One Financial Plaza with Clay Hamlin III and Jay Shidler of Alliance HSP (Credit: Google Maps)

Alliance HSP paid nearly $82 million for the One Financial Plaza office tower in downtown Fort Lauderdale, as part of a larger purchase that includes the land underneath the building.

Walton Street Capital and Crocker Partners, via W-Crocker Fin Place Owner VIII LLC, sold the building at 100 Southeast Third Avenue to OFP Fort Lauderdale LLC for $81.9 million. The buyer is controlled by Alliance HSP, a real estate investment firm based in Bryn Mawr, Pennsylvania. Alliance is an affiliate of The Shidler Group, also a real estate company.

In a separate deal for the land underneath One Financial Plaza, Terra Funding-OFP LLC, also tied to Alliance, paid $35.1 million. The buyer of the land signed a 99-year ground lease with the buyer of the building.

Alliance has structured other deals like this, including the recent sale of a downtown Chicago office building to Golub & Company. In that deal, Shidler owned the land.

Melissa Rose, Dave Jacobs and Chris Gathman of Ackman-Ziff arranged the financing for the Fort Lauderdale office building.

The 28-story, 276,572-square-foot Class A office building was built in 1972 on a 4-acre property, and was originally known as the Landmark Bank Tower. When it opened, it was the tallest building in Fort Lauderdale, and is now among the 10 tallest in the city.

It last sold in February 2017 for $86.75 million.

Tenants include the Tower Club restaurant on the penthouse level, anchor tenant Regions Bank, Pipeline Workspaces, AXA Advisors and Fowler White Burnett.

The building includes an attached parking garage, lobby, gym and conference space.

The office tower is about two blocks away from Las Olas Boulevard, which is going through a commercial and residential resurgence. The South of Las Olas district is also seeing increased investment and new projects.

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Alex Rodriguez has been investing in real estate for decades. He made his first purchase — a duplex outside of Miami that he needed a $48,000 downpayment for — when he was 22.

But in the years since, the former Yankee third baseman, who is now 44, has built a sizable national real estate portfolio. He has thousands of units, all under the A-Rod Corp. umbrella, in U.S. markets like Chicago, North Carolina and Texas. Now, he’s turning his sights on South Florida and New York.

For the full Q&A with A-Rod see here

In New York, he recently announced a partnership with his longtime personal broker, Adam Modlin, and developer Ofer Yardeni, the CEO of Stonehenge to buy up $1 billion worth of multifamily real estate in the next 18 month.

Watch here for a behind the scenes on A-Rod’s photo shoot with the The Real Deal and to hear him talking about what he learned from his Yankees’ managers — Joe Torre and Joe Girardi — and how being a celebrity can cut both ways in the business world. Spoiler alert: He didn’t share the guest list for his upcoming wedding to J.Lo.

Brent Baker and a rendering of Oak Tree Golf Course

UPDATED, Oct. 2, 4:30 p.m.: Pulte Homes closed on 139 acres in Oakland Park to build over 400 homes, property records show.

The Atlanta-based homebuilder paid $31 million for the former Oak Tree Golf Course on land bordered by Prospect Avenue, Northwest 21st Avenue and Northwest 44th Street. Blackwood Partners and Blackshore Partners sold the golf course to Pulte and provided $29.25 million in seller financing.

The golf course, at 2400 Oak Tree Road, has been closed for more than a decade, according to a release. Pulte has been working with the city to develop the site for over three years.

F. Thomas Godart of Godart Florida Real Estate Investments represented Pulte in the deal.

The 405 homes that Pulte plans to build will include 273 single-family houses and 132 townhomes. The Oakland Park community will also have nearly 50 acres of open space with a fitness trail that surrounds the property, and resort-style amenities. Sales are expected to begin next summer.

Homebuilders across the country are buying golf courses as the sport’s popularity has declined and the supply of available land continues to shrink, especially in South Florida.

Pulte’s projects on former South Florida golf course land include 645 homes on 160 acres on the former Hillcrest Golf & Country Club in Tamarac, and 152 homes on nine of Woodmont Country Club’s 18 holes.

Charlie Kushner and Laurent Morali over Fort Lauderdale site (Credit: Google Maps)

Kushner Companies is making its first big real estate play in Fort Lauderdale.

The company, led by Charles Kushner, Nicole Kushner Meyer and Laurent Morali, is under contract to purchase three properties for $49 million across the street from the Virgin Trains station in downtown Fort Lauderdale’s Himmarshee District, sources told The Real Deal.

Swire Properties of Hong Kong is selling the lots at 200, 300 and 520 West Broward Boulevard. The land totals 4.2 acres and Kushner is planning a mixed-use project on the site.

New York-based Kushner could not be reached for comment.

Development has ramped up near Virgin Trains’ stations in Miami, Fort Lauderdale and West Palm Beach. Virgin Trains is also considering adding more stops throughout South Florida, including one in Aventura.

Kushner’s Fort Lauderdale site borders an Opportunity Zone, but is just outside of it. The firm is paying about $270 per square foot for the assemblage.

Records show that Swire affiliate FTL/AD General acquired the land between 2006 and 2007. In Miami, Swire is working on the second phase of Brickell City Centre. It’s also planning a residential project on a site immediately north and west of Brickell City Centre with Colombian businessman Carlos Mattos.

Kushner recently expanded to South Florida, acquiring two sites in Miami.

The company is under contract to purchase the property at 2000 Biscayne Boulevard in Miami’s Edgewater neighborhood, where it’s planning to develop the site into a 1,100-unit apartment project with a local as-yet-undisclosed partner. That assemblage is in an Opportunity Zone.

