Two-year-old coworking company Spacious has nailed down a deal to occupy the entire building that housed TGI Fridays in Union Square.

Spacious signed a 9,750-square-foot license agreement for the two-story building as well as selling basement at 34 Union Square East at the corner of East 16th Street, as The Real Deal first reported.

“It’s a fantastic location and it draws customers from all over the city,” Preston Pesek, the CEO and co-founder of Spacious, told Commercial Observer. “It was also [appealing because it was] available as a single whole-building occupancy agreement.”

The new space will mark the company’s fourth location with dedicated occupancy, part of a newer model for the firm, which has been offering—and still offers—coworking spaces during the daytime in existing restaurants.

Since opening the first pilot space dedicated to Spacious last November at 30 West 53rd Street between Fifth Avenue and Avenue of the Americas, “we have been able to offer our customers something after dinnertime,” Pesek said.

While it was not a lease deal and James Famularo of Meridian Capital Group, who brokered the deal for both sides, and Pesek declined to talk dollars and cents, Famularo said asking rents on the ground floor in that corridor run about $500 per square foot. The agreement allows for Spacious to be in the space for six months up to five years, depending on when the landlord sells the property. “It’s like an evergreen pop-up until we get a notice to vacate,” Pesek said.

“It’s a great creative way to monetize assets like this,” Famularo said. CO reported two days ago that there has been a trend of landlords leasing retail spaces for offices amid the changing retail landscape. Also, Famularo and Pesek noted, with Spacious open, the property is a whole lot more appealing to potential buyers or long-term tenants.

After barely hanging on in Union Square, TGI Fridays finally closed the location at the end of last year following a run of less than eight years. Riese Organization, the owner of the license for TGI Fridays in Manhattan, bought the building in 2009 for $15.3 million. Last month Riese hired an Avison Young team led by James Nelson and Todd Korren to market the property for sale with an asking price of $32 million. It offers 26,000 buildable square feet, per an Avison Young press release.

The sales approach follows an attempt to lease the property at the end of 2014.

Spacious launched in 2016 with a mission, according to its blog, “to transform empty space into a network of places where people can thrive.”

Last month, Spacious opened in about 2,200 square feet of ground- and lower-level space at Premier Equities’ 47 Seventh Avenue South near Morton Street, which was briefly home to Bar Works. The company operates in 15 New York City restaurants and eight eateries in San Francisco, each about 3,000 square feet, Pesek said. (These are profit-sharing deals.) Memberships start at $99 a month and go up to $129 a month. The company closed a $9.1 million Series A round in March, bringing the company’s total raise to $15 million in venture capital.

DSA Property Group‘s Arik Lifshitz has bagged a $42.9 million refinancing from a pair of New York-area lenders on a Financial District residential tower the developer owns, Commercial Observer can exclusively report.

Lifshitz will pay interest of 4.92 percent on the 10-year loan, according to Meridian Capital Group, whose Avi Weinstock and Josh Rhine strung together the financing deal. A source with direct knowledge of the transaction told CO that Signature Bank provided the capital stack’s senior debt, and that Keysite Capital, a niche lending firm led by Barry Seidel and Bruce Bruene, joined as a mezzanine lender.

The building, Fulton Plaza Apartments, includes 81 residential units and street-level retail at 106 Fulton Street, between Dutch and William Streets a few blocks south of City Hall Park. Two floors of the building are set aside for commercial offices, but that space is now vacant, Meridian said.

Still, residential leasing at the 15-story building has been brisk towards the close of 2018, according to data from StreetEasy. Renters have leased six units since the beginning of September, paying rates ranging from $2,295 per month for a 450-square-foot studio to $3,995 per month for a three-bedroom apartment of 925 square feet.

Just a decade or two since a time when New Yorkers routinely deserted Lower Manhattan outside of working hours, residential buildings have come to represent a growing stake in the district’s real estate economy. Today, apartment towers back about a third of the outstanding CMBS loans below 14th Street—a tidal shift since the early 1990s, when Lower Manhattan’s residential density was among the lowest anywhere on the island.

Lifshitz looked to cash in on that trend when he bought the Fulton Plaza building for $51 million in 2016, converting it to its primarily market-rate residential use from prior life as a dormitory for students attending Pace University. That acquisition and the renovation work that followed were funded by previous debt from Ladder Capital that the Signature and Keysite debt will extend to permanent financing.

The deal marks the second time the two lenders have yoked up to refinance a Manhattan multifamily building this month. The pair came together last week to extend $78 million in fixed-rate credit to the owners of a set of six buildings in Morningside Heights.

Lifshitz and representatives for Keysite did not immediately respond to inquiries.

Would Shakespeare’s Polonius have advised his son to “neither a borrower nor a lender be” if the Bard were writing Hamlet in 2018? It’s hard to shake the sense that lately, players from both sides have managed to snag consistently enviable niches.

Commercial real estate borrowers, on the one hand, are awash in more generosity from debt markets than they’ve been at any prior point in the business cycle, with capital markets seeing unprecedented competition. And savvy lenders, on the other—especially those who can leverage expertise in transitional deals—can strike upon lucrative plays by taking advantage of the gap between their cost of capital and the interest that debtors will pay.

That was the message from speakers on the “Cash Overflow” panel at Commercial Observer’s Fall Financing Commercial Real Estate Forum at the Metropolitan Club yesterday morning. Representing borrowers’ animal spirits was Meridian Capital Group senior managing director Ronnie Levine, a debt broker who couldn’t help but crow about the favorable agreements his clients had lately received.

“Pricing has contracted significantly,” Levine said near the top of the discussion moderated by Morrison & Foerster partner Mark Edelstein. A typical medium-term loan might be good for two or three years and extendable to five, but Levine said that lenders are so keen to extend capital lately that the tests that borrowers must meet to lengthen loan terms have eroded.

“We’ve had a good amount of success in getting some those tests either taken out completely, or watered down significantly,” Levine explained.

And that’s not the only mechanism at work to sweeten the deal for developers. As higher interest rates and increased lending competition combine to squeeze the distance between the premium that lenders can charge to borrowers and the dividends they owe to investors, lenders have scrambled to find ways to put more capital in the market—even offering borrowers more debt than they came to market for.

“When we go out for $50 million, oftentimes we’ll get a lender say, okay, we’ll lend you $60 million,” Levine said.

If there’s one tough chair to occupy in 2018, it might be at the head of an investment committee at a bit-player lender. Those firms must fight tooth and nail to compete for midsize loans, and some have eroded credit standards to meet investors expectations for cash flow, the panelists agreed. On the other hand, the financiers who joined Levine for the discussion, boldface names all, averred that at the top end of the finance market, their firms have the market power to soar above the fray.

Jeffrey DiModica, president of Starwood Property Trust, was most vocal about his firm’s willingness to put down its foot to maintain lending standards.

“On loans where there are 40 or 50 guys who are competing, and their best opportunity is to push out their proceeds and to not have extension tests, we will walk away,” DiModica declared. “I’m sure Greta would walk away, and I know that Blackstone would walk away,” he added, referring to TPG Real Estate Finance CEO Greta Guggenheim, who joined him on the panel.

Guggenheim agreed, noting that TPG had no problem turning down over-leveraged proposals.

“There are debt funds that have higher yield and risk appetites than some of us,” Guggenheim observed, recalling that she’d recently met a novice debt-fund lender at an industry function who anxiously told her how his company had responded to a bid with a generous debt package worth nearly 90 percent of the property’s value.

“You’re going to win that bid,” Guggenheim recalled assuring him, in an episode she said encapsulated how new entrants to the business are pushing the edge of the industry’s most marginal debt deals.

J.P. Morgan Chase‘s co-head of real estate banking, Chad Tredway, chimed in to note that institutional lenders like his company have sophisticated ways of thinking through what would become of loans in different economic scenarios.

“We look at downside analysis, and we have what we call a phantom rate: If interest rates increase, what would happen to value?” Tredway said. Evaluating how well loans would do if property values dip and interest expenses rise is crucial, he said, “because we think interest rates have been artificially low for a long time.”

Indeed, just about anyone with cash, the panelists agreed, could underwrite vanilla mortgages on stabilized assets—and just about everyone is. Riskier complications like transitional work, or ground up construction, provide grist to separate more sophisticated lenders from newcomers, they said.

“We’ve always loved construction lending. It’s very difficult,” DiModica remarked.

Count Guggenheim as another major lender who isn’t looking fearfully over her shoulder.

“[Debt fund] startups, I believe, are not helmed by credit people,” she argued. “They can’t get to scale. We see a lot of turnover in that space.”

Or, as Shakespeare’s Richard III expresses it, “So wise so young, they say, do never live long.”

Mack Real Estate Credit Strategies has lent $77.5 million to refinance a Union Square building that’s fully leased to WeWork, sources told Commercial Observer today.

The building, at 88 University Place between East 11th and East 12th Streets, is owned by an investment group controlled by Iranian-Israeli fashion designer Elie Tahiri. Built in 1908, the 11-story building rises above ground-floor retail space that’s currently vacant, according to data from CoStar.

Meridian Capital Group arranged the debt on Tahiri’s behalf, a spokesman for the debt brokerage said.

The entirety of the building’s WeWork space has been subleased to IBM.

Mack’s new loan on the building upsizes a previous 2015 transitional loan, also from the New York City-based lender. Proceeds from that $70 million financing went towards refurbishing the building’s elevators and common areas, improving the lobby entrance, and making mechanical and HVAC upgrades.

Officials at Mack Real Estate declined to comment.

