Developer Lee Rubinoff, whose company has seized on a Los Angeles program that rewards affordable housing projects near transit stations, has teed up another one.

Rubinoff filed plans this week for a 69-unit Transit-Oriented Communities development on an Echo Park hillside.

The development site spans three lots totaling about a third of an acre at 1346-1354 W. Court Street, property records show. Two are vacant and the third has two vacant residential buildings.

Rubinoff is the managing partner at the development firm Urban Stearns, though it’s unclear if the company is directly involved in the project. Rubinoff and Urban Stearns could not be immediately reached for comment. Rubinoff filed for the project through 1350 Court Partner LP.

Urban Stearns has taken on similar projects in the area. In late July, the firm submitted plans for a 60-unit construction about a mile away on Alvarado Street. Rubinoff also filed those plans.

In the latest project, 1350 Court Partner bought the property for $3 million in April from an entity tied to the Chatsworth office of developer Daniel Bernstein and Associates.
The city’s Transit Oriented Communities program provides developers density bonuses and other incentives for reserving units at new developments for low-income renters. The program is popular with developers and has added at least 3,900 affordable units to the city’s pipeline since its adoption two years ago.

A Westside group critical of the program recently sued the city to put a stop to all TOC approvals, claiming implementation of the program exceeds what voters approved via a 2016 ballot measure.

In 2011, Rodrigo Niño was weighing his own mortality. The real estate executive, originally from Colombia, had been diagnosed with stage three melanoma. After two surgeries, his only choice, he later recounted in a heavily produced video, was to “venture into the unknown.”

Niño, who is tall and thin with wavy gray hair, flew to Peru and traveled into the jungle, where he spent two weeks taking ayahuasca, a traditional brew and spiritual medicine known to induce hallucinations. He said he felt his fear disappear and experienced a “field of invisible energy that binds all living things together.”

When he returned to New York — where he was running his residential brokerage — he was energized by thoughts of community and consciousness. He dropped his business model and moved into crowdfunding, an uncharted new industry that he believed was a way to democratize real estate investment. (It provides a platform for lay investors to pool their money in large commercial projects that are usually bought, sold and developed by sophisticated real estate players.) 

The plan, at least for a while, seemed to be working well. 

Prodigy Network claims to have raised some $690 million from 6,500 investors, much of which has gone to five New York City buildings, since it made the shift.

But more recently, the company has come under attack for poor returns, allegations of internal financial problems, a lack of transparency and a failure to make good on financial obligations to its employees. In the last few months, Niño has fired roughly 60 percent of his staff, which now hovers around 20 people. He’s also facing multiple lawsuits, including two that accuse him of using Prodigy’s cash for his own personal expenses. 

Just last month, he announced that he was stepping down as CEO and a few days later revealed to investors that his cancer had returned.  

Niño’s turmoil — both professionally and personally — comes at a precarious time for crowdfunding, as major players either shutter or shift their business models. It also comes at a tricky time for Prodigy, which is scrambling to get back on track and is in the midst of two developments in Chicago. 

Niño recently hired Newmark Knight Frank to assess the company’s New York portfolio and Eastdil Secured to appraise the value of one of its properties: AKA Wall Street at 84 William Street. 

A review of internal company documents as well as interviews with multiple investors suggest that Prodigy’s financial problems are vast. But during several interviews with The Real Deal, Niño argued that Prodigy’s investments would pay off in the long term. 

“You basically need to wait until the disposition of the asset,” he said. “That’s when you cash out of your investment and you will know how much you’ve made or how much you’ve lost.” 

His assurances appear to have done little to placate investors who have savings tied up in Prodigy buildings. 

William Boulton, a Venezuelan national who put in $80,000, said he and his wife had hoped to use their investment to pay for their children’s college. “Our biggest fear is that we lose all of our money,” he said.

Early promise 

Niño was one of the first adopters of crowdfunding, which took off around 2013 in the wake of a federal regulatory change. He quickly established himself as a pioneer in the space. In 2015, David Drake of LDJ Capital, a private equity firm, called Niño “the most successful real estate developer using crowdfunding in the U.S.” 

Prodigy’s first acquisition in New York was a short-stay rental building: AKA Wall Street. It was purchased with Shorewood Real Estate Group and Korman Communities in 2013 for $58 million and opened its doors three years later after a gut renovation. (Korman and Shorewood did not respond to requests for comment.)

But it wasn’t until the launch of the Assemblage — a co-working venture — that the firm’s business model became intrinsically linked with its CEO’s spiritual journey. (A 2017 story in the New York Times ran under the headline “Soho House, but Make It Enlightened.”)

The first Assemblage site, which Prodigy closed on in August 2014 with capital raised through its crowdfunding platform, was 17 John Street. It featured meditation rooms, a moss-covered wall and weavings from the tribe in Peru whose ayahuasca ceremonies Niño had attended.

Prodigy later crowdfunded capital to buy another short-term rental property — AKA United Nations, at 234 East 46th Street — and two Assemblage sites in NoMad, at 114 East 25th Street and 331 Park Avenue South. It shelled out roughly $170 million for the three properties.

Prodigy also purchased a roughly 140-acre property near Woodstock, New York, known as the Sanctuary, where Assemblage members were invited to “exchange ideas around consciousness, science, philosophy and culture.”

In 2018, Prodigy attempted a different sort of capital raise: It sought to sell stakes in the company totaling $75 million, according to the marketing materials for the offering that TRD reviewed. Niño declined to say how much Prodigy raised in the offering, but the pitch pegged the value of the company at $300 million following an external valuation from boutique investment firm Violy & Company. 

Later, Prodigy began marketing two developments in Chicago: a hotel called the Standard — to be operated by the chain founded by André Balazs — and a luxury residential development at 1400 North Orleans Street. (The firm still has both listed on its website as active investor opportunities.)

Prodigy projected double-digit returns at both projects.

Cracks emerge 

By the end of 2018, investors had stopped receiving payments on their investments, and months later, internal discord and financial problems started coming to light. 

In April of this year, Niño gathered his team at the firm’s Downtown Manhattan office to address rumors about the firm’s financial problems, according to court records. 

He laid the blame on two former employees, including interim COO Vincent Mikolay, accusing them of stealing $2.5 million from the company.

However, in response, Mikolay filed a complaint accusing Niño of defamation and breach of contract, arguing that Prodigy actually owed him money from an incentive arrangement it had failed to honor. 

And the industry was beginning to take note. In May, crowdfunding commentator and technology entrepreneur Ian Ippolito published a blog post claiming that some Prodigy investors had lost up to 40 percent on their investments in AKA Wall Street, and said Prodigy was asking for millions more to help pay the property’s debt. (Niño called the post a “straightforward lie.”)

The lawsuits kept coming. Almost two months later, Maria Alejandra Rincón — another former employee and the daughter of the vice president of Colombia — sued the company and Niño, claiming they owed her hundreds of thousands of dollars too. 

Mikolay and Rincón, who were both fired, blamed the company’s financial problems on Niño’s “excessive personal distributions and expenses.” Rincón did not return messages for comment, while Mikolay and Niño both declined to comment on the lawsuits. 

But in court papers seeking to dismiss Mikolay’s complaint, Niño claimed the former staffer had received $125,000 as part of his separation agreement. 

Just last month, another investor, who used the name Avemar 2318 Corporation, sued Prodigy, claiming the company refused to return a $1.5 million investment. The investor claimed Prodigy was “insolvent” and alleged that the company had been using investments “for purposes other than those relating to the project.”

Avemar became concerned about its investment in the Standard hotel in Chicago when it learned that Prodigy had halted all distributions to investors at 17 John, according to the complaint. 