The second project for Kushner is in Wynwood, where it’s partnering with Block Capital Group on two mixed-use developments on Northwest 26th and 27th streets. Kushner and Block Capital paid $32 million for the assemblage, which they’ll develop into 152 rental apartments, 50,000 square feet of office space, 34,000 square feet of retail space and parking.

Forever 21 owes these five mall owners $20.9 million, bankruptcy court records show.

When South Korean immigrants Jin Sook and Do Won Chang landed at Los Angeles International Airport in 1981, they had nothing.

The couple eventually scraped together a modest savings and opened their first clothing store in Los Angeles. Over three decades later, they turned that single store into a fast-fashion empire known as Forever 21, which had 800 locations across the globe and at its peak was raking in $4.1 billion in annual sales.

Yet it was that rapid expansion that would lead to financial strain for Forever 21, due in part to its increasing number of large-format stores. Many of those were in malls and some in unprofitable markets, which have seen a steady drop in foot traffic from the onslaught of Amazon-led e-commerce.

That strain turned to ruin this week, when Forever 21 filed for bankruptcy.

In announcing it will shutter more than 175 stores in the U.S., the retailer leaves a host of mall landlords with millions of dollars in outstanding lease payments and millions of square feet of empty space.

For years, mall owners have been working to repurpose a glut of empty retail space left behind by challenged retailers. And in some cases, landlords are undertaking massive, expensive renovations to absorb these stores. But for the most part, when one retailer abandons a location, the property owner is left to replace that space with another retailer. That task has become increasingly difficult.

Mall owners on the hook
Some mall owners may be more exposed should Forever 21 close all of its stores.

Mall operator Westfield — which in 2018 was acquired by French shopping center operator Unibail-Rodamco — will feel the impact of the announced closures most. Eighteen of its Forever 21 stores in the U.S. will be closing their doors.

And combined, Macerich and Taubman Centers will see another 26 stores shut down.

Unibail-Rodamco-Westfield, Macerich and three other landlords — Simon Property Group, Brookfield Properties and Vornado Realty Trust — also rank among the company’s 50 largest unsecured creditors, comprised mostly of vendors from Forever 21’s sprawling supply chain network in Asia.

Together, Forever 21 owes these five mall owners $20.9 million, bankruptcy court records show.

For Taubman, 4.3 percent of its malls’ gross leasable area comes from Forever 21, according to Mizuho Securities USA’s research from mid-September.

“It’s not small enough to ignore,” according to Mizuho managing director Haendel St. Juste. “This is meaningful.”

For Macerich, Forever 21 stores account for 2.5 percent of its average base rent, and for Simon Property Group, it’s 1.4 percent. Mizuho did not recommend a buy rating for any mall REIT in its coverage.

With 549 stores in the U.S., Forever 21 is a sizable tenant to many mall landlords. The stores, while smaller than anchor department stores, tend to span 40,000 to 60,000 square feet, larger than most inline stores, said Haendel St. Juste, managing director at Mizuho.

In an August report, Kroll analysts noted that among properties securing CMBS loans, 13 Forever 21 stores had floor area of 80,000 square feet or more, and were potentially at greater risk of “closure, downsizing or repurposing if determined to be inefficient.”

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Coast to coast closures
The closures span the country, from the Forever 21 in the World Trade Center in Lower Manhattan, to the one at the recently-sold Hollywood and Highland Center on Hollywood Boulevard in LA. In between, they include Brookfield’s Water Tower Place on the Magnificent Mile in Chicago; and in Miami Beach, Midtown Equities’ 701 Lincoln Road.

The company’s restructuring “will focus on maximizing the value of our U.S. footprint and shuttering certain international locations,” Forever 21 said in a statement.

As part of its restructuring plan, Forever 21 said it will close most of its European and Asian stores plus at least 178 of its U.S. locations — a figure that could increase. The company also hopes to terminate lease agreements for another U.S. 11 locations that have not yet opened, including nine with Simon and two with Brookfield Retail, according to bankruptcy filings. Earlier this summer, a small group of Forever 21 officials sought to strike a deal with landlords Simon and Brookfield to invest in the company, an account the retailer denied, according to Bloomberg.

Scaling up and slowing down
By Forever 21’s own account, the company’s larger stores have been a drag on the company not just because of higher rents, but also because the need to fill those stores has strained its entire supply chain.

“The scale drove new merchandise sourcing strategy that greatly slowed ‘speed to market’ and increased risk generally,” according to the bankruptcy filing.

Forever 21 had expanded in the wake of the real estate crash of 2009, vacuuming up space left behind by Borders, Mervyns and Sears and locking in “advantageous prices” for rents, according to its court filings. And at that time, Forever 21’s low prices caught on with many consumers during an economic downturn.

Today, though, it costs Forever 21 about $450 million to occupy its stores, which span 12.2 million square feet, court records show.

The chain also claims in its filings that it is being hit hard by declining mall traffic and extra floor space for almost decade-old leases in unprofitable markets. The company also said it’s tight on cash, with just $19.4 million on hand, making it difficult for it to get the inventory it needs before the critical holiday season.

Race to repurpose

Forever 21’s bankruptcy filing comes amid a string of major retailer bankruptcies, including Barneys New York, Sears, Toys ‘R’ Us and Payless Shoesource. Year-to-date, U.S. retailers have said they would close almost 8,600 stores this year, compared to almost 5,800 last year, according to data firm Coresight Research.