Q: What led you to retail leasing?

My father was an electrical contractor. After school, I followed in his footsteps and worked my way up to a journeyman and ultimately became a supervisor working on high-profile jobs at the Javits, World Trade Center, and Rockefeller Center. Around this time, my mom owned a building in Sheepshead Bay and asked for my help—it was empty, and she was paying the mortgage, taxes, and other monthly bills didn’t know what to do. I had no experience with real estate, but like any son would, I told her I would take care of it. I spoke to lawyers, brokers, principles, and eventually found a buyer. Negotiating the terms of the agreement was a roller coaster unlike anything I’d ever experienced, and when it was over, I missed the feeling.

Q: What did you do next?

I got my license and went to work at a corporate relocation company for some of the city’s biggest banks. The manager warned me it may take six or eight months to learn the business before my first deal. I watched what the senior brokers were doing, hit the phones, and toured spaces. After just three days I walked into the same manager’s office with applications for two spaces. She stared at me as if I’d done something wrong and said she’d never seen anything like it in her 40 years in the industry. So, I guess I just naturally took to the business.

Q: What do you think is the biggest driver behind your success nearly 20 years later?

I feel alive when I’m doing deals—like this is what I was born for. When I’m meeting operators, I look for this same passion, because if they have it, the business will most likely succeed. A great example is Barnea Bistro at 211 East 46^th Street. The restaurateur, Josh Kessler, poured his heart and soul into the business and it shows. The space is packed every night it’s open—now I can’t even get a reservation.

Q: You have a team of nine brokers. How do you work together and what sets you apart?

Our team is very high energy. We also pride ourselves on being extremely responsive. Our cardinal rule is “time kills all deals.” If you wait a week between communications, potential tenants get less excited about a space. You must make yourself available, schedule an appointment, walk them through, highlight the property’s attributes, and if the space is a fit, push the deal forward quickly.

Q: You’re very active on social media. How has this impacted your business?

No one is as active on social media as my team. Some brokers ask me why I devote so much time to our social presence, but they have no idea how many direct messages I get from my posts. People call me almost immediately to set up meetings and ask questions about the space. Landlords also love it because it creates traffic, which leads to offers and closed deals. And that’s what our business is all about.

Q: What about video marketing?

Video is amazing. We create 60-second teasers highlighting both the exterior and interior of the space and feature some of the location’s co-tenants, because that’s what helps businesses succeed in our market. On Reade Street, for example, we placed four kids stores next to each other across from an existing Gymboree and a children’s learning center. The concept of competition doesn’t apply here—there are just too many people. People also love variety—it’s the spice of life.

Q: How can renovating and improving an asset upfront be beneficial to landlords?

Some landlords are immediately open to this concept while others need to see the financial proof on paper. If monthly rent is $25,000, and it takes four extra months to lease the space because it doesn’t show well, that’s $100,000 lost compared to the $10,000 it would cost to clean, paint, and make minor repairs. In today’s environment, tenants are touring five or six spaces, and you only have one shot to make a good first impression. If it shows well, tenants will be more excited, motivated to move quickly, and will also think you’re a forward-thinking landlord who will be easy to work with for the next 10 to 15 years.

Q: When you sign an exclusive on a space, what is your process for targeting potential tenants?

We see some brokers look at a space and immediately decide it’s for a restaurant or an office. We don’t do that. We cast a wide net and look at every possibility—maybe the space will be split in two. We don’t go after only one or two categories of tenants when we compose our initial marketing list; we target every category imaginable. You never know who will be attracted to the space and the location.

Q: You’ve been at Meridian for four months now. What have you accomplished thus far, and what’s next?

Since June, our team has closed 15 deals totaling just shy of $50 million. We also currently have 48 active deals with signed exclusive agreements. As for what’s next, we will continue to grow and get better at what we do: lease space.

James Famularo, President of New York Retail Leasing at Meridian Capital Group, can be reached at (646) 658-7373 or jf@meridiancapital.com.

Well, it finally happened. Bank OZK, the lender that had built its lending book and reputation as a nonrecourse construction lender, stumbled.

Its stock saw its most serious drop to date in October, after a third-quarter earnings release announced reduced income and losses on two of the bank’s vintage development loans. And for some who had watched the Little Rock, Ark.-based lender take down colossal construction loans that few other banks would dare to, it seemed like a long time coming. For others, the market overreacted.

One detractor Commercial Observer spoke with said that at times during its rise in the 2010s, he witnessed Bank OZK—which was known until last summer as Bank of the Ozarks—doing loans that no other financier would touch.

“I’d never have believed they would be willing to do it,” he said of one development loan for a Florida resort he worked on. He also took a dim view of the bank’s former chief lending officer, Dan Thomas—whose departure in 2017 the bank still hasn’t fully explained—saying he was “addicted to all of the fees and the large margins” on the bank’s construction loans. (Dan Thomas declined to be interviewed for this article.)

When the earnings report hit the wires, the two sunken loans in the Carolinas drew particular ire from Ozarks watchers.

One construction lender who competes with Bank OZK called the market reaction “largely unfair and unwarranted” but also chided the bank a little: “Why the hell they still have those two loans on their books from the last cycle and hadn’t marked them, I don’t know. Don’t kick the can down the road.”

But were those two loans—totaling only $46 million out of the bank’s roughly $9 billion construction and development portfolio—really the reason for the stock’s precipitous fall? Or does the bank have a broader perception problem on its hands?

Its reputation for derring-do divides the industry into those skeptical of the bank’s judgement and those who credit it with the courage and know-how to take down mammoth construction loans without fear of being trampled.

Simply put, “Anything being built. That’s what they’re good at,” said one financial adviser, who wished to remain anonymous.

Stretching the credit window

The bank’s business model has translated into success that’s clear to see in its origination volumes. Last year, it produced $10.5 billion in loans, compared with $8.24 billion in 2016 and $5.63 billion in 2015.

But this fall, months after rebranding as Bank OZK, the 115-year-old institution— purchased by George Gleason in 1979—had to write down two troubled loans. Shares dropped by almost a quarter, as investors scrambled to read whether they were seeing a momentary stumble or an existential threat to the bank’s modus operandi.

“Theirs is a very aggressive national origination model,” said banking expert Chris Whalen, who runs the Institutional Risk Analyst website. “That’s why people pay attention.”

But aggressiveness aside, Whalen said, until October, the bank’s credit performance had been nearly faultless.

“They only get the reputation of being aggressive because they do really large construction loans on a nonrecourse basis,” said the construction lending executive , who competes with Bank OZK . “Yes, relative to the size of the institution [$22 billion] their loans are very large. But they’re also very well structured, and their underwriting is sound.”

The bank hasn’t been shy about doubling down on its credit judgment, taking on massive lending opportunities. In October, for instance, Bank OZK made a $558 million construction loan to the Aventura, Fla.-based Trump Group (no relation to the U.S. president or his family) for a South Florida condominium project.

“If something goes wrong with a loan of that size, it has a major impact on your balance sheet. If regulators make you downgrade a loan of that magnitude, that’s a bad day for their stock,” the lender said. “They’re not going to lose a penny [in that deal], but the risk in all construction deals—for all of us, not just them—is that they don’t perform according to the underwriting.”

The bank has grown its geographic footprint: In addition to its native Southeast, its loan book is bursting its bindings in South Florida and in New York City. In April, it led the $411 million financing of the Pier 6 luxury residential development in Brooklyn, contributing a $251 million construction loan underneath a $160 million junior equity contribution from another undisclosed lender.

Closer to its home the lender teamed up with Square Mile Capital Management in Dallas to produce a $118 million refinance on a transitional office building that was awaiting the start of a major new tenant’s occupancy. And as the Florida Trump Group deal exemplifies Bank OZK has been by far the most important lender behind the current condo boom in Miami; The Real Deal calculated that the bank has originated 26.5 percent of the construction debt fueling that market since 2013 and putting a total of $1.17 billion into the market over the last five years.

Its role is notable because construction lending is a business that has become anything but conventional for fiduciary institutions. Ten years after the financial crisis, some bank lenders continue to steer clear of providing debt on construction work, due to its inherent risk. For one thing, tough regulations imposed by Congress, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) have required banks to hold higher levels of reserves against loans the government considered risky, such as most that back construction projects. Those rules, known as HVCRE (for high-volatility commercial real estate), have encouraged many commercial banks to stay on the sidelines, an urge reinforced by higher regulatory scrutiny in general. (Bank OZK’s principal regulator is the FDIC, but unlike most banks it isn’t overseen by the Fed).

What’s more, banks have sore memories of being badly burned by free-spirited loans they’d made during the mid-2000s. “During the housing boom, banks were a lot less likely to request an audited financial statement from developers, builders and others in the industry,” Andrew Sutherland, a professor at Massachusetts Institute of Technology’s Sloan School of Management, observed in research published last year. “When times are good, banks have a tendency to reduce their standards, and keep expanding their loan portfolio with the expectation that they are going to be repaid.”

The backlash to that approach has left a formidable void in the market during the current expansion cycle—a vacuum Bank OZK has helped to fill.

Thomas, a trained lawyer and accountant who eventually became the bank’s chief lending officer, founded its Real Estate Specialities Group (RESG) in 2003, which powered the bank’s explosion onto the construction lending scene. Its assets multiplied from $3 billion in 2010 to $22 billion this year, with debt originated by the RESG responsible for more than half the bank’s loans. (Rapid horizontal growth has contributed as well; during the same period, the bank acquired 15 regional competitors.)