The complaint also alleged that the company’s finances for the project didn’t add up: Prodigy’s third-party fund administrator showed only $8.7 million earmarked for the Standard project — almost $5 million less than what Prodigy had raised for it. Prodigy’s partners on the project, Joe McMillan’s DDG and Marc Realty Capital, did not return requests for comment. 

One source said he invested $100,000 with Prodigy in 2014 at AKA Wall Street and made $40,000. But, he said, when he reinvested his principal and earnings in the building in 2017, his cash shrank by $90,000 (though he did receive some distributions in the interim). 

“My feeling today is that those guys are going to collapse at some point and everybody is going to lose their money,” the investor said.

Niño blamed the problems at the AKA properties on stiff competition from hotels and the “shadow inventory of illegal Airbnbs.” 

He said the Assemblage was still an up-and-coming brand contending with competition from co-working firms like WeWork. “The numbers are showing big improvements,” he said.

Still, in June, Prodigy blasted out letters to investors acknowledging issues at all of its properties and at the company itself, including that the firm couldn’t pay its debts. The letters also noted that payments had stopped for investors. 

In August, a group of investors flew to New York to meet with Niño to discuss their investments and to work on a plan to salvage the company, according to a source who was there.

Flooded with calls from concerned investors, Prodigy set up a small response team to field their questions. But many felt Prodigy had been keeping them in the dark for too long. “Prodigy Network is known for its lack of transparency with its investors,” said one source. “It’s not a good thing when you lose money, but it’s fine as long as you’re making money.”

Niño argued that the firm provided investors with quarterly market updates, biannual investor reports on properties and newsletters through its online portal, which he claimed people often neglected to read. Furthermore, he noted that the firm has a third-party fund manager, which adds an extra layer of protection. 

Prodigy has actually provided more than is federally required. The U.S. Securities and Exchange Commission doesn’t mandate crowdfunding platforms like Prodigy — which accept only accredited investors — to provide any disclosures. 

“It really takes experienced investors to recognize what types of information should be provided at the outset, and what types of information should be provided after the fact on a periodic basis,” said Thomas Lee Hazen, a securities law professor at the University of North Carolina.

Back in time

For more than a decade before shifting into crowdfunding, Niño ran his company, then known as Prodigy International, as a brokerage marketing new development condos. 

The firm was founded in Miami in 2003 and initially catered to Latin American buyers. 

In 2007, Niño relocated to New York after the Sapir Organization contacted him to sell units at Trump Soho, the 391-unit hotel-condo it was developing with the Bayrock Group in collaboration with the Trump Organization. 

Initially, Prodigy handled international buyers, while the brokerage Core worked with domestic clients. Then, in 2008, Prodigy took over all marketing. 

But the project soon ran into trouble. 

In 2010, while the New York residential market was reeling from the financial crisis, a group of buyers filed a federal lawsuit against Niño, Prodigy, the Trump Organization, Sapir and others, alleging that they had fraudulently inflated sales figures. 

The lawsuit pointed to multiple interviews in which Niño and his co-defendants had allegedly misrepresented the numbers. The case was settled in November 2011, and the defendants agreed to refund 90 percent of $3.16 million in deposits without admitting any wrongdoing.

Niño downplayed his role recently. “I may have been named as a defendant in the lawsuit, but I wasn’t really part of the settlement because I was not really a party,” he said.

It was around this time that he began working on sales and marketing for one of his first crowdfunded developments, in his native Colombia. Niño said he became involved in the project, dubbed BD Bacatá, after the Spanish developer BD Promotores approached him with a pitch.

Almost 4,000 investors contributed $170 million for the mammoth 1.2 million-square-foot Bogotá development, billed as the tallest tower in Colombia. But the project also ran into financial problems. Now, eight years later, it remains only partially complete: a gloomy monolith towering over the cityscape. 

Niño told TRD that Prodigy was hired as “just a sales and marketing consultant” in 2011 and left the project two years later. “I was not a principal on the building, I was not a developer of the building, it was not my building,” he said.

BD Promotores could not be reached for comment. 

Prodigy’s next act

Like BD Bacatá, Prodigy is facing a host of unknowns. 

For starters, it’s not clear when Niño’s resignation will take effect or who will replace him, though he said he’s committed to an orderly transition. He said his cancer is now stage four, and he’s planning to go back to the jungle in Peru.

“While the odds of survival are slim, I’m hopeful I’ll be able to heal with the support of the Assemblage community,” he said.

On the business side, Niño said he’s signed an agreement with a group of investors who have equity in the company. They’re working on a financial restructuring plan for Prodigy. That plan “will include a capital infusion,” according materials reviewed by TRD.

It’s unclear what will happen to the firm’s New York assets with Eastdil and Newmark now on board, and its Chicago deals are up in the air.

Prodigy has also made changes at the Assemblage. Most notably, it’s applied for liquor licenses at the sites — where alcohol was once shunned in favor of essences and infusions. In addition, the company is close to selling its Sanctuary retreat for $1.5 million, according to a letter to investors.

Niño insisted that the performance at the Assemblage properties was improving. 

“We believe that over time, we are going to be able to achieve the required performance that we had originally conceived for the buildings,” he said. “We just need more time.”

Sitting in a meeting room at the John Street Assemblage, Niño appeared pensive as he considered what went wrong with the firm he had led for 16 years. Mistakes were made, he said. But the vision was always sound.

“I believe people should have retail access to opportunity,” he said. But he conceded: “Whether buildings deliver or not, that’s debatable.”

Michael Shvo is moving quickly on his plan for a condo project in Beverly Hills.

The New York developer and his partners secured a $190 million construction loan from ACORE Capital for the 54-unit project at 9200 Wilshire Boulevard, sources told The Real Deal.

Shvo and his partners Bilgili Group and Deutsche Finance purchased the shovel-ready development site in May for $130 million from New Pacific Realty with the help of a $51 million loan from ACORE. Lotus Capital Partners brokered both loans.

Beverly Hills-based New Pacific secured approval from the city of Beverly Hills for the condo project in 2017 after trying for a 90-unit apartment building.

The roughly 300,000-square-foot, six-story development will span a city block and include 6,650 square feet of retail space. MVE Architects is designing the project.

In the Greater Los Angeles office market, Century City may be the hottest ticket in town.

The Westside remains the tightest market to lease office space in L.A., and the Century City submarket tops the list, according to a third quarter report from commercial brokerage Savills.

Century City’s vacancy rate was 7.6 percent, compared to Santa Monica and Beverly Hills/West Hollywood submarkets, which reported 12.4 percent and 14.1 percent respectively.

But the news wasn’t all good.

Overall leasing activity in Greater L.A. stood at 4 million square feet, down from 5.3 million square feet in the second quarter, which marked a three-year high. For there quarter, construction activity stood at 4 million square feet in the pipeline, and more than half of that was preleased.

Burbank — which had an 11.9 percent vacancy rate — was also a hotbed of activity. Nearly 21 percent of major transactions for the quarter happened in the entertainment-dense submarket, according to the report. That included Disney’s 115,674 square foot lease at Worthe Real Estate Group’s Tower Burbank at 3900 West Alameda Avenue, and Warner Brothers’ 108,167 square foot lease at 3400 West Olive Avenue.

Meanwhile Culver City, which has attracted tech titans like Apple and Amazon, clocked in with a 17.7 percent overall office vacancy rate.

Rates for the Westside submarkets were well above the average, with Beverly Hills/West Hollywood nabbing the top spot with $5.47 per square foot, according to the report. That was followed by Santa Monica at $5.39 a foot and Century City, at a $5.34 a foot. Culver City stood at $4.19 per square foot.

