agreements will start to expire at the end of this month. After those agreements expire, Fitch expects a slight uptick in delinquencies.

Still, some data points offer clues for how the damage to the multifamily sector will unfold in the coming months.

Job losses in the hospitality and retail sectors, whose employees largely can’t work from home, have led to a disproportionate impact on low-income renters. A survey conducted by the U.S. Census Bureau found that, by the end of September, a third of renters who were behind on their rent payments made less than $25,000 per year. Fitch predicts higher instances of missed rent payments — and evictions, after federal limits on evictions expire at the end of the year — in areas where unemployment has remained high.

Rent collections in market-rate apartments have also decreased, although less dramatically than at affordable properties. In September, rent payments at professionally managed units dwindled to 76 percent, the lowest level since the National Multifamily Housing Council started tracking those rents in March.

Rent-regulated apartments in New York City have consistently lagged about 10 percentage points behind the rent collection figures NMHC has released, Jay Martin, executive president of the Community Housing Improvement Project, told a virtual audience at the New York Multifamily Summit last Friday.

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