That positioning has boosted the bank’s esteem among development firms, who say they value the bank as an increasingly rare species of lender. Thomas has since resurfaced as president of Plano, Texas-based developer Landplan Development.

“I think [among] banks, they’re still pre-eminent” for construction lending, said Delshah Capital Founder Michael Shah, who has borrowed from the bank, most notably, on funding multifamily projects in Manhattan’s Morningside Heights neighborhood. “[OZK] is definitely one of the go-tos.”

A divisive institution

The key differentiator that sets the bank apart from its debt-fund competitors has been the cheaper capital costs that go hand-in-hand with institutional lending. But Shah explained that in his view, Bank OZK also has enough real estate know-how to be a helpful and unobtrusive partner.

“They’re pretty easy to work with,” Shah said. “They understand the business model and try to work with you on the terms to get you there.”

Adam Hakim, a senior managing director at Meridian Capital Group, concurred with Shah on the bank’s borrower-friendly mien.

“Their borrowers are consistently impressed with the post-closing performance of the bank,” Hakim said. “This includes things like the draw process, which is handled by an experienced real estate team that truly understands how development deals work.”

Those crowd-pleasing touches, along with its risk tolerance and its willingness to take on nonrecourse projects, marked out a specific niche that allows Bank OZK to be paid a premium over what traditional large commercial banks receive.

“They’ve found a specific spot on the risk-return matrix. Their model is a little higher risk [and] higher return than some—such as a J.P. Morgan Chase or a Wells Fargo—and a little lower risk-lower return than others, such as Children’s Investment Fund,” one financial intermediary said. “Very few banks play in that space, so it’s a nice niche where a lot of borrowers are happy to borrow from them and pay their higher rate because it’s not too high of a rate; it’s appropriate. Plus, they’re nonrecourse.”

Several naysayers expected the bank’s appetite for construction lending to bite them in the derriere at some point and the bank’s popularity as a source of development funding made its lackluster third-quarter earnings report, which hit on Oct. 18, land with an especially pronounced impact.

Gleason admitted that the report “did not meet our usual high standards for performance.” On the heels of the release, the company’s stock immediately dropped by more than 22 percent on the Nasdaq and has since fallen farther yet, trading last week between $25.40 and $27.30, down from a high on Sept. 20 of $40.34.

Most press coverage surrounding the drop has focused on a pair of vintage RESG loans that have gone the rails: an otherwise unconnected duo of construction loans in South Carolina and North Carolina that the bank originated in 2007 and 2008.

The pair of Carolinas’ loans first raised concerns for the bank last year, when they were added to public tallies of debt the bank considered substandard. That triggered requirements for the bank to set aside reserves against the assets, which it did by designating $19 million for that purpose.

“The Carolinas were a complete killing field when it came to this small commercial stuff—especially the farther you got away from [those states’] major cities,” Whalen remarked. Citing a research report from Kroll Bond Rating Agency, which argued that the two troubled loans were outliers on Bank OZK’s balance sheet, Whalen said he wasn’t overly concerned they represented broader credit risks for the bank.

Even the construction lender who competes with Bank OZK said that the recent negative press that has surrounded the two loans is unfair, given that the loans were made over 10 years ago, and don’t represent Bank OZK’s business model today. “It was a ridiculous overreaction and not reflective of what they’re doing today, at all,” he said.

A senior commercial real estate lending executive who transacts with Bank OZK vociferously agreed. “I read every word of their earnings call transcript, and I thought they did a good job of showing that the two loans that went bad were inconsequential, not systemic, and don’t have any implications for the rest of their book.”

A mezzanine lender agreed that the two loans are a drop in the ocean, but also said, “It doesn’t matter how old the loans are. Losses are losses and the moment that losses are recognized, that’s perceived as weakness.”

Signs of strife?

Broader shortfalls in the bank’s performance have also been noted. Net income from July through September was $74.2 million, down nearly a quarter from the same period last year.

And despite slightly higher interest rates, the bank’s ability to generate returns suffered, too. The bank’s return on average assets in the third quarter was 1.33 percent, nearly a third lower than in 2017.

But one headwind against the bank seems unlikely to translate into long-term trouble. Whalen noted that some of the bank’s biggest expenses in the third quarter were one-time costs related to the recent name change—a decision that was made to give the bank a more national persona—and its associated outlays, certain to disappear from the earnings report in the fourth quarter.

Despite the recent trouble, the senior lending executive likewise sees little but upside in the bank’s preferred style of delivering loans.

“I think they have a great business model,” the executive said. “They’re in a really smart piece of the capital stack that is in demand and they can get paid for, writing very low loan-to-cost senior debt with very strong B-note holders behind them who are capable of finishing a job if something unforeseen happens.”

“Their thesis is fairly straightforward. They built their book lending to top-quality sponsors at leverage points generally below 60 percent,” Hakim noted. “Most of their loans have been 50 to 55 percent loan-to-cost and they will move on both pricing and leverage to win a deal that they feel they should win.”

“Hedge funds have made them a popular short, and the poster child of excessive commercial real estate lending, but they are taking the smartest risk-reward piece of the stack and getting paid for it. I think the shorts will be proven wrong over time,” the finance executive added.

But while today there is a sea of competition from myriad lenders, when Bank OZK was gaining its footing during the early 2010s, it was one of the few firms in the game.

“Buying assets is 75 percent determined by your cost of capital and the flexibility of that capital,” said one capital markets executive who’s transacted with Bank OZK as a mezzanine lender and a borrower for more than a decade. “The lender is the most important cog in the wheel. Once we hit 2008 and 2009 we were in a liquidity crisis that then created a recession in 2010 and 2011. They were doing the most riskless deals and they were getting paid very well to do them, because very few people were willing to stand up and write construction loans at that time; their mere presence allowed them to book extraordinarily safe tickets with the very best borrowers on the planet, at premiums.”

Hakim said, “At first there was very limited competition in the bank space for the loan size and pricing combination that they offered, which is part of the reason they were able to expand so quickly. Currently there are four to five similar-type lenders who can quote the size deals that the bank can. Competition from debt funds is less likely as the debt funds tend to be more expensive in terms of pricing and often win deals by pushing leverage well beyond where the bank would be comfortable.”

One source CO spoke with said that the debt funds that are lending on construction projects frequently bring Bank OZK into the capital stack, selling them the A-note and remaining in the mezz position. The debt funds are therefore in the first loss position, leaving the bank in a relatively safe spot.

That’s not to say that everyone in the industry holds the bank’s credit judgment in high esteem.

The only willing lender

The Margaritaville Beach Resort in Hollywood, Fla., is one example of a debt deal done by Bank OZK that surprised even some transaction parties. One of them—who wished to remain anonymous—told Commercial Observer that the lender was the only capital source willing to make the bet on the Jimmy Buffett-themed resort. Bank OZK lent $35.6 million in 2013 before upping the debt to $54.6 million in 2015—only 37 percent of the $147 million project cost. “The loan had equity behind it, but it was made to an untested developer [Lon Tabatchnick and Lojeta Millenium] which was very risky,” he said. “They got comfortable with it, but I don’t know how.”

Denver-based private equity firm KSL Capital Partners purchased Margaritaville in 2018 for $190 million, so not a bad bet after all.

“Bank OZK likes being contrarian so it was hard to tell exactly what the motivation was [at the time of the deal],” the source continued. “But we gave Dan Thomas our assets that we couldn’t place with other people.”

Whether that attitude persists at Bank OZK today is hard to assess, although the construction-lending competitor said that the bank is arguably as active as it ever was. “We have taken some deals from them, but they are a much larger-volume lender than we are and will continue to be.”

Still, some changes are definitely afoot in Little Rock.

In addition to Thomas’ departure last year, another sign of a potential new approach for the bank is that its institutional acquisitions have slowed dramatically, refraining from purchasing any other financial institutions since 2016.

During the financial crisis, the bank reported “returns on average assets of at least 1.2 percent per year, strong margins, relatively low levels of nonperforming assets, manageable charge-off levels, and solid capital levels,” according to KBRA’s most recent assessment of the bank that it had published over the summer.

Further to the bank’s credit, KBRA noted that it hasn’t traditionally relied on raising deposits—even though it runs more than 250 local offices. In a pinch, the rating agency contended, Bank OZK could ramp up its efforts to win deposits if its reserve requirements grow.

Still, the bank’s model is such an outlier that those who transact with it admit that it’s not merely playing for low-stakes pots.

“We saw what happened with Ozarks on these two very small loans. Imagine if they had a $300 million construction loan they had to downgrade; the market would treat them very unfavorably,” the construction lender said. “I don’t think they’re ever going to lose a penny on one of their loans as their business model is so sound—unless of course there’s a larger unseen economic event.”

The Jay Group has scored $36.5 million in financing for the acquisition and construction of a mixed-use property in Harlem, Commercial Observer has learned.

Centennial Bank provided the 36-month non-recourse loan, sources said.

The debt was negotiated by Meridian Capital Group’s Morris Betesh, Dov Jeremias and Daniel Belecen.

“Non-recourse construction financing is difficult to come by with traditional lenders,” Betesh told CO. “However, well capitalized borrowers with ideally located projects can still achieve attractive non-recourse financing.”

Officials at the brokerage declined to confirm the lender’s identity.

The five-building site, located at 54-62 West 125th Street between Lenox and Fifth Avenues, sits adjacent to a newly-constructed Whole Foods.

As reported by The Real Deal, Ares Management sold the portfolio to Hauppauge, N.Y.-based Jay Group for $26.5 million in June, after purchasing it for $14.5 million in 2012. 