Premier office product also drove vacancy rates among the technology and co-working tenants, which signed on for a combined 690,000 square feet of space in the third quarter. Tech and the likes of so-called FAANG companies: Facebook, Amazon, Apple, Netflix and Google, preferred low- to mid-rise creative office campus layouts while more traditional industries like legal services, finance and insurance still opted for Class A high-rises.

Vacancy rates for prime Class A office product stood at 17.5 percent, slightly better than the overall office vacancy rate of 18.6 percent. Asking rates were also higher for Class A properties: $3.67 a foot compared to the overall asking rates of $3.46 a foot.

What’s the most expensive zip-code to rent an apartment in the U.S.? Manhattan.

What’s the second most expensive zip-code to rent an apartment? Manhattan.

What’s the third…you get the point.

Manhattan had the top three spots for priciest zip-codes to rent in the U.S., according to a new report in RentCafe, and seven of the top 10.

New York, L.A. and the Bay Area dominated RentCafe’s list — Boston is the only city outside of New York and California to make the top 50, and it doesn’t turn up until No. 32.

Of the top 50 zip-codes in the report, New York City had 28. Downtown’s Battery Park City neighborhood took the top spot, with an average rent of $6,211 a month.

Meanwhile, six of the top spots are in L.A. and 12 in the San Francisco Bay Area. The remaining four were in Boston.

In Los Angeles, the most expensive is Westwood’s 90024, where units average $4,944 a month, according to a report in RentCafe.

Westwood topped California zip-codes last year, too.

Beverly Grove came in right behind Westwood with an average rent just below $4,900, followed by San Francisco’s Rincon Hill and Mission Bay neighborhoods.

In L.A. County, around 58 percent of low-income households pay more than 30 percent of their monthly income on rent, and the county is short more than half a million affordable homes.

Developers want local and state officials to ease regulations to make it cheaper to build apartments. The state legislature responded to the crisis with a statewide rent control bill that cap rent hikes and limits evictions. It passed last month and still awaits Gov. Gavin Newsom’s signature.

A massive undeveloped plot of land that had been owned by late Microsoft co-founder Paul Allen just got a 27 percent price chop.

The 120-acre “Enchanted Hill” in Beverly Hills is on the market for $110 million, according to Redfin.

The property originally listed for $150 million in July 2018. Jesse Lally and Zach Goldsmith of Hilton and Hyland hold the listing. Allen died in October 2018 at 65.

The original listing came just two weeks before the now infamous Mountain of Beverly Hills hit the market. That 158-acre plot of dirt was offered at $1 billion. It took a $350 million haircut months later. It ultimately sold for just $100,000 at a foreclosure auction in August because the owner had accrued massive debt on the property.

Allen bought his sprawling property at 1441 Angelo Drive in 1997 for $20 million. His goal was to build a residence on the grounds, which comprise five flat lots. He demolished a Wallace Neff-designed, 20-bedroom mansion and installed a one mile-long private street but never developed the property.

It does include separate gated entrances and 360-degree views stretching from downtown to the ocean.

The listing is being billed as “the last of its kind,” offering buyers the chance to create their own estate with room for a fitness and wellness center, several guesthouses, equestrian facilities, winery or a sports arena. Allen was the owner of the NBA’s Portland Trail Blazers and NFL’s Seattle Seahawks.

He was estimated to have had a net worth of $20.1 billion at the time of his death, according to Forbes.

Fast-fashion retailer Forever 21’s bankruptcy filing earlier this week did not help the stock prices of the top mall real estate investment trusts in the country, already facing headwinds from declining foot traffic, nearly continual store closures and the rise of e-commerce.

Macerich, Simon Property Group, Brookfield Property Partners, Taubman Centers and Vornado Realty Trust saw their stock prices take a hit this week. Taubman’s stock price took the greatest hit, falling almost 10 percent to close Thursday at $37.49. Westfield-Unibail-Rodamco, which trades on the Euronext exchange in Amsterdam and Paris, also saw its price dip about €4.

Aside from Taubman, the other five landlords also represent some of Forever 21’s largest unsecured creditors. Cumulatively, the retailer owes them $20.9 million, bankruptcy court records show.
The S&P 500 also is down about 56 points since Monday’s open, taking a tumble Tuesday after a key metric for the manufacturing sector contracted in September to the worst reading in a decade.

To some extent, mall owners had braced for Forever 21’s filing, which was expected throughout the industry, experts said. For example, Simon’s stock drop — closing Thursday at $147 after trading around $155 per share over the prior week — may be related to Forever 21’s filing but is likely also tied to broader concerns about retail, said James Shanahan, an equity analyst at Edward Jones.

Mall owners also tend to have internal “watch lists” of tenants potentially headed for trouble, said Kevin Brown, an equity analyst covering REITs at Morningstar.
“They get the sales numbers from their tenants so they have the insight as to how their tenants are doing … Generally the mall REITs are not surprised and they start taking actions in advance,” said Brown.

But the constant drumbeat of store closures is making it hard for many mall REITs to outperform, according to Shanahan. Edward Jones cut its buy rating of Simon to a hold.

Unlike other real estate investment trust sectors, enclosed mall REITs are among the worst-performing so far this year, experiencing one-year return losses of 13.5 percent, research released by Barclays earlier this week shows. The only sector performing poorer was hotels, with return losses of 14.9 percent.

The stronger-performing REIT segments tend to be those with long-term leases that are not prone to cyclical changes — think healthcare and industrial properties, said Morningstar’s Brown. While malls also hold long-term leases with their tenants, there is too much uncertainty with some tenants. “The total number of stores closing is a record number in 2019 and we still have three more months to go in the year,” Brown said.

After it filed for bankruptcy, Forever 21 said it would close at least 178 stores across the U.S., and that figure might change. Meanwhile, other retailers are closing up shop; also bankrupt Payless ShoeSource opted to close all of its over 2,300 stores.

In WeWork’s first all-hands meeting since Adam Neumann was ousted as CEO, company executives sought to reassure employees about the strength of the firm’s business model, but made clear that layoffs were coming.

Miguel McKelvey, who co-founded WeWork with Neumann in 2010 and now holds the title of chief culture officer, kicked things off by telling employees the company’s recent stumbles shocked him, according to sources who attended. He reminded workers of the company’s core values — the ones detailed throughout its S-1 filing — before turning the floor over to WeWork’s newly minted co-CEOs.

The company’s latest funding round in January, led by SoftBank, valued it at $47 billion and made it one of the country’s most valuable startups. Its rapid growth has made it the largest private tenant in prime markets such as Manhattan and Central London. However, on the road to its IPO, that valuation was heavily scrutinized, as was Neumann’s controversial behavior and his potential financial conflicts of interest. The company has seen its reported valuation plunge at least two-thirds since then. Neumann stepped down as CEO late last month and on Monday We pulled its application to go public.

Co-CEOs Sebastian Gunningham and Artie Minson, who until last week were vice president and CFO, respectively, reassured employees that the company’s business model was sound. Yet they made clear that job cuts were coming, noting that all departments were being “evaluated.”

Executives apologized for not informing employees of changes at the company in advance — many heard about the executive shakeups and other overhauls through the media — and said that now that the We Company had withdrawn its application for a public offering, communication would be streamlined.

Bloomberg first reported some details of the meeting Thursday evening.

WeWork has already cut ties with 20 of Neumann’s inner circle, including his wife Rebekah Neumann, who joined the company years after its founding but was billed as a co-founder and took on an increasingly prominent role until recently. WeWork also let go of its “Made by We” staff. On Thursday, hours after the company meeting, Business Insider reported WeWork might lay off between 10 percent and 25 percent of its roughly 12,500-person staff. Others have predicted that the layoffs could be far broader.