The retailer bankruptcies and closures have cast a long shadow on retail real estate owners, who must work to repurpose the big empty boxes left in the wake of a shuttered store. While REITs are outperforming the broader stock market, the regional mall sector is among the worst-performing REIT groups, posting one-year return losses of 13.5 percent, according to research released this week by Barclays.

Mall owners are trying to respond by repurposing and investing more money into aging properties. In Paramus, New Jersey, Westfield-Unibail-Rodamco plans to renovate the Garden State Plaza, one of the top malls in the country. Some of the new additions include residential space, offices and a hotel. And Macerich and Hudson Pacific Properties are also converting much of the the 500,000-square-foot Westside Pavilion in Los Angeles into creative office space, with Google as the sole tenant.

Still, as other retailers like Pier 1 Imports, DressBarn, JC Penney and Victoria’s Secret teeter near bankruptcy — according to Mizuho’s research — mall owners face a daunting road ahead.

“The retail landlords are not out of the woods yet with the store closures,” St. Juste said.

Robert Reffkin and Avi Dorfman (Credit: iStock)

Avi Dorfman, who says he’s a co-founder of Compass, has been fighting for a $200 million stake in the firm for five years. Now, a jury will decide if he’s entitled to it.

In an Oct. 1 ruling, a New York judge denied the SoftBank-backed firm’s motion for summary judgment, and said Dorfman is entitled to a jury trial. He may also be in line for monetary damages related to his claims that he helped CEO Robert Reffkin work on a concept for Compass but was later cut out of the action.

“The record is clear that they exchanged, among other things, emails that set forth offers and counteroffers as to how Dorfman would be compensated as a ‘founding team member’ of the new venture,” Supreme Court Judge Andrea Masley wrote, ordering a trial date to be set within 30 days.

“We are excited for the opportunity to tell Avi Dorfman and RentJolt’s story to a Manhattan jury soon,” Steve Susman, Dorfman’s legal representative, said in a statement to The Real Deal. (Dorfman claims he was offered a stake in Compass, plus a salary, in exchange for Reffkin’s purchase of his venture RentJolt. The deal never transpired.)

Compass declined to comment. But it previously argued that Dorfman “spurned multiple offers” to work at Compass only to file an “opportunistic” lawsuit against the firm.

“Dorfman now seeks a do-over of that decision, claiming he should be awarded tens of millions of dollars in equity in Compass far in excess of what he could have earned if he had actually chosen to join that venture,” Compass said in its motion for summary judgment.

In legal filings, however, Dorfman claims he developed a 120-day plan to launch the company that would later become Compass; supplied Reffkin with information to present to investors; provided competitive information about other real estate companies; and recruited Chairman Ori Allon, among other things.

“Dorfman has submitted enough proof to show that he provided these types of services that went beyond the negotiation of a business opportunity,” Masley wrote.

Dorfman sued in 2014, claiming Reffkin used a business concept they worked on together in 2012 as the basis for Compass. At the time, Compass was valued at $360 million after raising a $40 million Series B round. This July, Compass’ valuation reached $6.4 billion, after raising a $370 million Series G.

Although the original suit did not specify damages, a lawyer for Compass inadvertently disclosed Dorfman’s monetary claim — that he’s entitled to a 15 percent stake of the company at founding — during a hearing last year. Using back-of-the-napkin math, sources said Dorfman would stand to collect around $200 million.

In 2016, the Manhattan Supreme Court ruled that Dorfman could continue to call himself a co-founder of Compass.

Matis Cohen and Marisa Galbut with the 72nd and Park rendering

Matis Cohen and the Galbut family’s proposal to significantly make over Miami Beach’s Carlyle and Byron avenues scored an important approval Wednesday. The city’s design review board granted two waivers for 72nd and Park, a major mixed-use project the developers propose for North Beach under new development guidelines the city approved for the neighborhood last year.

KGTC, LLC — a partnership controlled by Cohen and Marisa Galbut, regional director for the family-operated Crescent Heights — wants to build a 22-story tower from 71st to 72nd streets, between Carlyle and Byron avenues.

Arquitectonica is designing 72nd and Park, which will have 283 multifamily units, including 125 micro-units smaller than 550 square feet. The mixed-use development would also have roughly 12,500 square feet of retail and restaurant space, amenities and parking. In order to build it, the developers sought waivers to allow separate driveways for the parking and loading portions of 72nd and Park, as well as an additional 20 feet to the 200 foot height limit.

Under the new regulations for the North Beach Town Center area, developers building properties greater than 50,000 square feet and located north of 71st street can request an additional 20 feet of height based on the merits of a project’s design. “The site encompasses the entire block,” said Raymond Fort of Arquitectonica. “It is a mixed-use podium of retail and parking. Sitting on top is the residential.”

Fort told the design review board that the apartment building component is on the northern side of the proposed project so it doesn’t loom over 71st Street, which is the main street for the North Beach Town Center. “On the ground floor, we have worked closely to put together a streetscape that is unique to the neighborhood,” he added.

After a yearlong community engagement campaign, the Miami Beach City Commission in November 2018 approved detailed development standards for the North Beach Town Center neighborhood, including increased height, increased density with diverse residential options such as co-living and micro-units, and relaxed parking requirements to stimulate development of mixed-use projects.

According to KGTC’s letter of intent, 72nd and Park’s residential mix will include co-living units and traditional studio, one-bedroom, two-bedroom and three-bedroom floor plans that feature large glass windows and expansive open balconies. In addition, the tower is designed within a reduced building footprint that allows for substantial open space and landscaping on the fifth-floor pool deck, the letter states.