When construction is completed, the property will feature one retail unit and 141 residential apartments—30 percent of which will be affordable—spanning a total of 140,000 gross square feet. The property qualifies for both 421-a and Industrial and Commercial Abatement Program tax benefits for residential and commercial units, respectively.

Officials at Centennial Bank and Jay Group could not immediately be reached for comment.

CBRE announced the $68.6 million sale of a multi-property portfolio in the Borough Park neighborhood of Brooklyn. The portfolio, which consists of eight multifamily buildings, was sold by Maimonides Medical Center (MMC) to Iris Holdings. CBRE’s Tri-State Investment Properties Team of Elli Klapper, Charles Berger, Richard Karson and Jay Gelbtuch represented the seller in the transaction and also procured the buyer.

“We are very happy we were able to coordinate this deal, as it is a huge win for the community, which will reap the transaction’s long-term benefits,” said CBRE’s Klapper. “The Borough Park neighborhood is a unique section of Brooklyn that the buyer is looking forward to being a part of.”

The $67.5 million balance sheet loan features a LIBOR-based rate with an extremely competitive spread, full-term, interest-only payments and was negotiated by Meridian Capital Group Senior Managing Director Ronnie Levine and Vice Presidents Isaac Filler and Thomas Wayda.

“There is always consistent demand from lenders for well-located properties such as these. This competitive environment allowed Meridian to negotiate favorable terms,” said Meridian’s Filler.

The Borough Park portfolio consists of 295 apartment units across eight mostly vacant buildings totaling 263,260 square feet.

Q: What led you to investment sales?

I was an attorney from 2000 to 2005 when I began to get tired of the long hours away from my family. I also felt like there was rarely a successful outcome in litigation—the majority of cases settle and everyone compromises to the point that no one is happy. When I finally left my job as an attorney, I started networking to figure out what I wanted to do next. When my father, father-in-law, and close friend from college all suggested I pursue a career in commercial real estate sales, I decided it was a sign and started chasing down the best opportunity possible, which turned out to be a job at Massey Knakal covering a small territory in Sunset Park. I learned quickly that the successful sale of a property is completely different from litigation—when you sell a building, your client is usually very happy, and in many instances, it changes their lives for the better.

Q: What do you like most about your job?

I love interacting with people and resolving problems in complex transactions that others may find unsolvable. I’m at my best when there is a bump in the road in a transaction and outside-the-box thinking is required. I think that’s what truly differentiates my approach from others.

Q: What do you regard as the greatest success in your career to date?

I think establishing the significant market share that my team and I have had since 2011 in the highly competitive Brownstone Brooklyn market is a very notable accomplishment. Many of these years, we accounted for as much as 35 percent of the multifamily and mixed-use transaction volume in Park Slope and the surrounding neighborhoods. We have contributed to the growth of the Brooklyn market in a tangible way, and maybe most importantly to owners, have driven the dramatic increases in property values that we’ve seen since we entered the market. This achievement validates our approach, the relationships we’ve developed, and most importantly, the level of service we provide to clients.

Q: What was the most complex deal you were involved in?

Two deals immediately come to mind. The first is One Prospect Park West, an $84.5 million deal purchased by Sugar Hill Capital Partners that was in litigation for two years while we were in contract. The entire transaction essentially had to be negotiated the twice; first to get the contract signed and then again to resolve the litigation and get it across the finish line. A more recent deal that was also unusually complex was the sale of 368 Myrtle Avenue, 584 Myrtle Avenue, and 134 Kingsland Avenue. We had to find three separate buyers for the three properties, and because of the seller’s loan structure, all three buyers had to sign contracts and close at the same time. Trying to coordinate a simultaneous closing with four attorneys, three buyers and four banks was, to put it mildly, not a small task.

Q: How would you describe your clientele?

My typical buyer is usually either a Manhattan-based fund, long-term family ownership, or a friend-and-family-type fund led by individual investors. My sellers are typically repeat clients; many times, the funds and long-term family owners will come back to me to sell their property once they have stabilized the asset and want to maximize the return on investment by selling to achieve peak value. I also see myself as the champion of the small owner, someone who owns typically between one and three buildings.  These clients usually have one shot to sell what may be the biggest asset of their lives and need to maximize every dollar when selling.

Q: What makes you and your team unique?

My team is very focused on multifamily and mixed-use properties, making our knowledge and experience on the subject matter among the best in the industry. Thanks to my legal background, we also understand that a deal is really only at the 50-yard line when a term sheet goes out.  The contract negotiation is where real bumps in the road can arise; my unique legal experience is a benefit to moving these complex deals forward. Additionally, because we work so closely with the debt and equity teams at Meridian, we are able to exercise more control over a transaction from start to finish.

Q: What learning experience or professional development most helped prepare you for leadership?

I’ve participated in organized athletics all my life and coached my kids’ sports teams. I’ve learned through these experiences that I naturally gravitate toward being a leader in any situation. Once you have confidence you can lead people, and you believe in your ability and desirability as a person, everything else flows from there.

Q: What are some trends you are seeing for 2019?

There was a lot of uncertainty in 2018, including rising interest rates, changes to the tax code and a pending shift in the regulatory framework for stabilized apartments, to name a few. I think some of these concerns will stabilize in 2019, buyers and sellers will have better data to work with when pricing in risk, and as a result we will see transaction volume increase significantly in 2019.

Q: How has the industry changed since you first started out?

When I first started at Massey Knakal nearly 15 years ago, commercial brokerage in the boroughs still had a bit of a Wild West feeling to it–a lot of small brokerages operating in a very old-school manner. Today, the boroughs offer some of the most desirable and stable real estate assets in the world, and thus the institutional brokerages are committing major resources to the marketing and sale of properties in these markets.  In the end, this has accrued to the benefit of owners; they get better representation from highly-skilled brokers with more resources to market properties, which in my opinion, is how it should be.  Now, with a firm like Meridian that essentially offers one-stop shopping, we have the best in the business on the debt teams, the leasing platform, and the sales side; the representation owners get will take another quantum leap forward.

Q: You’ve been in this business a long time now. How do you stay relevant?

Work hard, stay in constant contact with people, always keep your eye on the ball, and stay focused on the fact that this is a relationship business—your reputation is your most valuable asset.

Adam Hess, Senior Managing Director at Meridian Investment Sales, can be reached at (718) 534-9201 or ahess@meridiancapital.com.

An unprecedentedly large field of lenders in the commercial real estate arena has driven hearty competition to deliver the highest leverage at the lowest prices. But that doesn’t mean the cheapest capital is always the best fit for borrowers.

That was the message that resounded from a chorus of west coast financiers on the second panel at Commercial Observer’s inaugural Financing Commercial Real Estate Forum in Los Angeles yesterday, and their warning was echoed by the banker, the fund managers, the mortgage real estate investment trust executive and the finance brokers who were on hand to comment.

Moderator Bill Fishel, the co-head of debt brokerage HFF‘s Los Angeles office, kicked things off by outlining the sheer volume of capital seeking to back real estate projects. Institutional investors as a whole control about $12 trillion, he said, and a decade ago, they aimed to invest about 5 percent of that total in U.S. commercial real estate. Today, years of favorable returns in the sector have encouraged those institutions to up their CRE target allocation to 10.4 percent.

“That’s $600 billion more of hammers looking for nails,” Fishel said, adding that separately, fund investors who target real estate are sitting on about $190 billion in capital seeking a home.

According to Wayne Brandt, a managing director who helps lead originations at Wells Fargo, all that new money is absolutely making waves in the industry.

“We’ve lost a tremendous amount of loan volume and market share to the CMBS market as well as the debt funds,” Brandt admitted, referring to Wells’ balance-sheet efforts.

All that competition has compressed spreads dramatically, contributing to some of the most appealing borrowing costs in recent memory. But even some borrower representatives say that cheap debt isn’t always a landlord’s friend.

“As a broker, you’re trying to advise your clients to take the best loan for their business plan,” said Seth Grossman, a senior managing director at Meridian Capital Group. “Your job is to bring your client all the different options. They see some outlier that could literally be 30 basis points tighter, [but] those economics are so meaningless in the big picture.”

Instead, Grossman often finds himself advising clients to borrow from a savvier—if slightly more expensive—institution. But persuading them can be a difficult task.

“When you say to a guy, ‘I know this [option] is cheaper, and I brought it to you, but I want you to go with group X,’ it’s much more difficult than you’d think [to] make that sale. People are so last-dollar-of-interest focused,” Grossman said.

Chris Allman, who through his work at investment fund CIM gets to wear both a borrower’s and a lender’s hat, echoed that sentiment, sharing examples of why a more experienced debt provider can be worth some extra spread.

“On construction deals, I’ve seen very few in my career…that don’t have overruns [or] that don’t go off plan. And you need to be talking to someone who understands that,” Allman said. “As people compete for yield, some of the smaller funds are shooting down and doing construction loans, and they often don’t know what they’re saying yes to when the agree to certain structural terms.”

Nik Chillar, head of banking at newcomer Crescit Capital Strategies, agreed, saying that opportunistic lenders who compete purely on price might not have the balance sheet strength to see projects through to fruition.

“You get a lot of bridge lenders focused on getting borrowers into three-year business plans, particularly in the smaller loan space. We see business plans that are clearly going to take longer, and we’ve built a balance sheet that allows us to be flexible [enough] to do a five-year bridge,” Chillar said. “I think it’s really important to be realistic as a borrower.”