The all-hands meeting was held Thursday afternoon at WeWork’s Chelsea headquarters on West 18th Street and broadcast to the entire company. WeWork declined to comment.

WeWork has taken some unusual cost-cutting measures. At one location the company has for months been watering down mouthwash stocked in its bathrooms, according to an employee who works there. And to trim a roughly $4,000 per month budget on cold-brew coffee, the tap is now only open six hours a day.

David Jeans contributed reporting.

Just a few months after New York passed historic reforms that infuriated landlords and thrilled tenants — with California following suit — several Congress members and presidential candidates are throwing their weight behind even more aggressive proposals.

Mostly promoted by Democrats on the far left, those policies include the mid-September doozy from U.S. Sen. Bernie Sanders calling for nationwide rent control under his $2.5 trillion housing plan. Despite more than two dozen states prohibiting limits on what landlords can charge, Sanders wants to cap annual rent increases around the country at 3 percent, or 1.5 times the consumer price index, whichever is higher.

Sen. Elizabeth Warren, who’s also gunning for the White House, has a slightly less contentious proposal: adding more supply to help lower prices in the rental housing market. But Warren hopes to build millions of new apartments with tax hikes on the wealthy, and her call to relax zoning rules for more construction could rankle rich and poor alike.

Rep. Alexandria Ocasio-Cortez, the first-term congresswoman who represents parts of the Bronx and Queens, is another high-profile politico with lofty goals.

Ocasio-Cortez recently took aim at “market-controlling landlords” with her $16.5 billion housing plan and wants to greatly expand tax relief for middle-class home loan borrowers at the expense of tax deductions for the wealthy. Additionally, the sweeping Green New Deal bill, which she and Sen. Ed Markey of Massachusetts co-sponsored this year, could force landlords to make big energy-efficiency upgrades to their buildings. And with a projected cost of between $50 and $90 trillion, the federal plan would be mostly covered by tax revenue.

The millennial congresswoman, widely known as AOC, has quickly become a national force with close to 5.5 million Twitter followers. In her rapid rise, she’s also earned the wrath of Republican critics, while other political upstarts have followed in her footsteps.

Here’s a breakdown of some of the hotly contested real estate agendas coming out of Washington in 2019.

$1T

An estimate of the total damage to coastal properties and public infrastructure if global temperatures rise 2°C above pre-industrial levels, according to the Green New Deal. The bill calls for no more fossil fuels and the switch to 100 percent clean energy by 2029, while new and existing buildings would need to adopt “maximal energy efficiency.” A similar proposal in New York City became law in May.

7.4M

The amount of affordable housing units that would be built or fixed up under Sanders’ proposal, at an estimated cost of $1.48 trillion. The Vermont senator has also vowed to create 2 million new mixed-income apartments and make Section 8 vouchers an entitlement for all Americans, while national public housing would get $70 billion in improvements, including high-speed internet access.

$4B

“Emergency funds” to be set aside for middle-class rental housing, outlined in Warren’s American Housing and Economic Mobility Act. For borrowers who owe more on their mortgages than their homes are worth — a casualty of the last recession — the Massachusetts senator wants to allocate $2 billion. She is also promoting a $500 million investment in rural housing and $2.5 billion in grants for apartments for Native Americans and Native Hawaiians.

14,000

The number of families expected to pay higher inheritance taxes under Warren’s proposed housing plan. Lowering the trigger for inheritance taxes to $7 million — where it stood during George W. Bush’s presidency — from $22 million could generate as much as $500 billion over a decade, Warren says. The new revenue would lead to “millions” of new homes and reduce housing costs by 10 percent, she argues.

1968

The year Congress passed the Fair Housing Act — which bans discrimination in home sales and rentals. But Republican Sen. Mike Lee of Utah wants to cut off the funding to enforce the law. His Local Zoning Decisions Protection Act of 2017, co-sponsored by Sen. Marco Rubio of Florida, would prohibit the use of federal money to investigate compliance, which Lee and Rubio call ineffective and wasteful.

100%

Presidential candidate and former HUD secretary Julián Castro has vowed to award generous tax credits to renters who earn up to 100 percent of their area median income. The promise is part of his sweeping housing plan, which could cost close to a trillion dollars over a decade. Like several of his peers, Castro wants to cap the max amount renters spend each month on housing costs at 30 percent of their income.

8M sq. ft.

The size of Amazon’s proposed Long Island City campus — before the e-commerce giant killed its offer in the face of local opposition. AOC and State Sen. Michael Gianaris came out against the plan to award Amazon $3 billion in subsidies for the creation of up to 25,000 new jobs. But Gov. Andrew Cuomo and other proponents of the deal argued that those incentives were necessary since Amazon was considering other locations. The company now plans to anchor its “HQ2” in Arlington, Virginia.

Every day, The Real Deal rounds up Los Angeles’ biggest real estate news. We update this page in real time, starting at 9 a.m. PT. Please send any tips or deals to tips@therealdeal.com

This page was last updated at 9 a.m. PT

Onni Group’ Olympic & Hill tower gets a new silhouette. After the City Planning Commission asked for a more distinctive roofline for the 60-story project in Downtown L.A., Chris Dikeakos Architects scrapped the boxy design and added some angled screens and a sloping trellis. The project will return to the planning commission for approval. Staff also recommends Onni pay $12.7 million to the city for the transfer of air rights for the tower. [Urbanize]

Los Feliz homeowners readying a house for sale find time capsule behind chimney. The sellers found a time capsule in the wall of their 1937 Spanish-style bungalow, left by its original owners, Nathan and Clara Pallow. In the capsule, they describe plentiful fruit groves, dismiss earthquakes as “Florida propaganda” and provide the design philosophy of the home. The house is now on the market for $1.8 million. [LAT]

Asking price slashed for late Paul Allen’s 120-acre Beverly Hills development site. The pool of buyers for large undeveloped hilltops in the 90210 appears to be thin. Two months after the Mountain of Beverly Hills was practically given away at a foreclosure auction, Allen’s “Enchanted Hill” property got a $40 million price chop from $150 million to $110 million. [TRD]

Michael Shvo and partners snag $190 million construction loan for Beverly Hills condo project. The development team picked up the shovel-ready site on Wilshire Boulevard for $130 million in May and now have cash in hand to break ground. Bilgili Group and Deutsche Finance are working with Shvo on the project. [TRD]

Westwood is the most expensive place to rent in the country besides Manhattan’s Tribeca. A report by RentCafe found that all but four of the most expensive ZIP codes in the country are spread between New York, L.A., and San Francisco. Westwood and Beverly Grove were behind only three ZIP codes on lower Manhattan’s west side in terms of average rents. Six of the most expensive areas are in L.A. and a dozen are in San Francisco. [TRD]

Tova Capital buys Culver City’s popular Samy’s Camera building. The firm paid $8.2 million for the 12,000-square-foot building at 4411 Sepulveda Boulevard. The building is a 1989-built replica of Downtown L.A.’s Union Station. Tova plans to renovate it as offices. [LABJ]

Forever 21’s bankruptcy was bad news for mall stocks. Macerich, Simon Property Group, Brookfield Property Partners, Taubman Centers and Vornado Realty Trust all saw their stocks take a hit after the news. The fast-fashion retailer said it would close 178 stores this year. [TRD]

The stock market sell-off is a boon for homebuyers. Rates on 30-year fixed mortgages are down to 3.62 percent, a 1.25 percent year-over-year change. That means a savings of $225 a month for a $300,000 mortgage. [CNBC]

It’s worse than initially thought for Bed Bath and Beyond. The houseware retailer will shutter 20 more stores than previously expected, bringing the total to 60. A full list of closures has not been released. [NYDN]

Last year, more than 80 tenants at three neighboring Westlake apartment buildings refused to pay rent after the landlord announced sharp monthly hikes.