Ana Bozovic, a broker who runs market research firm Analytics Miami, was among a half-dozen attendees speaking in favor of the project because 72nd and Park will add new market rate housing in Miami Beach. “Simply put, we don’t have housing stock for people moving to the region to work,” Bozovic said. “We only have expensive buildings and old buildings.”

Swire has 135 units left to sell in the Rise building in Brickell City Centre.

For the first owners of a two-bedroom luxury condo on the 36th floor of Rise, one of two new luxury towers at Brickell City Centre, buying at a preconstruction price turned out to be a losing proposition. On May 10, a shell corporation owned by Venezuelans Carolina Jimenez Suastegui and Jose Marazita Espinar sold the 1,344-square-foot unit for $700,000, which was a 24 percent loss from what they paid in 2016, when Rise was completed. After deducting closing costs and the broker’s commission, Suastegui and Espinar cleared $637,000 three years after closing at a purchase price of $920,900.

Sandra Heath, the Fortune International Realty agent who listed their unit, said Suastegui and Espinar decided to cut their losses before the hole got deeper. Even though they were successful in renting out the unit, her clients were in financial distress and had a mortgage on the property for $450,000 with a due date of Aug. 1, Heath said.

“They ran the numbers, and even if they had kept it for 10 years they would have ended up paying even more than they were making,” Heath said. “They decided to take a loss now rather than a bigger loss later.”

Suastegui and Espinar are not the only Rise preconstruction buyers to take a beating in Miami’s resale market. Analyzing Multiple Listing Service resales data, The Real Deal found that 12 units at the 43-story building were resold between January 2018 and June 2019, at a time when the developer was also unloading more than 100 remaining units. Eleven of those resellers flipped their units at prices way below what they paid during the project’s preconstruction ramp-up. The only deal to make money was the March 18 sale of a four-bedroom unit on the 39th floor for $2.8 million; the original owner paid $2.7 million in 2016. However, after deducting closing costs and sales commissions, the reseller walked away with $2.5 million.

A comparison of the resale prices and preconstruction prices shows the resellers flipped their units for an average of 11.77 percent less than what they originally paid. Subtracting closing costs and sales commissions, the gap widens to 22.5 percent. The units spent an average of 308 days, or 10 months, on the market.

The Rise resales provide a snapshot of the dovetailing luxury condo market in South Florida, in which resellers seeking to cash out their investments are competing against developers for the same diminishing pool of wealthy buyers. As a result, developers like Rise’s Swire are offering deal sweeteners, such as covering maintenance costs or property taxes for a full year, in order to sell out remaining units, local luxury brokers and market analysts said. Resellers have no choice but to drop their asking prices and take a financial hit, they noted.

“We are definitely in a buyers’ market,” Heath said. “We are seeing 10 percent discounts from sellers’ original asking prices.”

Ana Bozovic, a Miami Beach broker and founder of Analytics Miami, said resellers aren’t getting higher returns because they can’t compete with developers that can spend six-figure sums on marketing and give brokers higher commissions than the standard 3 percent in the resale market. Many developers are offering a minimum of 5 percent and as much as 10 percent. Thus, “agents have an incentive to market the developers’ units,” Bozovic said.

What’s more, units in new buildings in the urban core, such as Rise, attract less interest because the abundance of luxury condos available along the waterfront.

“There is so much inventory on the ocean that it is difficult to get people to buy properties that are not on the water,” she said.

In the red

The condo resale market experienced an inventory increase of 75 percent in 2018, according to the 2019 ISG Miami Report, which tracks the luxury condo market in Miami, Fort Lauderdale and Palm Beach. The MLS showed 21,000 condos on the resale market for all of Miami-Dade and Broward counties and an average of 2,400 sales per month as of April, ISG found.

During the first three quarters of 2018, Miami-area resellers of new construction properties lost an average of 3 percent, not including buying and selling costs, according to an analysis of the resale market by Miami-based HB Roswell Realty and digital data firm CondoBlackBook. The report looked at 102 resales involving condos built from 2016 to 2018 in downtown Miami, Coconut Grove, Miami Beach and surrounding coastal communities.

Of those deals, 38 broke even or made a profit while 64 resales lost money. When factoring in buying and selling costs, 78 percent of the 102 resales were left in the red after closing, the report found.

“For those who speculatively invest in preconstruction properties, timing is everything,” said Sep Niakan, president of CondoBlackBook. “Most owners in Miami lost money reselling new construction units that they acquired when the market was stronger.”

Another broker, who has listed Rise condos for resale and requested anonymity, said Swire is giving buyers credits, in the form of free maintenance association fees for two years or covering their taxes, that are not factored into the final sale price. “The developer’s prices appear high because they don’t want to look like they are going against the people who bought from them during preconstruction,” the broker said.

According to Swire, the average listing price for a Rise resale condo is $1.2 million, while the average price for a new development unit is $941,000.

Through its spokesperson, the developer would not comment on what credits the company is offering to sell out its remaining 135 units at Rise and 780 units in the sister tower, Reach, but said the incentives generally do not result in pricing that is below the preconstruction prices.

The spokesperson said some of the 12 Rise resellers were distressed buyers who needed to cash out. “We’ve been seeing incidences like this across Miami lately,” the spokesperson said.

Meanwhile, the number of active condo listings is growing at a faster rate than sales, according to MLS data crunched by Analytics Miami. Its most recent report shows that the luxury condo market in Miami and Miami Beach ended June with more active listings than in the same month last year. Miami ended the second quarter with the lowest transaction volume since 2010, Bozovic said.