When borrowers set a low bar for lenders by hiring the cheapest comer, they’re doing themselves a disservice by encouraging slapdash underwriting, Starwood Property Trust managing director Troy Miller said.

“We put in a lot of work upfront,” Miller said of Starwood’s process. “If you just call and ask for a ballpark quote, I can give you that in three seconds. If you want a real quote, we’re going to have to do real work on it.”

Allman echoed the sentiment that there’s no way around doing the tough work of finding the best match for a financing need.

“You need to have a focus on relationships,” Allman said. “People who are…transactional often pay a very severe price.”

The center of U.S. finance may be New York City, but the West Coast is a hotbed of activity. Seth Grossman, Senior Managing Director of Meridian’s Southern California offices, and his team of five have seen plenty of activity in 2018: Together, they’ve closed in excess of $1 billion in financing over the past year.

How did such a small team manage to close so many significant transactions? Seth spoke about the factors underlying the team’s success and some of their highlights from 2018.

Variety

The large volume of transactions – more than 60 closings over the course of the year – stems from the team’s broad focus. Their recent closings represent a wide range of property types, projects, lenders, transaction sizes, investment strategies, and geographies, including a $117 million deal for the ground-up construction of a luxury multifamily high-rise in Los Angeles. The team obtained a five-year, non-recourse, interest-only loan from a balance sheet lender on behalf of J.H. Snyder Company and OGO Associates of Wilshire.

Meridian’s Southern California office also recently arranged $89 million in financing for the Willow Creek Corporate Center, a seven-building office campus totaling 421,000 square feet in Redmond, WA, originated by team member Kovi Elkus. In this case, the team negotiated a 10-year, interest-only CMBS loan. Grossman’s team also closed “The Florida Seven,” $76 million in acquisition financing for a portfolio of seven multifamily properties. Although purchased from one seller under a single purchase and sale agreement, each was financed separately through seven-year Freddie Mac loans with fixed or floating rates and two years of interest-only payments.

Most currently, the team arranged $37 million in financing for the refinance of a portfolio of 46 noncontiguous buildings in Chicago, IL. This deal was unique as the properties were all acquired at different times, and thus had multiple existing, unrelated loans prior to refinancing. Meridian was able to pay off all of the loans and refinance the package as a whole with a significant cash-out and rate reduction.

“We thrive on the variety,” says Seth. “Many of our deals are between $20 million and $50 million, but we recently closed a loan for less than $1 million for a repeat client and have also closed several in excess of $100 million. We take equal pride in the smaller transactions and the larger ones.”

While locations and investment strategies vary widely, so too does the stable of lenders that the team works with. By consistently monitoring the market place and leveraging the broader team in Meridian’s office network, the Southern California team has closed with over 25 lenders in 2018 inclusive of local, regional, national and international banks, agency lenders, CMBS shops, life insurance companies, and a wide array of non-bank lenders.

He also notes that smaller deals often evolve into bigger ones later on. “There are several clients who we consistently close a large volume of loans for annually,” says Seth. “But we began working with these clients years ago doing $2 million and $3 million deals. It’s fun to watch that growth and it’s important to us to add any value we can along the way.”

Large or small, Seth relishes his “unique mix of clients” across many different regions. “I’m working with organizations in Canada, California, Arizona, Texas, Illinois, Florida, and New York,” he says. “I’m always on the road.”

Creativity

Another factor contributing to the team’s successful year is a creative, proactive approach to challenges. “We don’t wait for clients to call,” says Seth. “If we have an idea, we tell our clients what we have in mind to help them maximize the value of their portfolios.”

The Chicago and Florida transactions mentioned earlier exemplify this approach. In the Chicago deal, the team had to figure out how to coordinate paying off multiple loans from different lenders and structure the 45-property deal. “It was like trying to move 100 balloons in a field of wind. It took tremendous team work from all parties involved,” Seth recalls.

The Florida transactions required a completely different strategy. Instead of grouping properties together, the team had to figure out how to ungroup them. Even though the loans were all supposed to close on the same day, each property was financed separately to enable maximum flexibility for the sponsor. “Challenging? Of course,” says Seth. “But both of these deals were interesting and fun.”

Commitment

Commitment, a third factor, encompasses three components: colleagues, clients, and consummations.

The team’s strength stems from its cohesion. “I’m most often in front of the clients and lenders,” Seth points out, “But my team is critical. They are the engine. And we are committed to helping each other.”

On the client side, commitment is an outgrowth of strong relationships. “You become friends with the people you work for,” says Seth. “I spend a lot of time with my clients and genuinely care about them. “Consequently, they know every deal is personal for me and we’ll leverage every resource in our power to exceed expectations.”

Finally, the team is committed to getting deals done, no matter the state of the market. “We are active and our clients are active,” Seth reports.

So how does the team celebrate its hard work when a deal closes? According to Seth, the real moment of celebration comes when he wins an assignment. “It feels great. You smile for a minute and then get back to work.”

Seth Grossman, Senior Managing Director at Meridian Capital Group, can be reached at (858) 964-1151 or sgrossman@meridiancapital.com. His team consists of Vice Presidents Kovi Elkus and Jason Kahn on the production side, with Vice Presidents Sarah Kuebler and Jackie Tran and Associate Andy Strauss on the analytics, underwriting and deal processing team.

Some of the biggest names in commercial real estate lending and finance descended on the InterContinental Los Angeles Downtown at 900 Wilshire Boulevard last week to talk about stress points in the market, the sheer glut of lenders to choose from, Opportunity Zones and more at Commercial Observer’s inaugural Financing Commercial Real Estate Forum.

While we had them, CO’s trusty video team tracked down Related Companies‘ Rick Vogel; Square Mile Capital‘s Jeff Fastov; Meridian Capital Group‘s Seth Grossman; HFF‘s Bill Fishel; CIM Group‘s Chris Allman; ACRES Capital‘s Don Sherman; Hunton Andrews Kurth‘s Jane Hinton; and TH Real Estate‘s Raymond Hu and asked them:

1. What they’re up to now.
2. What neighborhoods they see potential in.
3. What asset classes they’re most active in.

The Row or The Nomad? Union Station or Staples Center? Shake Shack or In-N-Out?

When you get in a room with the top commercial real estate financiers, owners and brokers, yes, you want to ask them about the state of the market and the asset classes that are looking the most attractive. But we at Commercial Observer wanted to get a little more personal. And so at last week’s InterContinental Los Angeles Downtown at 900 Wilshire Boulevard where we held our first Financing Commercial Real Estate Forum, we decided to do just that.

What, say, is your favorite Downtown L.A. property?

“It’s like picking among your children!” declared Square Mile Capital‘s Jeff Fastov.

That might be true, but we did our best to try to coax answers out of Related Companies‘ Rick Vogel; Meridian Capital Group‘s Seth Grossman; HFF‘s Bill Fishel; CIM Group‘s Chris Allman; ACRES Capital‘s Don Sherman (who said that the InterContinental was his favorite); Hunton Andrews Kurth‘s Jane Hinton; and TH Real Estate‘s Raymond Hu… and while we were at it, where to get a good burger Downtown.

“Los Angeles is just New York lying down,” once wrote Quentin Crisp. Whether that’s true or not is up for debate, but one thing is certain: Both gateway cities are capital magnets.

So, is the City of Angels finally holding its own against Gotham? Historically New York was the darling of foreign investment, but L.A. is attracting more than its fair share of overseas capital and even New York-devoted owners are looking West. Then there’s the steady flow of debt deals on both coasts, the cut-throat competition for which shows no sign of abating.

It makes sense, market experts say, given the similarities between the two markets.

“I think the primary drivers are similar, and capital of all types wants to be in both markets,” Seth Grossman, a senior managing director in Meridian Capital Group’s L.A. office, said. “They are two of the most robust, diverse economies in the U.S. and are better suited to weather cycles than smaller, potentially more affordable markets that look good now and offer higher yields, but in a downturn will likely have far more volatility. Long-sighted investors understand this lower beta and are drawn to it.”

CapitalSource is an active provider of construction and bridge loans in both both cities. “New York is dense with opportunity and undeniably the number one city for attracting overseas capital in the country,” Patrick Crandall, a director in the lender’s L.A. office said. “The investment opportunities are probably a little deeper in New York and certainly larger. L.A. by its very nature is so much more spread out and I feel there are so many opportunities for all stripes of investor in L.A. Plus, it can be a little less prohibitive price-wise than New York.”

Interestingly, some of those entering the L.A. market today are historically New York-focused owners.

“Related [Companies] has made a really big play [in L.A.], as has Steve Witkoff [of Witkoff Group] and the LeFraks, so there are plenty of New York owners here,” Crandall said. “I don’t know that the same is true of L.A. developers moving to New York.”

While Related is keeping busy with its Hudson Yards development in New York, the jewel in the developer’s L.A. crown is The Grand, its $1 billion Frank Gehry-designed master planned mixed-use development in the Bunker Hill area of Downtown L.A. The owner closed on a $630 million construction loan (from Deutsche Bank) for the behemoth project in November 2018.

“As a company, we’re pretty active all over L.A., but I would say we’re most excited about what’s happening Downtown right now, with the renaissance the area is going through,” Rick Vogel, a senior vice president at Related, told CO last month.

“The whole idea behind [The Grand] is to try to recreate the cultural epicenter that this area has always been touted to be,” Vogel added. “It probably has the largest collection of performing arts and visual arts facilities anywhere in the country and yet, there’s no real neighborhood here. There’s no meaningful residential development, very little retail and restaurants, and it really needs something that can turn it into a 24-hour, seven-day-a-week kind of neighborhood. The Grand, which will bring in a luxurious hotel, luxurious residences and a large retail base could really turn it into a wonderful, 24/7 neighborhood.” Construction is scheduled for completion in 2021.