The strike eventually ended and a year later, the complex has sold as a portfolio. The sale price was $48.3 million for all 192 units. They are located at 131, 143, and 171 S. Burlington Avenue.

The buyer is Chicago-based 29th Street Capital, according to Curbed. The company plans to renovate the properties, told tenants they need to vacate while that happens and may raise rents as much as $600 a month, according to the report.

Two executives at the company, Stan Beraznik and Jason de Guzman did not immediately return requests for comment.

The seller is a trust linked to Valley Village attorney Lisa Suzanne Ehrlich-Cupack, who has owned the portfolio since 1994, property records show. Transwestern Commercial Services agents Josh Kaplan and John Swartz represented the seller.

Last spring, tenants in at least 85 of the units began withholding rent after the landlord raised it $250 a month. The group, calling itself Burlington Unidos, ended the strike some time before the fall, and in November, the management company started eviction proceedings for 16 tenants who had participated.

The L.A. Tenants Union helped organize the strike and has organized others in the city. The LATU did not return requests for comment on the sale.

Some lawsuits related to the evictions are ongoing. Some tenants told Curbed that they had not been formally notified of the property sale, but all tenants at one of the buildings were informed on Tuesday that they had 30-60 days to move out of their units to allow for renovations. After that, they could return, they were told.

The notices also said there would be rent hikes that appear to exceed the increases that prompted the rent strike. A one-bedroom tenant said he was told his rent would increase from $1,300 to 1,900 following the remodel.

All three were built in the late 1980s and in January, could be subject to a statewide rent cap under Assembly Bill 1482 if Gov. Gavin Newsom signs the bill into law.

The bill’s annual rent cap — 5 percent plus inflation — would apply to all units older than 15 years unless they undergo a significant renovation. The bill also requires landlords to compensate evicted tenants for relocations unless they can meet certain criteria, such as proof of non-payment of rent.

Because the measure wouldn’t take effect until January 1, 2020, some sources told The Real Deal that they expect a flurry of sales and evictions through the end of the year as investors shed 1482-eligible properties and look to maximize rents before the cap kicks in.

Some industry pros worry the measure will diminish investor interest in multifamily properties across the state, but others expect it to have little impact on activity.

Referencing AB-1482, Kaplan said in a statement that the portfolio deal “shows that despite the concern over rent control legislation, there is still very high investment demand for multifamily properties” in the Westlake area.

A glut of luxury listings in Los Angeles — particularly spec homes and particularly in the Bird Streets — has lingered on the market, forcing numerous sellers to deeply discount their original and often “aspirational” asking prices.

But Farzin Aghaipour, a tech executive and developer of a spec home on Bird Streets, believes.

Aghaipour — through an LLC — listed his newly-built 17,000-square-foot estate at 9268 Robin Drive for $42.5 million, according to Redfin. The vice president of cobrowsing company Samesurf — bought the property for $5.6 million in 2013, records show. He demolished the existing home then built a two-story contemporary structure designed by Swiss and L.A.-based XTEN Architecture. It was completed this year.

Branden Williams of Hilton and Hyland and Kurt Rappaport of Westside Estate Agency have the listing. The home has six bedrooms, eight bathrooms and includes “stones that were curated across the globe,” according to the listing. It includes a chef’s kitchen, home gym, infinity pool, private spa, screening room and wine cellar.

Just last month, tech guru Lynda Weinman, sold her 12,530-square-foot Bird Street mansion at a deep discount.

The sale price of $16.5 million, was far below what the $27 million she paid for it two years ago.

At Marlins Park on Super Bowl weekend in February, thousands of aspiring entrepreneurs watch as a black Rolls-Royce SUV with tinted windows roars onto the stage amid a cloud of smoke. Over the loudspeakers, the song “Nuthin’ but a “G” Thang” plays as Snoop Dogg steps out of the driver’s seat.

But his passenger is the real star of the day. Donning dark sunglasses along with a black sweatshirt with the words “10X” in gold lettering, the 60-year-old, gray-haired Grant Cardone walks alongside the rapper, singing to the lyrics into a microphone.

A speaker, author, business consultant and real estate investor, Cardone has amassed more than 2.4 million Instagram followers who look to him for advice on how to grow their businesses. In Miami, he held a three-day conference as part of his 10X Growth Tour — named for his goal to grow your business 10 times.

“The whole world knows about Miami, Marlins stadium and Grant Cardone putting 35,000 people for three days at that place during Super Bowl weekend,” Cardone said in an interview with The Real Deal.

Cardone’s social media posts portray him as a person of great wealth and success. In one Instagram post he boards a private plane with the caption, “You can’t get rich by acting poor.” In others, he’s traveling the world and meeting with celebrities such as boxer Floyd Mayweather. On his website, you can buy wristbands that say “Don’t Be a Little Bitch,” which to Cardone means: stop complaining about your problems.

The Louisiana native’s real estate company, however, is much less bombastic than his events or his lifestyle. Based in Aventura, Cardone Capital only buys apartments across the Southeast where rents average less than $1,500 per month, he said. The company paid about $90 million for the 346-unit Atlantic Delray Apartments in Delray Beach in October 2018. In July, the company bought a 501-unit apartment complex at 2903 Northwest 130th Avenue near Sawgrass Mills in Sunrise for an undisclosed price. In the first seven months of this year the firm completed almost $350 million in deals.

Cardone’s thesis is simple: The American dream of homeownership is dead, and everyone is going to move to apartments.

“You got 75 million millennials that don’t want to own anything. They wouldn’t own their tennis shoes if they could just lease them,” Cardone said.

He is now opening up his real estate investments to his social media followers who can invest in his fund with a minimum of $5,000. Cardone, who is speaking at The Real Deal’s 6th Annual Showcase & Forum on Oct. 17, talked to The Real Deal about his investment strategy and how he got into real estate.

How did you get into real estate investing?

I will never forget it, it was 30 years ago. It was $78,000. I put $3,000 down and I bought a house, and I thought I was going to be a real estate mogul. I rented it to Janet and her sister, Jill. I think I was making $180 bucks a month. I said, ‘Oh man, I am going to get rich doing this.’ Then they moved out about five or six months after living there. Then I realized I was responsible for the payment of the house. Then I was like ‘Oh my gosh, I can’t do this.’ I was 28-years old, it was a single-family house in Houston, Texas.
I sold that house because I realized it was something that I didn’t know. I got my money back, sold the house to a guy who did know what he was doing. I spent the next three years studying apartments, which is the only thing that we focus on now, which is buying apartments. I did my first real apartment deal in San Diego, California. It was $1.9 million and it was 38 units. Then we were off to the races.

Why did you switch from single-family homes to apartments?

Real estate wasn’t my first business. I had two other companies and I was doing consulting for companies. But I always had a love affair for real estate. When I did the single-family home, frankly, I bought based off what money I had. I didn’t do a lot of research. I just did the easy thing. I got the loan with almost no money down. And I could buy the house and rent it to someone else.
So when they moved out, I realized there was something I don’t understand. There was a risk, there was a risk of having to pay a note. So I went and studied other super real estate investors like Sam Zell, Donald Bren and Fred Trump. What did these guys create? These guys, by the way, are not super genius people. I could relate to them, these are all kind of blue-collar people.
They all have one thing in common. They had scale. They have apartments, they all did affordable. So my next deal, it would be in three years. For those three years, every weekend I would shop real estate. I was in Houston at the time and I moved to San Diego. I would read deals and shop deals and bought my first deal in San Diego three years later.

