TPG RE Finance gets $325M infusion from Starwood

TPG Real Estate Finance Trust CEO Greta Guggenheim and Starwood Capital CEO Barry Sternlicht (Getty)

TPG Real Estate Finance Trust CEO Greta Guggenheim and Starwood Capital CEO Barry Sternlicht (Getty)

Facing a cash crunch, TPG Real Estate Finance Trust has secured a major infusion a little over two weeks after it sold off nearly $1 billion of its commercial real estate debt.

The real estate investment trust announced that Starwood Capital is taking a stake in the company, providing it with up to $325 million in new capital.

Greta Guggenheim, TPG RE Finance CEO, said the investment will provide the firm with “with additional liquidity and flexibility to navigate the current economic environment.” Under the agreement, Starwood will hold preferred stock and warrants.

Earlier this month, TPG RE Finance announced it was selling off a billion dollars in CRE debt to fight off margin calls, amid the coronavirus crisis. That disclosure came at its first quarter earnings in which the company said liquidity constraints raised substantial doubt about its ability to continue “as a going concern.”

Real estate investment trusts like TPG RE Finance, hedge funds and private equity firms that have issued billions in construction loans, mortgages and bonds backed by property debt are now under increasing pressure. Businesses that had been shuttered by the pandemic are beginning to open, but mortgage payments are coming in late or being skipped altogether.

Starwood and its boss, Barry Sternlicht, have been on the lookout for investment opportunities, including the decimated hotel sector.

“We love distress markets from a buyer’s standpoint,” Sternlicht told The Real Deal in a recent interview. “I like markets like this where you have to hustle. Hopefully, we’re big enough now to help people survive, too. They can come to us, and we can give them capital.”

Contact Sasha Jones at [email protected]

The biggest new tenant in New York City is… TikTok

Douglas Durst, One Five One, and Tik Tok CEO Kevin Mayer (Getty, Google Maps, iStock)

Douglas Durst, One Five One, and Tik Tok CEO Kevin Mayer (Getty, Google Maps, iStock)

TikTok is coming to Times Square.

The parent company for the video-sharing app has inked a lease with the Durst Organization for 232,000 square feet at One Five One, formerly known as Four Times Square, according to the Commercial Observer. It is the first six-digit office lease in Manhattan since the onset of the pandemic.

Lenders still need to sign off on the deal to complete it, which should happen in a few weeks. The company will take seven floors at the 48-story building — five at the top and two at the base — leaving the property with about 326,000 vacant square feet.

The asking rents were unavailable, although law firm Skadden Arps, which previously leased the top five floors, paid between $105 to $135 per square foot.

TikTok, whose parent company is Chinese internet firm ByteDance, has about 400 employees in the U.S. Most are based in Culver City, Calif.

Its massive Manhattan office lease comes in the wake of tech giants including Facebook and Twitter announcing that at least some of their employees can continue working from home indefinitely. The deal could ease concerns that tech companies will not lease nearly as much office space as they did before the pandemic. [CO] — Eddie Small

Marcus & Millichap laying off 20% of workforce

Marcus & Millichap CEO Hessam Nadji and their Calabasas office.

Marcus & Millichap CEO Hessam Nadji and their Calabasas office.

Marcus & Millichap plans to lay off 20 percent of its workforce as the publicly traded commercial real estate brokerage goes through a restructuring.

The company, which is headquartered in Calabasas and has a market cap of $1.12 billion, revealed its pandemic response plan in a May 11 public filing. Part of the plan was “a reduction of the company’s employee workforce by 20 percent,” which comes to about 175 of an 877-person workforce.

The layoffs affect salaried staff. They would not impact brokers, who are independent contractors that earn their keep from sales, debt and leasing commissions.

The company has reported 53 of these layoffs to the California Employment Development Department over the past two weeks.

The affected employees mentioned in state filings are scattered across California. The head office in Calabasas saw the most pink slips, at 19. The layoffs are listed as temporary, but a return date for the workers is not provided.