“Buyers of preconstruction are not fully informed, so they probably think they have a market to resell into. They have no idea how small the resale market really is past certain thresholds,” she said. “The luxury market is much, much smaller than most people think it is.” 

Every day, The Real Deal rounds up South Florida’s biggest real estate news, from breaking news and scoops to announcements and deals. We update this page throughout the day. Please send any tips or deals to tips@therealdeal.com

This page was last updated at 9 a.m.

Plans revealed for the Related Group’s Coconut Grove office building. A Cushman & Wakefield broker posted details of 2850 Tigertail on LinkedIn, which showed that Related’s office building will be eight stories tall with Related taking the top two floors. Five stories are available for lease, according to the Next Miami. Related will be moving from its current headquarters in downtown Miami. Arquitectonica is the architect and MKDA is handling interior design. [The Next Miami]

Rise condo re-sellers are losing money on their investments. Analyzing Multiple Listing Service resales data, The Real Deal found that 12 units at the 43-story building at Brickell City Centre were resold between January 2018 and June 2019, at a time when the developer was also unloading more than 100 remaining units. Eleven of those resellers flipped their units at prices way below what they paid during the project’s preconstruction ramp-up. [TRD]

A co-working firm backed personally by Adam Neumann is raising $500 million. Selina, which provides office space to travelers, is seeking to launch a fund to invest in U.S. properties. [Bloomberg]

Compiled by Katherine Kallergis

eXp Realty CEO Glenn Sanford (Credit: iStock)

Virtual brokerage eXp Realty is getting into the instant-homebuying game.

The fast-growing firm said Thursday it will join the ranks of Redfin, Zillow, Keller Williams and Opendoor by offering sellers the chance to instantly offload their property to buyers.

Through Express Offers, eXp agents will submit properties “to a number of institutional buyers,” the company said. The program is available in California, and eXp said it plans to open in 10 more states by the end of 2019.

Illustrations by Paul Dilakian

Days before Christmas in 2016, Karen Harvey was making plans for the holiday with her daughter when a piece of paper slid under her apartment door. It was an eviction notice.

Karen Harvey

Harvey and 200 other tenants in Philadelphia’s Penn Wynn apartment complex were told they would have to be out by March. “I was crushed. I felt like I’d been kicked in the face. The prospect of having to move in three months was overwhelming,” Harvey said. “Where was I going to get $2,400 to move?”

The owner, Cross Properties, didn’t realize that their business strategy would be a catalyst for the city’s tenant movement. While some renters found new apartments and others fought to stay, many joined the Philadelphia Tenant Union. A year later, Harvey spearheaded a successful campaign for the city’s first “good cause” eviction bill. Now, organizers and socialists show no signs of stopping, as they canvass neighborhoods in small teams to build support for rent control.

“From February to June we’re going to bang down City Council’s doors, just like we did with ‘good cause,’ until we get a rent control bill passed,” Harvey said.

There isn’t a single, organized rent control movement across America. Instead, a loose network of groups like Harvey’s are winning key fights in some of America’s biggest cities and states. They’ve won “good cause” eviction requirements for New York mobile home communities and successfully fought for rent caps in Oregon and California. Groups across the U.S. and Canada are also sharing notes. One regular monthly conference call brings together 30 different tenant unions, including groups from British Columbia, Los Angeles, Iowa and Suffolk County. And they’re pushing for major reforms in Seattle, Colorado and Illinois.

Much of the reason the debate is generating such interest now is simply demographics: at least 5.4 million single family homes were converted into rentals in the decade after the foreclosure crisis. No longer just a stop on the way to homeownership for those near the poverty line, the share of renters has dramatically increased. Renters are now the majority in the 100 largest cities in the United States, according to a 2017 Harvard study.

Karen Harvey (center) meets with Philly Tenants Union ahead of the vote for ‘Good Cause’ eviction

Meanwhile, local landlord groups are lobbying city and state officials but haven’t yet tackled the issue as a united front. In some cases, including in California and Oregon, real estate owners have actually thrown support behind rent control, as a way to fend off more extreme reforms. Some states have enacted rent control sporadically or, in the case of 24 states, banned the practice entirely with preemptive bans. With at least one presidential candidate and a sitting congresswoman calling for nationwide rent control, tenant organizers are setting the agenda and the real estate industry is gearing up for more fights.

“Our country was based on something called the free economy,” said Dennis Block, a Los Angeles attorney whose eponymous firm evicts hundreds of tenants each month. “For some reason, when your name happens to be landlord, that concept is thrown out the window.”

Rent control, a brief history

Rent control has existed in some form in the United States since federal “fair rent” committees were created in 82 cities during World War I. Rent control gained popularity in cities after World War II in response to a housing shortage and rising rents. The housing boom of the late 1940s and 1950s saw many cities ditch such controls, though there was a resurgence of rent control in the 1970s when more than 200 communities sought to deal with a deluge of evictions. Since the 1980s, such policies have largely declined across the country.

Outside the U.S., rent control can be traced as far back as the Middle Ages. In 1562, Pope Pius IV in Rome eased housing restrictions and other forms of persecution against Jewish tenants, ordering their Christian landlords to stabilize rents, according to the Cornell Law Review. Though, there’s some speculation that the issue popped up in ancient Rome. An unsourced New York Times story in 1923 describes a Roman senator who took his landlord to court after he doubled his rent, causing Caesar at the time to cap rents of certain types of homes.

Urban Institute, a Washington, D.C.-based think tank, notes in a January 2019 report that there’s a gap in the research around rent control. Most crucially, analysis often doesn’t take into account the potential benefits of regulating rent increases, nor does it factor in how local regulations — like restricting condo conversions — can balance out the potential consequences of rent control.