What are the markets you would avoid?

California and New York. You couldn’t convince me to do a deal in California. It’s about who actually owns the real estate. They are so tenant-friendly that I can’t move a non-paying tenant out. And if I can’t move a bad tenant out, then I can’t take care of my property and all of my good tenants. You got other problems in both those places, you have water and trash problems. We are not ready to scale to those markets. Even if I wanted to, we are not ready to scale to those markets.
I like tax-free states. I like job migration. Neither one of those states, California and New York, have positive job migration. We are looking for a very affordable band of real estate. Our average rental is probably $1,100 to $1,300 [per month].

Where is tenant demand coming from for your properties in South Florida? Are people just getting priced out of single-family homes?

I think that people don’t even want single-family homes any more. I think the preferred way of living is going to be an apartment complex. The [D.R.] Hortons, the big homebuilders are building more apartments because they don’t want to say this publicly, but the American consumer is not inclined to buy a home today.
You got 75 million millennials that don’t want to own anything. They wouldn’t own their tennis shoes if they could just lease them. Then you have 80 million baby boomers who have already owned a home, [who] know it is not the American Dream.
You got half of the population who is interested in mobility rather than in home ownership. This will play out over the next decade or two. We bought the debt deal in Delray [Beach]. That swimming pool had to cost $2 million to build. Well, where could I get a $2 million swimming pool? The house would have to be $30 million to build a $2 million swimming pool.

Is there an oversaturation of upper Class A apartments in Miami?

I think there will end up being an oversupply. The real issue is that we don’t have income growth in America. I get concerned about all these places that are going up that support someone not at $2,200 [per month in rent] but at $4,000. I don’t know why we need all these $4,000-$4,500 per month apartments.

Are you buying in Miami right now?

We are buying, but we are very, very selective. You got to be careful right now.

Why are you careful?

You got to be really careful in location. That’s not just in Miami. In Houston, you have to be very careful on location. People should be preparing for a recession. I want to be recession-proof. I don’t want to be beat up. At the same time, I don’t want to wait for a recession to buy property.

Are you noticing any signs in the real estate market that a recession is imminent?

I wouldn’t look for a recession just in the real estate market. I would look for it in the everyday person. I am looking at what people can spend money on. If you look at the auto industry, the cars that sell best, there is a direct correlation between the subsidy offered by the manufacturer and how well that car sells.
The high-volume activity in the automobile sector is driven by subsidiaries, no money down, very low and no interest rates. You could say the same thing about the furniture industry, meaning people don’t have the down payment to make discretionary purchases.

What attracts you to invest in South Florida?

I left California, I moved here seven years ago. A lot of people are following me over since then. Now you got New York coming down here… I like our politics. I like that we don’t have a state income tax. I like the warmth. Older population prefers warm weather during the year. I just finished traveling, we did 19 countries in two months for the 10X tour. I’ve been to Singapore, Dubai, London, Malaysia, and Thailand. I’ve been to some beautiful places. Every time I fly back into Miami, I say, ‘Damn this place is beautiful.’ When other people come here, they see that… I am always looking at deals here as long as it is a cash-flow positive deal even in the face of a contraction.

How are you financing your real estate deals?

We raised about $250 million in the last 20 months using social media. I raised a quarter of a billion without using a family fund or an institution and without running ads and bringing anyone to dinner. This is a story by itself. $250 million, 20 months and our advertising spend is negligible. No fees, no brokers to raise the money. Its Instagram, Facebook and LinkedIn.
I buy the deals with my money. Once they are stable and cash flow positive, we then offer it on Instagram or Facebook or LinkedIn and say, ‘Hey you can invest in this with me.’ Rather than invest in family funds or go to traditional institutional lenders for equity, we use crowdfunding via social media.
The equity comes from me first. I write a check for the deal, I get traditional lending from Fannie [Mae] and Freddie [Mac] or a life insurance company, then I backfill the equity from my social media following which is shy of 20 million people worldwide.

What’s the minimum investment?

$5,000 for a non-accredited fund.

What are your expected returns?

We target transactions that we believe can deliver 15 percent annualized to the investors after expenses.

How did you get into motivational speaking?

I take offense to being called a motivational speaker. I am an educator. When I was 31 years old, I was helping companies increase their revenues. It started with small companies. Then a small company introduced me to a bigger company. Then I was introduced to Nissan Motor Company. I have been working with companies for 30 years on how to raise their revenue. It just so happens if people aren’t motivated about raising their revenues they probably won’t raise their money.

When did you start going overseas on these tours such as the 10X?

We started doing that about a year and a half ago when some people called. We put 35,000 people at the Miami event. Once we did that last February, the phone rang off the hook. More people were in the Marlins stadium that weekend than have ever been there for months at a time, by the way. The whole world knows about Miami, Marlins stadium and Grant Cardone putting 35,000 people for three days at that place during Super Bowl weekend. So, how ballsy is that?
We raised almost $15 million at that event in 90 minutes for our real estate.

What is the question that you get most commonly asked?

How do I grow a business? Guys in startups, a guy that is making a million dollars a year. I attract people that want to grow things. So, in real estate you are buying 30 units — how do I grow my portfolio?

You live in Sunny Isles Beach? Do you plan to stay there?

I got two kids, an eight-year-old and a 10-year-old, we own the office here, 25,000 square feet in Aventura. I would buy all the apartments in Aventura. It’s just impossible to move around here… People are going to choose renting over owning in the future. It’s going to become obvious to everyone.

Any other plans you have in the future?

In the next three years, I am going to raise $3 billion in cash to build a $10 billion real estate portfolio using social media. It’s never been done before. I am going to do it without paying agents and fees. No brokerages. About 25 percent of the money is coming from retirement accounts, self-directed 401Ks. Without any brokers involved, without any licensed agents.

The market may be down, but these real estate executives are doing just fine.

Almost 50 industry titans, including Stephen Ross, Charles Cohen and Jeff Greene, made this year’s Forbes 400 list, which ranks America’s wealthiest people.

Warren Buffett was tops among those with real estate chops and was number three overall, with a net worth of $80.8 billion. Other big wigs from the sector were Blackstone’s Jonathan Gray (number 225), Irvine Company’s Donald Bren (32) and Red Apple Group’s John Catsimatidis (319).

Developers were also well represented, with Sheldon Solow (148), Jeff Sutton (179), Jerry Speyer (187) and Ben Ashkenazy (207) all making the list.

The youngest real estate billionaire in the top 400 was Nathan Blecharczyk, the 36-year-old co-founder of Airbnb, who is worth $4.2 billion. The company’s other co-founders, Brian Chesky and Joe Gebbia, both 38, also cracked the ranking with net worths of $4.2 billion, putting them in equal position at number 168.

President Trump, with a net worth of $3.1 billion, slipped 16 spots to 275th.

In addition to real estate professionals, the list also included some buyers and sellers of high-profile New York properties, including Amazon CEO Jeff Bezos (1) and hedge funder Ken Griffin (38). Earlier this year, Bezos dropped $80 million for three units inside the luxury condo 212 Fifth Avenue, while Griffin set a national record with his $238 million purchase of a penthouse at 220 Central Park South. [Forbes] — Sylvia Varnham O’Regan

They’re just like us. Celebrities get married and buy new homes. They also get divorced and sell former love nests. So far this month, we’ve seen a bit of both, plus the routine price-chops.