Marcus & Millichap’s announcement comes as commercial brokerages nationwide face an economic disaster that has thrown into question the demand for office, retail, and pretty much any non-residential space. Eastdil Secured and JLL each announced layoffs of more than 30 employees earlier this month.

CBRE and Cushman & Wakefield, meanwhile, announced significant layoffs prior to the pandemic taking full flight.

A Marcus & Millichap representative responded to questions by pointing back to the company’s public reports, and stating, “Despite unprecedented challenges that COVID-19 presents for the country and business in nearly every sector, we remain focused on the health and well-being of our team and clients, and our continued delivery of industry leading services.”

The Securities and Exchange Commission filing, part of the company’s quarterly earnings report, does not say what positions will be eliminated or how the layoffs will be carried out. CEO Hessam Nadji did not mention the layoffs during the earnings call, and no one asked a question about them, according to a call transcript.

The filing does note that in “response to this period of business disruption,” we “instituted various controllable expense reduction initiatives” including base salary reductions for senior executives, management and key personnel, furloughs and layoffs “to preserve our balance sheet and financial position.”

These reductions include a 25 percent base salary cut for Nadji, and a 20 percent cut for other executive officers.

Marcus & Millichap went public in 2013.

Loophole allowed big-name landlords to get bailout funds

(Credit: iStock)

(Credit: iStock)

Some lucky landlords have secured bailout funds through the federal government’s Paycheck Protection Program — all thanks to a legal loophole.

The program, created through the CARES Act and administered by the Small Business Administration, specifically excluded businesses that primarily develop or lease real estate from the program. However, dozens of real estate companies have received tens of millions of dollars in PPP funds by applying through related business arms, including property management or construction, the Wall Street Journal reported.

Time Equities is one such real estate company. CEO Francis Greenburger said that its PPP lender, which provided the firm with $3.6 million, didn’t check whether Time Equities was eligible. The company owns stakes in or controls 30 million square feet of property, and offers services including building management, leasing and construction management.

“It was really a self-approved process based on the guidelines they set forth, which were so vague as to be basically impossible to understand,” said Greenburger.

California multifamily owner Trion Properties received roughly $765,000 from the program, which its co-founder Max Sharkansky said was needed to make up for revenue that would have normally come from property sales or refinancings.

Veritas Investments, one of the largest landlords in San Francisco, received $3.6 million in PPP funds, but has promised it would pay back the full amount rather than apply for loan forgiveness.

House Speaker Nancy Pelosi, whose district includes San Francisco, said “Larger companies like Veritas…which has billions in assets and access to liquidity through other sources, were not the intended beneficiaries of PPP loans.”

Some landlords have faced criticism for receiving the funds. Facing pressure, companies tied to Texas hotelier Monty Bennett have said they will return the $68 million received through the program. One of the companies had backed out of a hotel sale once it learned it would be a recipient of the funds.

Of the $342 billion in PPP loans approved, real estate received 3 percent, or $10.7 billion. The program is set to get a $310 billion refill.

However, not all landlords will have the same luck securing funds through the program. Smaller companies aren’t as likely to have separate ownership and property management entities. [WSJ] — Danielle Balbi

Sabotage, secret cameras and intrigue: Inside the Barclay family’s feud over the London Ritz

Sir Frederick Barclay and the Ritz London (Photo by Kirsty O'Connor/PA Images via Getty Images, Ritz London)

Sir Frederick Barclay and the Ritz London (Photo by Kirsty O’Connor/PA Images via Getty Images, Ritz London)

A high-stakes drama worthy of a soap opera — complete with hidden cameras and big inheritances — is playing out with the Ritz Hotel in London as a backdrop.

Twin billionaires Frederick and David Barclay bought the five-star hotel in 1995 for 75 million pounds. Now, the aging brothers and their respective children are feuding over the sale of the property.

In the saga’s latest update, Frederick this week released hidden camera video footage allegedly showing his nephew Alistair planting a listening device in a room where Frederick and his daughter met to discuss the Ritz sale, according to Bloomberg.

Frederick’s attorney, Hefin Rees, has alleged in court that Alistair and his two brothers are trying to freeze out his daughter, Amanda, from the sale. They sued in January, around the same time Alistair allegedly planted the bug.

