IF ever there were an article I should put behind a paywall this is it. No, no, no, the easy mil isn’t something that you can do, only certain people privy to Other People’s Money (which may in fact be yours) Instead I will loosely pick apart a local commercial real estate deal as an illustration of the easy money nationwide of the past decade.
It all begins back in 2016 with the combined purchase of two warehouse/office buildings by a joint venture between a pair of institutional real estate managers, one of whom is a division of the well-known NYC builder The Related Companies.
The first building, The Blanchard, is 7-stories of red-brick with an extremely lengthy facade running along Borden Avenue across from the former Fresh Direct warehouse. The Paragon on 49th Avenue, has as its main feature the sole Starbucks in Hunters Point, which is located in its base. Until they were bought, both buildings would have been considered to be in the middle of nowhere, and both contained tenants looking for inexpensive space first and foremost.
With a new landlord trumpeting their purchase1 as “an ideal fit for our execution-based strategy and will draw on our development and operational expertise,” those tenants would be out of luck within a year.
In the end it seemingly didn’t work out very well for the investors either, as last week brought the news that they are handing over the keys to the buildings to their lenders. Yet at the very bottom of the article announcing the transfer (linked to below) came the following set of figures: “BGO and Related’s asset management unit paid $104M for the Paragon and Blanchard properties in 2016 and spent $45M renovating them. The debt on the buildings adds up to about $150M”
By my count, that means they spent $149 million in total (104 + 45), and borrowed $150 million, netting a cool $1 million! Obviously this oversimplifies things a bit. There was most assuredly some initial equity put up by the joint venture, in tandem with a loan from the big private equity firm TPG. Much (all?) of which was probably taken out with a refinancing done in 2019 by a lender called Colony Credit Real Estate, Inc. The latter being a financial institution which would change it’s name to BrightSpire Capital in 2021, only to become an actual landlord (gulp!) in 2023. And while the original purchasers may or may not have walked away with that cool mil, the point of this story is that thanks to generous lending standards they were able to potentially capture lots of upside with very little downside.
No pain, no pain, that’s been the story of commercial real estate post-GFC. Where’s the fallout? Well, in addition to the tenants who had to vacate in 2017, BrightSpire’s shareholders have seen it’s stock price go down over 50% in the past five years. They probably made numerous similar refinancing loans helping others cash-out. And given that BrightSpire’s shares sport a 10% yield in a low-interest environment, my guess is a lot of
bag-holders shareholders are retail investors. Not sure where the bottom is for them now that they own the farm, but both buildings are still largely vacant according to the article.
Related Nabs $74 Million Financing on LIC’s Paragon Building – in 2019, it’s for just one of the two building’s
- to their investors mainly [↩]