Then, there’s New York-based Waterbridge Capital and Continental Equities, who in May 2018 were in the market for a $500 million loan for the for their redevelopment of The Museum Building—a 1.1-million-square-foot mixed-use project at 801 South Broadway in Downtown L.A.

“We’ve seen an increased percentage of inbound inquiries from clients who have traditionally been New York-centric or have portfolios that are New York-heavy,” said Warren de Haan, a co-founder of ACORE Capital. “They’re looking to L.A. and San Francisco and Silicon Valley and the West Coast more broadly— Seattle and Portland—as places to make sizable and definitive investments.”

The trend has accelerated over the past 24 months, de Haan said: “The interest in L.A. from opportunity funds, private equity shops and high net-worth individuals is pronounced.”

As we (maybe, possibly, perhaps, who knows) approach the end of the cycle, an onset of caution may mean that the outlay on New York trophy assets is harder to digest for some owners and L.A. has more bite-sized offerings.

“New York is a city with a number of enormous stand-alone opportunities,” explained Bill Fishel, the co-head of HFF’s L.A. office. “If you think about an office property in the middle of Manhattan you’re talking hundreds of millions of dollars per asset. Where we are in the cycle nobody knows for sure, but we’re seeing this conversation start to shift away from making a really big bet on individual assets. Owners are starting to think more about diversity across markets and diversity across portfolios.”

In L.A. the individual asset sizing is smaller but it also has the benefit of being a gateway market with an endless amount of liquidity and sustained investor interest. “We’re now having discussions in real time with people who are saying, ‘I’d rather come to L.A. now and buy five $40 million buildings as opposed to one $200 million asset,’ ” Fishel said.

Just as in New York the competition for acquisitions is heating up in L.A. where the buyers are especially diverse—from foreign buyers to institutional owners to family offices to syndicators to mom-and-pop shops. “So many products for sale in L.A. face so much competition from each of these potential buyer groups,” Grossman said.

One notable L.A. market evolution over the last few years however has been the “upscaling” of buyers,” Grossman said. “It seems that every buyer I work with has been executing on assets at least a tier or two higher quality or larger than what they had been chasing a few years ago, which creates more competition in each category. A large driver for this is the tremendous access to capital—debt and equity looking to be placed in L.A.”

When it comes to competition for financing deals, lending sources said the two cities are neck and neck with an abundance of attention from the capital markets.

From Bank of China’s $600 million refinance of L&L Holding Company’s 200 Fifth Avenue and Morgan Stanley’s $900 million refi of the Starrett-Lehigh building, both in New York, to Square Mile Capital Management and Deutsche Bank’s $232 million refinance of Culver City’s (W)rapper Tower and CapitalSource’s $117 million construction financing of The Residences at Wilshire Curson, the latter two in L.A., lenders are pulling no punches. While the deal sizes are generally smaller in L.A., the market still sees whoppers like Deutsche Bank’s $630 million construction loan for The Grand.

“Interestingly there is maybe a little bit of East Coast versus West Coast competition,” said Dennis Schuh, the chief originations officer at Starwood Property Trust. “A lot of firms house their businesses out of New York and from a real estate lending perspective I think people like to be covered by people that are more local so generally a lot of firms have beachheads on both coasts.”

Meridian Capital Group recently closed an adaptive-use financing in Downtown L.A. that will convert a 1920s Desmond’s Department Store which sat vacant for decades into a Class-A mixed-use project with ground-floor retail, coworking office space, and a restaurant and bar on the top floors. “That submarket has experienced tremendous growth this cycle, and the deal would not have been feasible five years ago from a tenant-demand and/or cost perspective. Due to rent growth and major market improvement and transformation, it drew very competitive lender bids,” Grossman said. “We’ve also closed numerous multifamily projects ranging from construction to bridge to permanent financing.”

Multifamily is one of the hottest asset classes from a lending perspective right now in L.A. Grossman said, so financing competition for any multifamily transaction, large or small, is in no shortage. “We are seeing domestic lenders fighting for every project and foreign lenders bidding very aggressively for what are typically the larger loan sizes or higher-profile transactions,” he said.

The uptick in relocation of households, both from other parts of L.A. as well as outside of La La Land, is supporting much of Downtown’s multifamily development.

As such, “There are a number of developments on the multifamily side that are underwriting to top-of-the-market numbers that we have not achieved in L.A. previously, especially in Downtown,” Fishel said.

But while multifamily is vigorously pursued on the capital side, “If I had to pick one I’d say that industrial is unleashing the most aggression from the capital markets,” he added.  

In New York industrial lending opportunities are scarce, and the office sector continues to be the most desirable from a dollar standpoint.

“[Office] has been perceived as something of a safe-haven investment given its long-term price appreciation, steady and competitive yields when compared with other global gateway markets,” said Craig Leibowitz, the director of JLL’s research group in New York.

“It’s pretty common to have $500 million office transactions with tremendous frequency,” Leibowitz continued. “We have some anomalies—Chelsea Market was a $2.4 billion office transaction [sold to Google in 2018]— but conversely there are very few industrial opportunities in New York City so there is unrepentant demand for it, from both a debt and equity perspective.”

Throughout North America there are elevated levels of capital chasing value-add and opportunistic opportunities as well as debt. Comparatively there is limited capital focused on core and core-plus opportunities, which New York has to offer. So, when a value-add opportunity pops up, the capital is sure to chase it.

“We are seeing some buildings being repositioned and Terminal Stores is a great example of that,” Leibowitz said of L&L Holding Company and Normandy Real Estate Partners’ $880 million acquisition of the former warehouse, financed with a $650 million loan from Blackstone in November. “It’s in a white-hot real estate market in terms of occupier fundamentals but also necessitates a pretty extensive renovation program and that is where much of the capital is focused on. But those type of opportunities are limited.”

Midtown South continues to be the most supply-constrained and highest-priced market in the country but in terms of desirous areas the West Side is seemingly the best side.

Google announced its  $1 billion Hudson Square Campus last month and The Walt Disney Company ponied up $650 million for a development site at 4 Hudson Square in July 2018. Those two giants, together with numerous other creative firms have driven up rents in the market.

And then, of course, there’s a little area called Hudson Yards.

“This market is starved for new office construction; the average age of a new office building in Manhattan is 1956,” Leibowitz said. “Which explains why the Hudson Yards/ Manhattan West district has really outperformed and similar new construction projects have outperformed.”

The totality of the Hudson Yards/ Manhattan West district is roughly 26.5 million square feet of brand new office space, which for most markets would be a tremendous increase in supply but in New York it only represents 5.5 percent of the in-place or existing inventory. “New York can absorb this new construction,” Leibowitz said.  

On the other coast, The Westside of L.A. is also coveted.

“The Westside—West L.A., Beverly Hills, West Hollywood, Santa Monica and Silicon Beach—is always a prominent investment target,” Crandall said. “The closer to the ocean you get the most desirable it is, generally speaking.”

“Anything on the Westside of L.A. is gold, extremely well bid and highly desirable,” de Haan concurred. “It is incredibly supply constrained; there just isn’t much supply of office as an example. But we’ve seen a good amount of development of creative office in Hollywood and Playa Vista has expanded at a very rapid rate. El Segundo, a traditionally aeronautical market,  has converted many buildings into creative office buildings that are now very well positioned to accommodate tech company needs.”

Another creative office hub is L.A.’s Arts District in the Downtown area. Atlas Capital and Square Mile Capital Management’s The Row project—which features 1.3 million square feet of creative office space and 35 retail and restaurant locations—is a leading indicator of L.A.’s growth, Fishel said. (HFF worked on behalf of the sponsors to secure a $475 million, three-year loan from Blackstone Real Estate Debt Strategies and also sell a minority interest in the property to the Healthcare of Ontario Pension Plan in June 2017.)

“The Arts District is an area that we’ve been talking about for six years and for a project of this magnitude to be recapitalized in a way that is built for a very long time captures a lot of trends,” he said. “There’s the relocation to L.A. from other markets, new urbanism in a really cogent mixed-use template and format. You’re seeing revitalization in an area that historically had not been a beneficiary of that investment. So you look at the size and scale of that project and there’s really proof of concept.”

In terms of foreign capital investment, both markets continue to be attractive targets.

China-based investors were the leading source of foreign capital in New York from 2015 through the second half of 2017. That has effectively dropped off to zero.

“Following HNA Group’s acquisition of 245 Park Avenue for $2.2 billion in May 2017 there has been almost no activity from China-based institutions, but we continue to see elevated demand from a subset of overseas entities—namely Canada, Germany, Norway and Japan,” Leibowitz said.

That capital is focused on the office sector but we have seen more interest in Class-A multifamily, “which is a relatively new phenomenon in New York, although it’s pretty commonplace elsewhere in the country,” he said.

L.A., on the other hand has seen sustained interest from Singapore, Japan, Korea and Canada.

“Big asset managers like Brookfield and smaller groups like Onni Group have been major players within this market,” Fishel said. “Oxford Properties is also very active—their capital is directly tied to Canadian pension plans that are looking at diversifying their holdings, not only across their country but across all of North America.”

“Downtown L.A. has been an interesting place and a focus of investment particularly from Asian investors,” de Haan said. “It has phenomenal long-term prospects but in the short term the market has to absorb new supply of hotels and apartment buildings. It will probably go through some bumps in the short term.”