The listening device reportedly captured 94 hours of audio over several months, allowing Frederick’s three nephews to anticipate “every move in advance [and] plan their business strategy around that.”

Frederick and Amanda have said they received a 1.3 billion pound offer for the hotel from Saudi Arabia-based Sidra Capital. David’s sons say that isn’t true and claim that their relatives’ talks about “sensitive commercial matters” with outside parties have “the potential to be disruptive and damaging to the family’s business interests.” [Bloomberg] — Dennis Lynch

Facing the music: Entertainment venues, restaurants weigh reopening options

Bars, restaurants and live entertainment venues around the world are now weighing their reopening options. Some owners say they can’t cover the cost of operating at reduced capacity. (Getty)

Bars, restaurants and live entertainment venues around the world are now weighing their reopening options. Some owners say they can’t cover the cost of operating at reduced capacity. (Getty)

As the U.S. and countries across the globe begin easing some restrictions on nonessential businesses, bars, restaurants and live entertainment venues face tough decisions.

Some are planning to open at whatever capacity local authorities will allow, while others are on the fence about opening up at all because of the financial constraints, according to the Wall Street Journal.

Business owners say they need to run at higher capacities than social-distancing guidelines allow to cover the costs of operating. Bars typically need more customers in the door than restaurants because their patrons usually spend less than patrons who come in for meals, according to the Journal.

Michael Grieve, who manages the Sub Club in Glasgow, Scotland, said he doesn’t plan to open until social distancing guidelines are dropped completely. He said the 410-person capacity club is about “a shared emotional, and at its best euphoric, experience” that can’t be achieved with social distancing in place.

He said he needs over 90 percent capacity to turn a profit. Others say they just want to open and in the short-term, will accept whatever business comes their way. Weeks of closures have meant many businesses are on the brink of failure.

At The Brass Tap craft beer bar in Austin, Texas, general manager Lewis Smith said: “The place will look empty but it doesn’t matter to us so long as it can get started back up.”

Restaurants could fare better. Many jurisdictions are allowing eateries to have higher capacities than bars, as long as tables are spread out at an appropriate distance and they meet other operating guidelines. [WSJ] ­— Dennis Lynch

Here’s what the office industry is up to as lockdowns lift

As lockdowns lift and the work-from-home debate ranges on, office landlords are eager to get back to leasing and building out their spaces.

“We have various construction projects we want to get back to,” said Grant Greenspan, senior vice president of leasing at the Kaufman Organization.

In New York, all nonessential construction work and in-person real estate showings are on hold until Gov. Andrew Cuomo gives the green light for those activities to resume. When they do, Greenspan acknowledged there will be challenges with showing commercial spaces.

“Obviously, it’s a little more tricky if the tenant is occupying the space,” he said. “We’re going to have to be more cognizant of their concerns.”

In the meantime, office leasing brokers have been doing their best to adapt to virtual showings. Stephen Schlegel, market director for the tri-state region at JLL, said the lockdown has pressed brokers to try new technologies quicker than they would have otherwise.

“We can’t imagine a set of circumstances that would have pressed us to develop those technologies the way we are now,” he said.

One of the big questions around virtual showings is how willing tenants are to lease spaces of significant size without ever physically visiting them.

Ryan Simonetti, CEO of the flexible-workspace and conference-space company Convene, said his company has long offered visual tours of its spaces. In the past several weeks, the number of deals done virtually has become much larger, as members seeking the flexibility of short-term commitments sign up.

Simonetti said members are more likely to close an all-virtual deal up to a certain point: usually for about 10 or 20 people, maximum. After that, he said, it becomes a harder proposition. “We are seeing people’s appetite to consume space digitally growing,” he said. “But it’s a different story for bigger requirements.”

JLL’s Schlegel said it will be some time before brokers return to the old ways of doing business.

“Given the restrictions on going to buildings, the notion that you’re going to take tenants to six buildings a day is just not realistic,” Schlegel said.