In a move that may be wishful thinking or pure chutzpah, producer Joel Silver put his 26,000-square-foot Brentwood mansion on the market for $77.5 million, according to the Los Angeles Times. Silver, who helmed franchises “Die Hard,” “Matrix” and “Lethal Weapon,” sold his Malibu estate for $38 million last year, after originally listing it for 2017 in $57.5 million.

Michael and Eva Chow, founders of celeb-favorite Mr. Chow, meanwhile dropped the asking price for their 30,000-square-foot Holmby Hills mansion. The estate, which comes with a three-story guest house, entertainment complex and outdoor ballroom, is currently listed for $70 million.

“No Doubt” that Gwen Stefani and her ex-husband Gavin Rossdale were ready to bid adieu to the Beverly Hills estate they once shared. The performers sold the Mulholland Drive home they originally listed for $35 million for $21.7 million after it sat on the market for three years.

Nick Jonas, who recently tied the knot with actress Priyanka Chopra, fared better in his real estate dealings. Jonas sold the 4,129-square-foot Beverly Hills home he bought in December 2018 to tennis star Naomi Osaka for $6.9 million. The five-bedroom, 4.5-bath mansion was built in 1965 and completely overhauled by former owner and L.A. nightlife impresario Jason Lev. Jonas had paid $6.5 million

RuPaul scooped up a dramatic European-style home in Beverly Hills for $13.7 million, according to the LA Times. The 10,000-square-foot mansion, which features a two-story chandeliered foyer with marble and wrought iron, originally hit the market for around $20 million in 2018 before the asking price was slashed to $16.4 million in May. [LAT] — Alison Stateman

Fresh off acquiring one of the largest industrial portfolios in history, Blackstone has turned around and sold a piece of it.

Blackstone unloaded a 100-building portfolio valued at $3 billion to Nuveen, the real estate investment arm of the Teachers Insurance and Annuity Association of America, Nuveen announced Monday. Eastdil Secured advised Blackstone on the deal.

The breakdown of the deal was not immediately clear and neither was its acquisition price. Nuveen said the portfolio spans 12 markets, from Southern California to Northern New Jersey, and about 29 million square feet. Other markets the buildings are concentrated in include Dallas, Chicago, Baltimore and Washington, D.C.

Nuveen and Blackstone declined to provide additional information beyond Nuveen’s announcement.

The deal comes after Blackstone last month closed on the purchase of a 179 million-square-foot logistics portfolio from GLP for $18.7 billion, making it one of the largest real estate deals ever. Nuveen was among the lenders that helped finance that transaction. Nuveen’s purchase is part of the GLP portfolio, according to a source familiar with the transaction.

Also last month, Blackstone announced it will buy Colony Capital’s 60 million-square-foot warehouse portfolio for $5.9 billion.

During a recent earnings call, Starwood Property Trust CEO Barry Sternlicht broached a touchy topic in the real estate world: the possibility of a recession.

The head of the $56 billion real estate investment trust told investors and analysts that “the only thing we have to worry about is a calamitous recession,” warning of a slowing economy largely thanks to the national political environment.

Specifically, Sternlicht said Starwood needs to be “über-careful” in the hotel sector because of a potential oversupply.

Developers have, in fact, been churning out hotels at a blistering pace. And New York is one of several U.S. cities (along with Miami) that have seen a boom in hotel construction.

As of May, there were more than 18,700 hotel rooms across 112 new developments under construction or being planned in the five boroughs, according to NYC & Company, the city’s tourism arm. That includes a 128-key Hotel Indigo in the Financial District and a 137-key Six Senses resort and spa at HFZ Capital Group’s “the XI” development in Chelsea.

Meanwhile, Marriott and hotelier Ian Schrager opened their roughly 450-room Edition hotel in Times Square this year, and just last month the same chain opened a 285-room Moxy in the East Village.

Those properties are just a few of the newbies. If all of the planned rooms are built, there will be nearly 139,000 rooms citywide by the end of 2021 — a 15.5 increase over the middle of this year, NYC & Company’s data shows.

A second-quarter report from the financial firm PwC painted a less-than-rosy picture for the Manhattan hotel market.

“Continued increases in supply, coupled with pressures on demand stemming from continued trade tensions and slowing economic growth, are having a profound impact on Manhattan hotels,” PwC’s Warren Marr said in the report. “In addition, inbound leisure travel from China was also impacted due to the devaluation of the yuan.”

Others — including Jim Butler, who chairs the global hospitality group at L.A.-based law firm Jeffer Mangels Butler & Mitchell — said pricing for properties in top U.S. markets like New York has generally peaked, making it a good time to sell.

“It’s still a good market and they’re getting good prices,” he said, noting that there is good reason to invest in “irreplaceable locations and buildings.”

But, he said: “It’s great to diversify risks and good to be taking chips off the table.”

How many chips to take off the table is the big question.

The hospitality industry has historically been a canary in the coal mine — one of the first segments in real estate to get hit when the market starts turning. That’s because it’s low-hanging fruit for both consumers and businesses to cut back on hotel stays.

In the wake of the 2008 financial crisis, the key metric for gauging hotel performance — revenue per available room, or RevPAR — plummeted nationally. And New York was hit harder than most, with RevPAR free-falling by 27 percent between October 2008 and 2009.

There are already red flags this time around.

In August, hotel research firm STR downgraded its projected 2020 RevPAR growth nationally to 1.1 percent from the 1.9 percent it had projected in June. And New York is the only major market in the country where STR projects a decline in RevPAR — albeit of just 0.8 percent — in 2020. Year-to-date RevPAR was down 3.6 percent in the city from the same period last year.

While economists have been chattering about a downturn for a while, all signs now suggest that it’s imminent. Most economists expect the recession to really hit in 2020, which is expected to be a particularly hard year for the hotel industry.

The Federal Reserve Bank of New York’s recession probability indicator — which gauges the likelihood of a recession within the coming 12 months — skyrocketed from around 10 percent at the beginning of 2019 to 37.9 percent in August.

Oversupply is a key concern for hotel owners in a recession, said attorney Joshua Bernstein, co-chair of the hospitality sector team at the law firm Akerman. Established hotels and brands are better positioned to weather a downturn, he said.

“New supply is generally a greater risk for [owners of less-established properties] because they have no existing reputation in the market and no cash flow to rely on, so they’re at risk of some large debt liabilities,” he said.

Exposure and opportunities

In New York, smaller boutique hotels, particularly those in the outer boroughs, are more vulnerable to a downturn than their larger Manhattan counterparts, sources say.

Boutique hotel development has exploded since the last recession, with nearly 40 percent of hotels planned since 2013 including fewer than 70 rooms, according to a July TRD analysis.

Smaller developers often build boutique hotels outside of the city’s core. But those properties are at risk in a down market, said Douglas Hercher, principal and managing partners of hospitality investment banking firm RobertDouglas.

“In a recession, the market pulls back into Manhattan,” said Hercher. “Those assets that aren’t as conveniently located can suffer — Secaucus, Brooklyn, Harlem.”

In New York, developers and lenders have yet to show much concern about a potential turn in the market.

In March, Bank Leumi USA issued a $45 million construction loan for Maddd Equities and Joy Construction’s 203-room project on West 48th Street in Hell’s Kitchen. That same month, Lightstone Group refinanced its recently opened 349-key Moxy Chelsea with a $155 million loan from LoanCore Capital and KSL Capital Partners.

Goldman Sachs is also betting on the sector. It refinanced the debt on at least two hotels this year — $115 million for the Sapir Organization’s 264-room NoMo and $88 million for CBSK Ironstate’s 249-key Pod Hotel in Brooklyn.