“One of the big criticisms, which is why it’s in economics 101 books, is that it throws off the natural supply and demand of the market,” said Mark Trekson, one of the authors of UI’s report. “What it does help is, it lets people stay in a unit longer than they would otherwise. It gets rid of those one-year shocks.”

Modern reports on the impact of rent control often laud the policy for creating greater stability for renters, who are able to stay in their apartments or neighborhoods for longer stretches of time. These reports, however, often temper such benefits with the looming concern that landlords will react by converting rental housing into condos or by simply neglecting their properties.

A widely cited 2018 Stanford University report, which studied the impact of San Francisco’s 1994 rental control law, found that owners reduced the supply of rental housing by 15 percent, largely through converting their properties. Another 2019 report by Columbia University found that rent control has a net positive impact and doesn’t lead to an overall decline in the quantity of rental housing, though it may mean apartments are built in areas outside urban centers. Stijn Van Nieuwerburgh, a professor of real estate and finance at Columbia and one of the report’s authors, noted that it’s crucial that affordable housing policies target lower-income residents and are paired with other regulations.

“Rent control does not create any new housing units, so it can never be a panacea to housing problems,” he said.

Roderick Hills, a professor of law at New York University, has advocated for making rent caps conditional on easing up zoning restrictions to encourage the construction of new housing.

“I am becoming more convinced that it is impossible to reduce regulatory obstacles to new housing without rent control,” Hills said. “Rent control might be an essential part of any package of policies designed to curb NIMBY zoning that is strangling our cities.”

Landlords shrug on the West Coast

On Feb. 4, Jim Straub, a third-generation landlord and director of the Oregon Rental Housing Association, appeared before the state Senate to offer his thoughts on a forthcoming rent control bill. The chamber likely expected the usual proclamations from landlords faced with new regulations: it will kill investment, conditions will deteriorate for tenants, and the housing crisis will only get worse. But that’s not what Straub told lawmakers.

“Let’s recognize it for what it isn’t: an industry killer,” he said. “There are drastic changes for landlords and investors in SB 608, but as written, I do not believe it will be catastrophic.”

When the sausage was finally made, Oregon had passed the nation’s first statewide rent control bill. But it didn’t look much like rent control, or what people traditionally think rent control looks like. While the legislature passed a “just cause” eviction provision, rent increases were capped at 7 percent, plus the consumer price index, which was 2.6 in August 2019, according to the Bureau of Labor Statistics. It was far higher than the two-to-three percent cap that had been rumored.

“It’s been a mixed bag. The bill may not be exactly what we wanted, but it was a significant step in the right direction,” said Katrina Holland, executive director of Community Alliance for Tenants, a group that pushed for the statewide measure.

Protesters from the Lift The Ban coalition in Chicago

Jim Lapides, vice president of the National Multifamily Housing Council, watched from afar when the bill passed. For his group, which lobbies across the country for real estate-friendly legislation, it was a path forward for similar legislation in the nation’s biggest state.

“California’s bill was definitely modeled after Oregon’s,” Lapides said.

Like 23 other states, California has legislation in place from the 1990s that prevents municipalities from enacting their own rent control measures. Tenant groups and activist-billionaire Michael Weinstein made a habit of trying to overturn the rule. In 2018, Weinstein’s AIDS Healthcare Foundation spent $17 million to repeal the ban through a statewide referendum. But they were outgunned by the real estate industry, which spent $96 million and won in a landslide.

“The coalition had mapped out priorities in December, and a statewide rent cap was one of them,” said Arielle Sallai, chair of the Los Angeles Democratic Socialists of America Housing Homeless Committee. “When we saw rent control passing in other states like Oregon, it made it seem even more viable. We were hoping the national momentum would force our legislators to get a kick in the pants to finally do something.”

Months later, apparently responding to California’s housing affordability crisis, legislators proposed a rent control bill. Ahead of the vote, Essex Property Trust, a real estate investment trust that last year reported 83 percent of their income came from California, called the measure “balanced” on a quarterly earnings call.

The legislature passed the bill: a 5 percent plus consumer price index limit on annual rent increases. The real estate industry was quick to warn that the measure would drive investors away from California.

“Whether it’s California, Oregon, Illinois or New York— rent control will be another impetus for investors: do I want to put my incremental dollar in a higher risk or a lower risk environment?” said Jon Woloshin, a real estate analyst at UBS Global Wealth Management.

Publicly, landlords decried the rent control measure for all the normal reasons. But privately, many were relieved: Essex Property Trust, for example, already had an internal policy of limiting increases to 10 percent. Anything higher would lead to “push back and phone calls almost immediately” from residents, Essex Property Trust CEO Michael Schall told his firm’s investors.

While maintaining the appearance of rent control, the real estate lobby had successfully pushed for a few key provisions — it got a narrower definition of “good cause” eviction and exemptions for single family homes. More importantly, the rent control preempts any repeal of the statewide ban on municipalities enacting their own rent control measures. In other words, a bill the industry could live with wasn’t very toothy, and wouldn’t get worse than that.

Sallai, of the DSA, wasn’t surprised that the rent control bill was watered down. Gov. Gavin Newsom has balked on rent control since 2014, she said.

“We snuck in to a meet-and-greet to ask him about rent control — and he did his usual ‘walk away’ and said we needed a compromise,” she said. “It seems like with AB 1482, he finally got it. And it goes to show — if [private equity giant and landlord] Blackstone is happy about it, it’s not as strong as we want it to be, but I guess it’s better than nothing.”
Newsom is expected to sign the legislation as soon as October.