While New York has seen some softening and experienced its own bumps in the luxury condominium market, in L.A. the market is barrelling ahead, although with discounted price points.

“New York has preceded some trends that we’re catching up to in L.A.,” Fishel said. “So, you do have a significant number of new condo developments going up. But if you think of the asking prices for brand new condo developments in Midtown Manhattan we’re at a huge discount, so it feels like less binary of an outcome.”

But should a correction come our way some time soon, is one market better insulated than the  other?

“I don’t think so,” Schuh said. “New York is more financial services-centric, which it has been historically. If the bank market or Wall Street contracted maybe New York is hit a little harder, but if the technology sector is hit, California is more tech-centric. So it really depends, but both economies are pretty diverse.”

Leibowitz concurred. “Over the past 10 years the New York metropolitan statistical area has experienced the greatest economic diversification of any MSA in the past decade,” he said. “It is now less exposed to secular risk than it ever has been in the past.”

And L.A. is in pretty good shape too.

“I think there are infrastructural elements to L.A. and diversifying components to our microeconomy that give you some comfort,” Fishel said. “I don’t think any of us are insulated from macroeconomic factors, and I also don’t think any of us have our head in the sand. I think that what we have seen is sustained discipline on the part of institutional investors; I don’t have the sense that people are pushing leverage as far as they did in the last cycle and I think a big part of that credit does go to lenders for reigning in maximum loan-to-values. What I do think that is different is, because you have lower leverage you have the risk being held by equity investors—and they are going to win or lose.”

Meridian Capital Group announced today that its Institutional Investment Sales Group, led by Helen Hwang, has been tapped to sell the retail condominium located in base of the luxury 166-unit Goodhue House at 189-199 Madison Avenue and 43 East 34th Street. Encompassing over 17,000 square feet, including approximately 11,000 at grade, the retail condo offers an investor both the potential for upside from below market rents and stability from long-term leases, as well as the potential for upside from below market rents in a submarket poised for near-term growth. 189-199 Madison Avenue is 100 percent leased to seven service-based tenants, including FedEx Kinkos, Chocolat Michel Cluizel and Eden Wok.

Offering an outstanding 150 feet of avenue frontage, 189-199 Madison Avenue is situated in an area that is rapidly evolving as a result of transformative high-end condominium and office developments. With an average tenant tenure of over 17 years, and over four years remaining on the in-place leases on average, 189-199 Madison Avenue offers a stable cash flow in a dynamic and desirable retail corridor that is outperforming Manhattan retail overall.

“The opportunity to control nearly an entire block front of retail space on Madison Avenue is such a rarity,” said Helen Hwang, Senior Executive Managing Director and Head of Meridian’s Institutional Investment Sales Team.

Helen Hwang, Senior Executive Managing Director of Meridian’s Institutional Investment Sales group can be reached at (212) 468-5930 or hhwang@meridiancapital.com.

Founded in 1991, Meridian Capital Group is America’s most active debt broker and one of the nation’s leading commercial real estate finance advisory firms. In 2017, Meridian closed over 3,000 loans totaling more than $32 billion in transaction volume with 243 unique lenders, equating to $123 million per business day. Since inception, the company has closed more than $300 billion in transactions with the full complement of capital providers, including local, regional and national banks, CMBS lenders, agency lenders, mortgage REITs, life insurance companies, credit unions and private equity funds. Meridian arranges financing for many of the world’s leading real estate investors and developers and the company’s expansive platform has specialized practices for a broad array of property types including office, retail, multifamily, hotel, mixed-use, industrial, healthcare, student housing and self-storage properties. Meridian is headquartered in New York City with offices in New Jersey, Maryland, Illinois, Florida and California. www.meridiancapital.com

Meridian Capital Group announced today that its Institutional Investment Sales Group, led by Helen Hwang, has been tapped to sell the retail condominium located in base of the luxury 166-unit Goodhue House at 189-199 Madison Avenue and 43 East 34th Street. Encompassing over 17,000 square feet, including approximately 11,000 at grade, the retail condo offers an investor both the potential for upside from below market rents and stability from long-term leases, as well as the potential for upside from below market rents in a submarket poised for near-term growth. 189-199 Madison Avenue is 100 percent leased to seven service-based tenants, including FedEx Kinkos, Chocolat Michel Cluizel and Eden Wok.

Offering an outstanding 150 feet of avenue frontage, 189-199 Madison Avenue is situated in an area that is rapidly evolving as a result of transformative high-end condominium and office developments. With an average tenant tenure of over 17 years, and over four years remaining on the in-place leases on average, 189-199 Madison Avenue offers a stable cash flow in a dynamic and desirable retail corridor that is outperforming Manhattan retail overall.

“The opportunity to control nearly an entire block front of retail space on Madison Avenue is such a rarity,” said Helen Hwang, Senior Executive Managing Director and Head of Meridian’s Institutional Investment Sales Team.

Helen Hwang, Senior Executive Managing Director of Meridian’s Institutional Investment Sales group can be reached at (212) 468-5930 or hhwang@meridiancapital.com.

Founded in 1991, Meridian Capital Group is America’s most active debt broker and one of the nation’s leading commercial real estate finance advisory firms. In 2017, Meridian closed over 3,000 loans totaling more than $32 billion in transaction volume with 243 unique lenders, equating to $123 million per business day. Since inception, the company has closed more than $300 billion in transactions with the full complement of capital providers, including local, regional and national banks, CMBS lenders, agency lenders, mortgage REITs, life insurance companies, credit unions and private equity funds. Meridian arranges financing for many of the world’s leading real estate investors and developers and the company’s expansive platform has specialized practices for a broad array of property types including office, retail, multifamily, hotel, mixed-use, industrial, healthcare, student housing and self-storage properties. Meridian is headquartered in New York City with offices in New Jersey, Maryland, Illinois, Florida and California. www.meridiancapital.com

Strategic Properties of North America (SPNA) has nabbed a $33 million floating-rate bridge loan from Silverpeak to refinance The Kent, a multifamily property in Chicago, Ill. sources told Commercial Observer.

SPNA acquired the The Kent—located at 2625 North Clark Street in the city’s Lincoln Park neighborhood— in December 2016 as a condo deconversion project. The property has undergone a significant renovation program since then, transforming its previous 133 condo units into Class-A luxury apartments.

Meridian Capital Group’s Shaya Ackerman and Shaya Sonnenschein negotiated the debt. Officials at the brokerage declined to confirm the lender’s identity.

“While SPNA has already extracted substantial value from this property through the deconversion, their business plan includes unlocking additional value by converting the units into top-of-the-line apartments,” Ackerman said in prepared remarks. “Now that the renovations are complete, this bridge loan will allow them to complete the final stages of property stabilization.”

The property sits three miles north of Chicago’s central business district and two miles from Wrigley Field. Its amenities include a fitness center, a boardroom, and a bicycle storage room.

An active developer in the condo deconversion space, SPNA scored $72 million in acquisition financing from Ladder Capital for its $78 million purchase of Kennelly Square —a 268-unit Chicago condominium tower—in June 2018. Ackerman and Sonnenschein also arranged that financing, in fact The Kent transansaction marks the debt duo’s fifth condo conversion deal with SPNA.

Officials at Silverpeak couldn’t immediately be reached for comment.

Wonder Works Construction has landed a $68 million mortgage from Deutsche Bank to refinance a recently finished condominium tower on the Upper East Side of Manhattan, sources told Commercial Observer.

The two-year condominium inventory loan on the building, known as Vitre NY, carries an interest-only payment structure. It’s secured by the building’s 48 apartments, which overlook Second Avenue at 302 East 96th Street.

Forbes Development, Mink Development and Pacific Development & Management Company joined Wonder Works in developing the building.

Meridian Capital Group‘s Morris Betesh, Tamir Kazaz and Alex Bailkin spearheaded the financing. Officials at the brokerage declined to comment on the lender’s identity.

“It was a pleasure working with Wonderworks, a premier developer in Manhattan,” Betesh said in a statement. “We were able to create a competitive bidding process and match Wonderworks with a lender who appreciates their experience and track record.”

The new package refinances construction debt that the Manhattan-based builder received from Pacific Western Bank three years ago. With construction complete, Brown Harris Stevens, the marketing and sales agent, expects early buyers to close on the first apartment there within about two months, a company representative said.

A 1,400-square-foot two-bedroom unit on the building’s third floor is on the market for $2 million, according to the building website, while a 500-square-foot one-bedroom apartment one floor up is being hawked for $915,000.

When construction financing came through in early 2016 years ago, the lot was almost a quarter-mile from the nearest subway stop. But the Second Avenue subway project, whose first phase opened on the first day of 2017, placed a subway stop on the Q line steps from the building’s entrance.

A two-story lobby, a garage and a rooftop deck round out a list of Vitre NY’s amenities.

Elsewhere in Manhattan, Wonder Works is overseeing residential construction projects at 117 West 21st Street, at 287 East Houston Street and at 114 Mulberry Street. Representatives for the company did not immediately respond to inquiries, and a Deutsche Bank spokesman declined to comment.

Why did the laundromat owner buy a construction plot on the wrong side of the tracks?

As buzz around opportunity zones shifts into high gear, developers across the country are hoping the answer won’t be a punchline.

“I had somebody meet with me whose family owns a very large dry-cleaning business in several states,” recounted the head of one development company, who asked to remain anonymous to protect his company’s business plans. “They’re selling this business, they have a $50 million gain and they’re thinking about [investing in opportunity zones]. The interest is well beyond real estate investors.”