States Title raises $123M to digitize title, mortgage and escrow

States Title CEO Max Simkoff (iStock, States Title)

States Title CEO Max Simkoff (iStock, States Title)

A San Francisco startup that’s digitizing mortgage, title and escrow said it raised $123 million — sinking another nail into the coffin of time-consuming and cumbersome real estate closings.

The funding round brings States Title Inc. valuation to $623 million, according to Bloomberg. The round was led by Greenspring Associates, with participation from Foundation Capital and FifthWall Ventures.

Greenspring’s Jim Lim said that stay-at-home orders meant to curb the coronavirus pandemic have “highlighted the fact that there’s probably a better way to do real estate closing.”

States Title was founded in 2016 and counts bank and non-bank lenders among its clients. In 2018, the firm received regulatory approval in California to branch out into title insurance, a notoriously opaque part of real estate deals.

Led by CEO Max Simkoff, States Title has raised $230 million, including the recent round. Last year, it acquired North American Title Group and North American Title Insurance Co.

Historically, the title industry was dominated by the so-called Big Four: Fidelity National, First American, Old Republic and Stewart Information Services Corporation. (Fidelity nearly bought Stewart for $1.2 billion last year, until the deal fell through.)

But fintech firms have set their sights on the archaic business, with startups like Spruce and OneTitle angling for market share.

[Bloomberg] — E.B. Solomont

“Corporate shell game”: Special servicer says Hudson’s Bay undermined $850M loan

Hudson’s Bay CEO Richard Baker (Credit: Getty; iStock)

Hudson’s Bay CEO Richard Baker (Credit: Getty; iStock)

The special servicer for an $850 million CMBS deal has accused Hudson’s Bay Company of engaging in a “clandestine corporate shell game” as it took the department store operator private, a move that undermined the creditworthiness of the loan, which now faces default. And as with many other real estate-related court cases lately, Covid-19 is a focus.

The CMBS loan provided by JPMorgan Chase, Bank of America, and Column Financial is secured by 24 Lord & Taylor stores and 10 Saks Fifth Avenue stores across 15 states. As the parent company of both brands at the time, Hudson’s Bay was the tenant at all 34 stores and a partial landlord through a joint venture with mall operator Simon Property Group.

Hudson’s Bay was also the guarantor of rent payments at the stores. But over the past several months, the now-private company “engaged in deliberate and concealed corporate restructurings that stripped assets” from the original parent company and “transferred them to newly formed, foreign entities,” special servicer Situs claimed in its federal lawsuit against Hudson’s Bay. That alleged action violated “loan documents and related guarantees,” according to the complaint, filed Monday in New York on behalf of the CMBS trust.

The suit also accuses Hudson’s Bay of improperly using the coronavirus as an excuse for not addressing concerns about the asset transfer, which it called “an opportunity to try to smokescreen their numerous breaches of their obligations.” A number of real estate-related lawsuits have emerged in recent weeks that allege defendants improperly use Covid-19 as an excuse to break off signed deals or terminate leases. In late February, Hudson’s Bay shareholders approved the move to take the company private in what was seen months earlier as a $1.3 billion deal.

Hudson’s Bay said it rejects the lawsuit’s accusations. In a statement, a company spokesperson said the Simon Property joint venture was the loan borrower while Hudson’s Bay was “simply a guarantor of lease obligations” under the terms of the joint venture. “To suggest that HBC has violated any loan document provisions is categorically false,” the spokesperson added.

“Empty shell”
Situs claims to have only discovered the alleged scheme in April after Hudson’s Bay fell behind on rent payments. Following negotiations to address the shortfall, Situs says it was informed that a signature block on a document had to be changed because Hudson’s Bay Company, the entity that guaranteed rent payments, no longer existed.

In its place, the lawsuit says, was “an empty shell” called Hudson’s Bay Company ULC, all of whose assets and liabilities had been transferred to a Bermuda-based limited partnership whose general partner is controlled by Hudson’s Bay CEO Richard Baker, and whose limited partners include the Abu Dhabi Investment Council.

Situs says that these transfers were improper because loan documents required the CMBS trust to approve of — or at least be informed of — the transactions. Hudson’s Bay, for its part, says the restructuring was “driven entirely by tax considerations” and that the servicer’s concerns are “irrelevant distractions,” according to correspondence included in the lawsuit.