No rent control allowed

Chaining themselves together in the middle of Governor J.D. Pritzker’s office in Springfield, Illinois, 28-year-old Diego Morales and a half-dozen other activists from the “Lift the Ban” rent control coalition were hoping for a Hail Mary at the end of the legislative session.

Diego Morales (Credit: Facebook)

After six hours locked together with zip ties, the group did get a meeting— not with Pritzker, but with his staff. Their efforts were unsuccessful: the bill to repeal the statewide ban on rent control died in committee without ever making it to the floor for a vote. But the campaign led to some surprising political developments.

The community groups behind the effort, a coalition of left-leaning community groups, unions and the Democratic Socialists of America, used the unsuccessful campaign as a springboard, helping get six DSA-endorsed city council members elected. The candidates have all endorsed the “Lift the Ban” campaign and spurned campaign contributions from developers.

The result is a socialist bloc on Chicago’s 50-member City Council that is a constant thorn in the side of the real estate industry.

“DSA is not like other socialist organizations that are sometimes like reading clubs. We were out in the rain, in sub zero temperatures knocking on doors,” said Morales, a member of the DSA. “Now more than one tenth of the city council is socialist because we put boots on the ground.”

Brian Bernardoni, Chicago Association of Realtors senior director of government affairs, said he expects efforts to repeal the ban to be resurrected in the coming year, and the real estate industry should be wary of a rising movement that marries progressive groups with organized labor.

“It’s good politics but lousy economics,” Bernardoni said. “The progressive movement has taken root. We’ve been watching this for a while in Chicago and Cook County. Progressive candidates, organized labor and service employees unions are really addressing issues that are exciting voters.”

Rent caps in the Beltway
Meanwhile, some 80,000 rent controlled units in the nation’s capital stand to become market rate in December 2020 if the Washington, D.C. City Council doesn’t act.

The law, on the books since 1985, applies to apartments built before 1975, and permits landlords to hike rents each year by the consumer price index for urban wage, which was 1 in July 2019 for Washington D.C., plus two percent of the rent. Such increases are further capped for elderly and disabled tenants. Earlier this month, Council member Anita Bond proposed a bill that would extend rent control through 2030. It looks likely to pass.

“Despite nearly half a century of rent control, the District now has less than half as many low-cost apartments as there were 15 years ago,” a spokesperson for Bond said. “Without the District’s most important affordable housing program, rent control, the District’s population will become less diverse … Workforce housing will all but disappear.”

Tenants have also mobilized in the city. In July, residents launched a District-wide tenants union, with one of its goals being to fight for the renewal of the city’s rent control law. The city’s local DSA chapter also formed an anti-eviction campaign dubbed “Stomp Out Slumlords” in 2017. Stephanie Bastek, a member of the campaign and a board member of the tenant union, said elected officials haven’t done enough to ensure more units aren’t deregulated.

“[Bond] talked about expanding rent control and making it better when in fact she’s just maintaining the status quo,” she said.

Allison Hrabar, an organizer of the campaign, added that if the debate over reforming rent control heats up, she doesn’t expect it to be as controversial among local landlords as other housing issues in the city. The reason is simple — much of the district’s rental housing supply is made up of single-family homes, which are excluded from the city’s rent control law.

In the U.S., three states — Maryland, New York and New Jersey — have a form of rent control that only applies to certain apartments, according to the National Multifamily Housing Council. Only 1 percent of New York’s housing stock — about 22,000 apartments — are rent controlled, according to the last U.S. Census Bureau’s housing and vacancy survey. Rent control applies to tenants living in a building constructed before 1947, who have lived in the apartment since July 1, 1971 — or are a direct descendant of the original tenant. Far more apartments, roughly 1 million, are rent stabilized, meaning that annual rent increases in these units are decided by the city. The state legislature enacted other limitations on rents hikes in June with the passage of the Housing Security and Tenant Protection Act.

Local rule in Jersey

Across the Hudson River, it’s up to individual municipalities in New Jersey to decide whether to cap rent increases. According to the most recent survey of rent control throughout the state, conducted in 2009, more than 100 municipalities have rent control measures in place. Many are based on CPI, though some have provisions that set the limit based on whether tenants pay their own heating costs.

In April, Jersey City Council member James Solomon released a report that underscored the need to reform the city’s “broken” rent control system. According to the report, most tenants don’t realize that their apartment is regulated, leading to landlords to routinely disregard annual rent caps. In Jersey City, landlords who own multifamily buildings constructed before June 1983 with more than four units can only raise rent every 12 months by the lesser of 4 percent or the difference between CPI three months prior to the end of the lease and three month before the lease was signed.

Perhaps following New York’s lead, Jersey City is also considering amending how landlords are able to increase rents through renovations.

“We do want to strike a balance where there are still real incentives to keep apartments maintained,” Solomon said.

Ron Simoncini (Credit: SB One Bank)

Landlords in Jersey City are represented by Ron Simoncini, executive director of the Jersey City Property Owners Association and president of marketing firm Axiom Communications. Simoncini, who has helped landlords in more than 30 municipalities oppose rent control measures, said city officials should instead focus their energy on ensuring landlords properly register their units as rent controlled and enforcing other elements of the existing city ordinance before trying to put in place new regulations. He’s heartened by some of the discussions he’s had with council members and housing advocates, saying that many have realized that “rent control is not about affordable housing.” He said the issue of poor conditions at some properties shouldn’t be conflated with rent control.