The zones, created under the December 2017 federal tax reform, could hardly be better designed to funnel cash towards commercial real estate. Under the program, investors who’ve earned capital gains from any line of business can reinvest the income in real estate projects in one of the 8,700 distressed zones the Treasury Department approved last year, deferring taxes on those gains, or, if the holding period is long enough, waiving them entirely.

But will the incentives lead to smart, transformational development in needy areas, or a crowd of novice landlords who didn’t realize what they were getting into? With about $6 trillion in eligible funds looking for a home, it’s a high-stakes question.

“You’re going to have investors who—whether they’ve invested in real estate or not before—this will be an incentive for them to invest for tax efficiencies,” said Tom Straw, whose firm, Blueprint Equity, helps developers find institutional capital partners.

That could mean a broad spectrum of new entrants—from the most sophisticated to the least savvy.

The program’s bones are similar to the tax benefits of 1031 exchanges, which allow property owners to defer taxes when selling one commercial asset to buy another, under rules that have been part of the tax code for nearly a century. But because the opportunity zone law allows exchanges from other industries, it’s dramatically diversifying the field of investors clamoring to take advantage.

“On the one hand, you’ve got hedge fund managers who don’t manage real estate, but they’re very sophisticated investors,” Straw said. “But if you just sold a company and have $10 million of capital-gains exposure, you’re going to look at opportunity zones. It’s money that’s never necessarily looked at real estate.”

Steven Adler, a managing director at Meridian Capital Group who’s spearheading the firm’s work on opportunity zones, said he’s fielded his share of inquiries from real estate neophytes.

“I’m spending a lot of time with a family that is selling a large business. It’s going to be a few hundred million dollars of profit they’re going to realize, and they’re looking to put that money out into opportunity zones over the course of 2019,” Adler said. “Putting that kind of money out on a tight clock means they’re very, very active.”

Indeed, time can be short, because the law allows investors a strict six months from realizing a capital gain to invest it in an opportunity zone. One solution is throwing your lot in with a brand-name asset manager’s opportunity zone fund. A list compiled by Novogradac & Company, an accounting firm, counted many dozens, the largest of which, a joint effort from SkyBridge Capital and EJF Capital, aims to raise $3 billion. (At least eight others on the list, including funds from Strategic Investment Management and Caliber Companies, are targeting at least $500 million each.)

But that approach—as opposed to taking equity stakes in individual projects—may prove to have drawbacks, according to Evan Hudson, a real estate lawyer at Stroock & Stroock & Lavan.

Opportunity zone funds “are hands off, so you’re entrusting a lot of your decision making to the manager,” Hudson said. “That’s why you do your due diligence in picking your manager very carefully. With a few exceptions, you’re not investing in a proven real estate market. It doesn’t mean these markets won’t grow like crazy—they might go gangbusters—but at this point they’re not proven.”

For zones to qualify, he pointed out, more than 20 percent of its residents must be impoverished, and their median income must be less than 80 percent of the region’s income level—not markers typically associated with shining development opportunities.

To be sure, heapfuls of zones are blemish spots embedded in otherwise booming markets. In Manhattan, 35 census tracts are on the list, largely north of 96th Street. (Manhattan census tracts generally comprise several contiguous square blocks.) In Brooklyn, a whopping 124 census tracts made the cut, including sections of Lefferts Gardens, Midwood and East New York.

Far more zones across the country, however, lack the dynamism of neighborhoods like that. More typical rural zones look like the one in Caddo, Okla., a town 50 miles north of Dallas with a population of under 1,000.

Another drawback, Adler said, is that there’s not enough clarity yet about the rules for entering and leaving a fund for investors to feel comfortable about the end game.
“When you do these diversified funds, it’s not clear how an investor can sell his position in the fund,” Adler said. “If you’re a family that wants to own for 20 years, you don’t want to be in a fund that ends on a particular date.”

The same goes for an investor who, after five years in a fund, decides he wants to simply cash out and pay the capital-gains taxes he owes: the Internal Revenue Service’s rules so far don’t make clear whether that’s an option.

Investors from other industries looking to go it alone, on the other hand, face their own set of challenges—most prominently, lacking the sophistication to pursue the significant type of development work required for a qualifying opportunity zone project. For an investment to count under the plan, it must either be ground-up construction or result in a doubling of the property’s basis within 30 months. According to the development company executive, that can be a tall order for investors without much experience in the industry.

“We’ve fielded a lot of inquiries from owners that have properties in opportunity zones but that don’t have the complexity or infrastructure” to take on projects on their own, he said. “They’re looking for a partner, and we’ve had a lot of good meetings and a lot of good calls.”

Hudson, too, said he’s been greeted with a slew of calls from newbie investors who want to make sure they’re not overmatched by the nuances of the real estate tax code before signing up to make investments.

“A lot of people have very specific questions,” Hudson said. “It’s something new that’s exciting, but also scary, and it’s too early to tell what the trajectory would be.”
The zones, Hudson believes, have as much potential to be as earthshaking a development or as big of a flop as two headline-grabbing innovations from years past.

“Crowdfunding was supposed to be the biggest thing ever,” Hudson said, but it has failed thus far to become a significant avenue for investment. “On the other hand, REITs were novel once, and they’ve become a multi-trillion-dollar staple of the market.”

Opportunity zones could still land on either end of the spectrum, or anywhere in between, Hudson thinks.

Aaron Yowell, a real estate lawyer at Nixon Peabody who focuses on affordable housing work, pointed out that funding an opportunity zone project as a means to land tax-favored status might turn out to be even more complicated than other types of notoriously byzantine tax incentives around multifamily building. That’s because it’s not clear yet how the IRS will treat the cash balances that developers routinely keep on their balance sheets for contingencies.

“Some of the rules limit the types of assets that you can hold—in particular, financial assets—in a way that makes development challenging,” Yowell said. Developers “are almost always holding some kinds of reserves or working capital, and technically, the law doesn’t allow you to hold that type of asset.”

From what the lawyer has seen thus far, that complexity has served to filter out some investors who aren’t prepared for parsing the legalese that opportunity zones present.
“The clients we have who are focused on this are primarily the affordable housing developers,” Yowell said. “Affordable housing developers are good at figuring out how to do complicated things,” Yowell said.

To ensure they’re reaching the broadest possible audience, advisers are focusing their would-be-investor clients on the most straightforward strategies. In some cases, Yowell, said, that means finding ways to bring investors in on projects later in the game, once the riskiest phase of development has passed.

“The investors who would traditionally have been in this game would be the investors who don’t want development risk,” Yowell said. “We would have thought that family offices are a natural fit, but they’re very conservative, and don’t really want to sign up for a multifamily residential development. One thing we’ve focused on is finding ways to structure an opportunity zone project so that [investors] can come in later, to avoid the risk profile.”

Benjamin Pezzillo, the CEO of Pactriglo, a company that helps investors find properly zoned sites for their projects, seconded that point.

“The general approach we’re taking is [to focus on] projects that already have some velocity associated with them,” Pezzillo said.

If that sort of approach circumvents the purposes for which the zones were originally intended—to make possible developments in needy areas that wouldn’t have otherwise broken ground—it might be besides the point for investors looking to defer capital gains taxes. As you’d expect, interest has been much stronger in zones on the bubble of prosperity—like those in Southern California or in the suburbs of New York City—rather than in deeply impoverished census tracts in the rural plains states or the Southeast.

“Can you make [opportunity zones] work in the New York City [area]? Probably,” Yowell said. “But your deal there is probably pretty good already. Can you pull off mixed-use, multi-phase development in Buffalo, [N.Y.] or in Cleveland? That’s more challenging. Developers will have to take those deals and make them real.”

Meanwhile, some eager investors have found themselves face-to-face with a substantial obstacle: the partial shutdown of the federal government. Hello Living’s Eli Karp has launched a new investment platform, Hello Vision, that’s kicking off a pair of opportunity zone developments, one in the South Bronx and one in Upper Manhattan’s Inwood section.

But with the IRS down to essential workers only, Karp is still waiting for answers to key questions about how the rules governing opportunity zone funds will work.

“[The IRS] hasn’t come out with their bullet points to explain really important information,” Karp said. “I’m working on [the investments], but there’s still so much information we need in order for us to put together a full structure.”

The people behind Psychic & Crystal Readings at 3 Horatio Street will be bringing their tarot cards to West 14th Street, Commercial Observer has learned, for their fourth location in the city.

Psychic & Crystal Readings signed a lease for 500 square feet on the second floor at 250 West 14th Street between Seventh and Eighth Avenues, taking space previously occupied by Metro PC, according to information from the lone broker in the deal, Alexander Bogod of Broadway Realty. The lease is for five years, with a taking rent of $96 per square foot. The opening date is slated for the end of March.

“The tenant has three stores in the city and is opening the fourth one to meet the demand for astrology and future predictions,” Bogod said via a spokeswoman. The store will have “psychic predictions and palm reading,” he noted.

The lease signing comes at a time when tarot-card readers appear to be vanishing, at least in terms of new storefronts, according to a 2016 story in CO. Meridian Capital Group retail broker James Famularo said at the time that as the readers’ leases expire, landlords look to replace them with other types of businesses.

The landlord, under the name 250 W14 LLC, acquired the five-story, eight-unit residential building for $10.6 million in 2007, per property records. Before signing the lease with the psychic, the landlord “inspected other premises of [their] astrology business,” Bogod said. “He put in strict requirements that they were not to live in the space and weren’t allowed to sit outside in chairs. This was acceptable to all parties.”