POTUS: EB-5 Out, Gold Card In

Is this the beginning of the end of the “crack cocaine” of real estate finance? On Tuesday, President Trump unveiled his plan for a “gold card,” his new program to provide a path to citizenship for “very high-level” wealthy people willing to cough up $5M. That in itself is not a CRE matter, and not surprising – citizenship has increasingly become a luxury good, as this excellent essay illustrates. But it becomes a BFD for the industry because of what it’s looking to replace: EB-5, the nebulous “cash for green card” program that has funneled billions of dollars into some of the country’s glitziest projects.

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EB-5 (Cont.)

EB-5 has been hailed by the industry as a way to create high-paying jobs, while giving foreigners a path to the American dream 🦅 – as we wrote in Sept., “developers can get pretty poetic when offered debt at half the rate of conventional mezz.” It’s funded everything from Hudson Yards 🙂 to TSX Broadway 😭 to Oceanwide Plaza 😭 to luxury condos across Manhattan and Miami, and is even being tapped for a frum-friendly lakeside housing development in Florida. The bosses of the so-called “regional centers” that pool the monies together for developers have become titans in their own right – guys like Nick Mastroianni made cartoonish bank during the program’s heyday in the early-mid 2010s. Detractors though, have slammed it as a giveaway to developers and a fraud magnet. Reforms of the program, from increasing the min. investment threshold to stricter quotas, have been incremental rather than dramatic. Now, POTUS is speaking of eradicating it altogether.

Howie Lutnick, former boss of Cantor Fitzgerald and now Trump’s commerce secretary, said the new program would be more discerning than EB-5 about who’d be eligible, per the Times, though he didn’t provide deets. He did, however, make clear his boss’s feelings about EB-5. ”Full of nonsense, make believe and fraud, and it was a way to get a green card that was low price. So the president said, ‘rather than having this sort of ridiculous EB-5 program, we're going to end [it].’” That sound you hear is developers’ lobbyists keeling over.

Ross’ Drunken Sailor Playbook

“Be the sun and all will see you.” - Fyodor Dostoevsky 

Steve Ross has been around too long and made too much money to still worry about tact. In ‘19, at the groundbreaking of his luxury rental in West Palm Beach, Ross was introduced to the city’s mayor, Keith James. “I want you to know, Mr. Mayor, that I am spending money in your city like a drunken sailor,” Ross told him. Recalling that incident to WSJ recently, James was unable to restrain his giddiness: “When a billionaire says that, you know that’s quite a bit of money.” I know that The Promote spends a lot of time talking about rhetoric, but it really does capture how receptive South Florida is to the largesse of the ultra-wealthy. A comparison to New York, Ross’ original stomping grounds, seems apt: Mayor Mike Bloomberg caught a lot of heat for suggesting that it would be great if more billionaires made NYC their home; his successor, Bill “SUVs only” de Blasio, made the city’s over-friendliness to the wealthy a cornerstone of his campaign, and specifically called for a “reset” w/ developers. The pendulum has swung back somewhat w/ Eric Adams, but it’s still unseemly in New York for a billionaire to talk about shaping a city to his will. In South Florida, it’s encouraged (see Griffin, Ken).

Here’s what Ross, city-shaper extraordinaire, realizer of both Time Warner Center and Hudson Yards, is now trying to do: Spend close to $10B to turn West Palm Beach into the model new American city, w/ plans for 6M+ sf of office space, 1.4M sf of condos, 700K sf of retail and nearly 900 hotel keys across the 70 acres of land he’s amassed over the past couple decades. More deets on all that here and here. Not only is the scale of ambition extraordinary, so is its lone-wolf aspect: Ross is eschewing partners here and instead mostly self-funding by selling minority stakes in the Miami Dolphins 🐬 🏈 . The economics of NFL deals are insanely interesting – here’s the deck from Arctos – which just bought into the Bills – to give you a sense.

Ross senses an opening brought about by regulatory overreach in New York and California, and is also somewhat #ShortMiami , citing concerns of overcrowding, over-urbanization, and unaffordability. “To create a city where the best and brightest want to live, work and play,” he said, “gets your juices going.” 🧃 

Cayre Wants Comeuppance for Rialto

Jeff Krasnoff is quickly becoming the Keyser Söze of New York real estate, the guy that even the big guys are terrified of. Krasnoff’s special-servicer Rialto partnered w/ Blackstone & CPP to buy a slice of Signature Bank’s CRE loan book at the end of ‘23. It has since turned up the heat on delinquent borrowers, from mom-and-pop (by Manhattan standards obv) investors to bonafide titans like Aby Rosen & Michael Fuchs. When you mess w/ bigger players, the rewards are larger, but since they can afford nicer lawyers, so are the risks.

Case in point: Joe Cayre’s Midtown Equities is suing Rialto for allegedly manufacturing defaults related to a $45M summer ‘22 Signature loan at its Brooklyn Heights tower site. The loan was set to mature Aug. ‘24, but Midtown had the right to extend it by a year – provided it exercised its option in writing, the suit (h/t PincusCo) claims. Midtown claims it did so in May, but Rialto then “embarked on a campaign of deception to engineer a pretextual basis to declare a ‘default’” Midtown alleges – and further alleges that this move was not a one-off, but rather its “sinister pocket veto" scheme” (is anyone more lyrical than high-powered Manhattan lawyers?) 👖 That scheme, per Cayre’s firm, involved a pre-negotiation agreement – think of it like a business pre-nup – Rialto demanded that Midtown sign. When it declined to, Rialto slow-rolled Midtown’s loan ext. request, and has thus jeopardized Midtown’s in-contract deal to sell the site to Jonathan Landau, who’s planning a 47-story resi tower there. Midtown is seeking class-action status on the suit, claiming that 40+ other borrowers are similarly afflicted. Rialto gave its standard “we continue to engage with borrowers to find the best resolutions possible,” statement, and we’ll see how this plays out – hoping that Krasnoff summers in the Hamptons and not Deal, NJ.

Drillman’s Inside Bet

Quickies

• 🎥 Qualifying life events – they exist for skyscrapers too 

• From Tuesdays @ Rao’s to sit-downs w/ Putin: The many lives of Steve Witkoff 🍝

• No context/color but still interesting: NYC’s 200 top CRE buyers of ‘24

• Attorney catfight: Lawyers for Jacob Sod & Wercberger are now attacking each other (Recap of full “hush money” drama here) 👨‍⚕️ 

• Regulatory reaper: NYC rent-stabilized building sells for $9,800/ 🚪 😭

• Tower of Power: Mrs. Koch out, Ken Griffin in at 740 Park 

• Steve Jobs would’ve turned 70 this week – revisit the tale of how the Apple Cube at the GM Building came to be 🍎 (this is per Macklowe so take w/ a pinch of 🧂 )

• Our new website – v much a work in progress – is live, check it out

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