While CMBS hotel debt is still available in major markets, including New York, it’s not coming as easily as it is for office properties and other assets, said Manus Clancy, a senior managing director at Trepp, which tracks securitized mortgages. Overbuilding — and a handful of delinquent loans — have led to closer scrutiny from lenders.

“People want to see stronger financials, less leverage, a longer track record [from borrowers],” Clancy said. “People are cautious, but its still available.”

Still, Clancy said, many owners may be insulated this time around by long-term financing that will carry them through a recession.

To some extent, he added, the narrative of a looming recession “has got ahead of the reality.” But, he said, there’s a consensus that the unprecedented 10-year economic expansion is nearing its end.

“There’s one perspective that we’re in the eighth inning of the rally,” Clancy said. “But some people think we’re in the first inning of a recession where the first pitch really hasn’t been thrown yet.”

As of early September, 7.7 percent of the $3.9 billion CMBS loans for hospitality properties in New York were in some stage of delinquency, according to Trepp. By comparison, only around 2.6 percent of the $3.9 billion in hotel-backed CMBS loans in L.A. are in delinquency, and none of the $3.9 billion in South Florida are.

Strong tourism in New York has kept occupancy relatively high — it’s hovered above 85 percent since 2013. But for every month this year, those rates have been down over last year.

In May, the Miami-based Safe Harbor Equity launched a $100 million distressed debt fund and then doubled its target a month later after garnering strong interest during fundraising tours in Europe and Asia. Raphael Serrano, the firm’s managing director, said the fund — which will target all commercial assets, including hospitality and retail properties — is focusing on South Florida but will also look to other major markets, including New York, Texas and California.

Safe Harbor’s goal is “to be well-positioned for the oncoming economic headwinds that are being forecasted,” Serrano said in May.

A recession may not even be the most worrying challenge ahead for hotel builders in New York.

Construction and labor costs are already contributing to struggles for developers in the Big Apple, Miami, California and elsewhere.

In New York, rising costs are baked in balance sheets for the next seven years. That’s because in 2015, the Hotel Association of New York City — which represents hotel owners — extended a 2012 deal to increase wages for bar and restaurant workers through 2026.

HANYC President and CEO Vijay Dandapani said that while labor costs are a concern, an even bigger issue in New York is property taxes.

“Real property taxes are a real bite,” Dandapani said. “On a macro level, we’ve been working on this for years with the Department of Finance.”

High costs become that much more problematic when RevPAR takes a hit.

“I think the scariest thing is that costs right now are for the first time in years going up faster than RevPAR, particularly for labor,” said Butler, speaking about the national landscape but also noting that it’s a concern in New York.

He said it’s crucial for hotel investors to be capitalized going into a downturn. “The best thing you can do to prepare for a downturn is make sure you have ample equity and funding,” Butler said. “The hotel industry is cyclical — they’re going to be back, but if you can’t get through the downturn, you could lose your property.”

He noted that when consumer and corporate clients start to cut back on expenses, the luxury hotel industry tends to cut room rates. That, he said, creates a “suicidal” downward spiral. Hotel owners would be wise to hold steady on pricing in the event of a slowdown, he said.

Larry Wolfe — vice chairman and co-head of the Lodging Capital Markets group at Newmark Knight Frank — also noted that owners usually cut their room rates if occupancy dips.

“In New York there seems to be infinite demand for cheap rooms, so occupancy stays up but rates don’t hold and [owners] tend to cave,” Wolfe said. “So if declines in the bottom line accelerate, inevitably there will be more situations that become somewhat distressed.”

Black swans

The hotel market has been underperforming for a while now.

In 2017 and 2018, national RevPAR growth was the weakest it’s been since the recession — at around 2.9 percent annually, according to STR.

RobertDouglas’ Hercher cautioned that the recent declines in fundamentals are more a function of “oversupply” and “post-peak pricing” than a recession.

“What we haven’t seen in a way that I would be willing to say demonstrates — or is evidence of — a recession,” said Hercher, who represented KHP Capital Partners in its $67.6 million sale of the 205-key hotel at 70 Park Avenue in 2016. “Declines in [room rates] and occupancy that appear to be a function of a drop in demand instead of new supply or unwillingness to pay a higher [rate].”

The prevailing view seems to be that when the next recession hits, it will be less severe than the last one. But Butler noted that there are always unknowns. 

“I am not pessimistic, I am optimistic,” he said. “But over the years, I’ve been through some cycles where there is an event that isn’t quite as big as a black swan, and we never see it no matter how hard we look. We never see it.”

Affordable housing under Los Angeles’ signature bond program simply isn’t affordable. In fact, it costs nearly as much as a market-rate condominium or a single-family home, according to L.A. City Controller Ron Galperin.

His office released an audit of Proposition HHH, the $1.2 billion affordable housing bond program, on Tuesday. It found that the 1,000-plus units funded through the 2016 ballot measure could exceed $600,000 per unit, making it unlikely that the goal of 7,000 permanent homes could be met.

Galperin implored the city to reduce costs, suggesting that it utilize modular construction methods, shared housing, and simplified financing. Any savings should go toward the construction of shelters and service facilities for the homeless, he said, according to the L.A. Times.

To construct affordable units, the city has sought to combine HHH bond funds, affordable housing tax credits, as well as federal and state dollars. The goal was to put $140,000 towards each unit, but costs were already up to around $151,000 per unit as of April. Part of the reason for the increase is because housing tax credits have been devalued and other government sources have been reduced.

Galperin’s audit mostly pegged increased costs on regulatory barriers, a long and expensive permitting process, high labor costs, and litigation against city efforts to make the permitting process faster.

Galperin said through a spokesperson that his office is “not saying we should be ashamed of HHH.”

“We’re saying we have a program that is not keeping pace with the crisis at hand,” he said. “We need to figure out what changes can be made so we can better fulfill the intention voters had when they approved this proposition.”

The city has funded around 5,400 HHH units as of June, but none have been built. As of June, 17 units were under construction and 59 units were in predevelopment. [LAT] — Dennis Lynch

About a decade ago, Westlake abandoned its affordable housing requirements for developers, after one prominent developer Geoff Palmer, appealed.

With Los Angeles’ housing crisis growing ever worse, things have changed.

Now, the city is looking to formally reinstate that a so-called “inclusionary zoning rule” that would again require developers to include affordable units.

The requirement was set aside years ago following an appeal by Palmer — a prolific multifamily developer — but changes to state law since then mean the requirement is valid again. The city has been enforcing it for the last year and now Councilman Gil Cedillo wants an ordinance to formalize that, according to Curbed.

The ordinance would add clarifications to planning documents regulating development in the neighborhood, and phase in the affordable requirements over a 120-period following its adoption to ease the burden on developers.

The inclusionary zoning requirements date to 1991. They require developers to reserve a certain percentage of new units for low-income renters. In 2009, Palmer challenged the requirement in state court after the city decided he must reserve some low-income units at his 350-unit Piero II project.

Palmer successfully argued that inclusionary zoning violated the Costa-Hawkins Rental Housing Act of 1995, which regulates rent rules across the state. In late 2017, the state passed Assembly Bill 1505, amending Costa-Hawkins and allowing for inclusionary zoning.

The city started to enforce inclusionary zoning last year, but there’s still some debate over the requirement. L.A.’s Transit Oriented Communities program encourages affordable construction near transit by providing developers who build there with incentives. But it doesn’t require the construction of affordable units.

In Westlake, developer Jade Enterprises planned its 369-unit apartment in the neighborhood, presuming the rule was not in effect. But last year, the city decided Jade must set aside 15 percent of the units as affordable, or about 55 units.
Jade successfully appealed the decision and is moving ahead without affordable units. [Curbed] — Dennis Lynch