But Situs claims “defendants simply do not have the right to deliberately and secretly violate the contractual restrictions on such corporate maneuvers and then, when caught, declare it to be all fine.”

Situs did not respond to a request for comment.

The CMBS loan was transferred to special servicing on April 23, “due to the borrower’s failure to make the April debt service payment,” according to servicer commentary provided to Trepp.

The special servicer is now seeking a declaratory judgment to void the allegedly improper transfers, a temporary restraining order to prohibit Hudson’s Bay from engaging in additional restructurings and transfers, and an order expediting discovery for documentation of the transfers.

Situs pointed to reports that Lord & Taylor may liquidate its stores upon reopening following coronavirus-related shutdowns nationwide, and that Hudson’s Bay may attempt to acquire bankrupt rival Neiman Marcus.

Hudson’s Bay sold Lord & Taylor to clothing rental service Le Tote last August for $100 million, but remains the guarantor for rent payments at the Lord & Taylor properties in the loan portfolio.

Locations of the 34 stores included in the CMBS deal. Source: Trepp

Locations of the 34 stores included in the CMBS deal. Source: Trepp

Alex Sapir wants to take his firm private. This could be the right time

Alex Sapir, CEO of the Sapir Organization (Credit: Getty; iStock)

Alex Sapir, CEO of the Sapir Organization (Credit: Getty; iStock)

Alex Sapir has another chance to do something he failed to pull off three years ago — seize greater control of his eponymous real estate investment firm by buying out its outstanding shares and going private. In the middle of a pandemic that has slammed stock prices on the Tel Aviv Stock Exchange, where the firm is listed, may be just the right time.

An LLC controlled by Alex Sapir is offering to buy up about 5 million shares of the company, Sapir Corp., at 3 Israeli shekels apiece, or about $4.3 million in total, according to a disclosure published Sunday in Tel Aviv. Those shares represent 13.29 percent of the company’s market capitalization.

Sapir and business partner Gerard Guez already own 86.71 percent of the company combined — two Sapir-controlled entities control about 62 percent of the total shares, while a trust for Guez’s benefit holds about 24 percent.

Sapir Corp.’s stock price has jumped sharply in the past few days, from 2.62 shekels a share last week to 3.71 shekels at the latest close. The disclosure notes that the average stock price over the past six months was 3.51 shekels.

Bank Leumi will be coordinating the buyout process. In 2017, the bank provided a $90 million loan for the construction of Sapir Corp.’s 12-story, 16-unit luxury condominium in Miami called Arte. With only three of the units sold — to Alex Sapir’s sister, mother and Guez — the company just secured a 12-month extension to pay back the loan and secured lender approval to rent the units to cover costs and provide flexibility in light of the coronavirus pandemic.

Sapir Corp. is also planning to sell a nearly 2 million-square-foot mixed-use development in Miami’s Arts & Entertainment District, and owns the 264-key NoMo Soho hotel in New York City.

Sapir Corp. shareholders have until May 31 to accept the buyout offer, which will only take effect if two conditions are met: more than 95 percent of all shareholders, as well as more than half of the shareholders whose shares are being acquired, need to approve of the transaction.

Sapir declined to comment, citing securities regulations.

Sapir’s previous attempt at a stock buyout in 2017, when the company was still known as ASRR Capital, failed to garner sufficient demand. The company had first offered to buy back its shares at 9.8 shekels apiece, before upping the offer to 10.8 per share or about $15 million in total, disclosures from the time show.

That buyout attempt came soon after Sapir surprisingly bought out partner and then-brother-in-law Rotem Rosen’s 40.5 percent stake in the company for $70 million.

In the event that this second buyout attempt does not go through, the disclosure says, Sapir “reserves the right to work towards the erasure of the company’s shares by means of a reverse triangular merger.”

If Sapir Corp does go private, the firm will still be subject to disclosure requirements in Tel Aviv because of its roughly $36 million in bonds that are trading on the exchange, which are set to mature in 2022.