“When people are hampered in their ability to generate returns, the capital leaks out of the business,” he said. “The notion that you punish the entire set of property owners because some set of property owners don’t care for their properties is the most dangerous notion in New Jersey, despite the fact that it’s absolutely ridiculous.”

Columbia’s Van Nieuwerburgh said that while “one-size fits all doesn’t usually work very well,” instituting state or national-level policies could help get around local resistance.

“It’s the nimbyism of the local homeowners,” he said. “The more local you go with the problem, the more likely you are going to run into opposition.”

Back in Philadelphia, the real estate industry is facing a growing threat, and one that is rousing national interest.

In September, presidential candidate Elizabeth Warren endorsed Kendra Brooks, who is running for city council in Philadelphia on the Working Families Party ticket. As part of her platform, Brooks is seeking to end a 10-year tax abatement granted to developers in the city — and enact rent control.

“Everywhere I’ve been in the last four or five years has a tenant movement,” said Philadelphia Tenant Union coalition coordinator Emily Black. “It’s the hottest issue on the left right now.”

Lloyd Jones’ CEO Chris Finlay with Ventura Pointe

UPDATED, Oct. 3, 11:30 a.m.: Lloyd Jones bought a 206-unit apartment complex in Pembroke Pines for $55.6 million, amid growing demand for multifamily projects in Broward County.

The Miami-based firm bought the Ventura Point apartment complex at 7850 Pasadena Boulevard for about $270,000 per unit from Eastwind Development, according to a release. The building totals 256,480 square feet, records show.

The apartment community was built in 2018 and includes a gym, clubhouse, pool, pet park and an outdoor recreation area. It is next to Memorial Hospital Pembroke.

In April 2016, Eastwind Development paid $6.3 million for the property before building the apartments, records show.

Lloyd Jones is a real estate investment, development, and management firm that focuses on multifamily and senior housing in Florida, Texas, and other parts of the Southeast. Its projects are valued at about $750 million and include the 119-unit Shamrock of Sunrise apartment complex in Sunrise, according to its website.

Pembroke Pines is becoming a more attractive destination for multifamily investors.

In August, NexPoint Residential announced it would pay $322 million for a 1,520-unit multifamily property in Pembroke Pines, marking one of the largest multifamily sales this year.

The deals signal strong demand for multifamily properties in the suburbs of South Florida. As rents and home prices continue rising in urban core markets like Miami and Fort Lauderdale, more people are moving outside the urban core.

Correction: A previous version of this story incorrectly stated the price per square foot of the property.

Mike Fernandez and Park Grove (Credit: Wikipedia)

Less than a year after buying a luxury penthouse in Coconut Grove, billionaire and health care mogul Mike Fernandez has flipped the unit.

In December, Fernandez paid $6.44 million for upper penthouse 1 at Two Park Grove at 2821 South Bayshore Drive. Now, he’s sold the condo to 2PG UPHB LLC, a Delaware company, for $6.58 million, a difference of about $142,000. The profit wouldn’t cover the fees associated with selling a condo, including paying the standard 6 percent commission.

The Related Group and Terra developed the three-tower, 297-unit condo complex. The second tower, where Fernandez purchased his penthouse, is 23 stories tall with 67 units. It was completed in June 2018.

Fernandez, a Coral Gables businessman who made his money in the healthcare industry, owns a sprawling waterfront estate at 1 Arvida Parkway in the Gables Estates community of Coral Gables. His private equity firm, MBF Healthcare Group, is also based in the Gables.

Other unit owners at Park Grove include Brahman Capital Management founder and principal Peter Hochfelder and Ryder System executive Eugenio Sevilla-Sacasa.

Park Grove includes Tigertail + Mary, a restaurant by Miami restaurateur and chef Michael Schwartz, a gym, spa, sauna and steam rooms and a wine tasting room. It was designed by Rem Koolhaas’ OMA and Arquitectonica with interiors by Meyer Davis Studio.

Proposed Galbut residence at 4260 Pine Tree Drive and Russell Galbut

Rusell Galbut wants to build a mansion on Miami Beach’s Pine Tree Drive — higher than the city’s allowed height.

After nearly an hour of making his case before the Miami Beach Design Review Board for an additional three feet in height for the planned mansion at 4260 Pine Tree Drive, Galbut had to settle for just one more foot above the 24-foot maximum.

The design review board approved plans for a two-story, tropical modern house that the Crescent Heights co-founder said he wants to build for his oldest daughter and her family. But the board declined his request to make the structure 27 feet tall because it would tower over neighboring properties.

Galbut and his architect, Ralph Choeff, claimed the additional three feet was necessary in order to have enough room to fit cars in an undercarriage that is part of the home’s design. The city is encouraging single-family home developers to incorporate undercarriages as a way to raise houses for sea level rise. However, because of the 24-foot maximum, the undercarriage for the proposed Pine Tree Drive house would only have a clearance of five feet, they said. “We are not asking for anything unreasonable,” Galbut said. “There is no way to park a car with [a] five foot headroom. We need eight feet.”

In addition to the driveway and parking area, the undercarriage would have room for a pool, an outdoor bar and an outdoor lounge on the backside of the property, Choeff said. He also noted that the home would have reflecting ponds that cut through the undercarriage. “This is one of the first homes with a completely useable undercarriage,” Choeff said.

However, some board members expressed concerns that the proposed building is not compatible with the adjoining homes and looked out of place. Galbut initially insisted that he would not be able to build the home without the additional three feet and would have to go back to the drawing board. But when a motion to grant his request failed, he settled for just one additional foot in height, which the board approved.

Property records show RonRuss Pinetree LLC paid $990,000 for the lot in January 2018.

The entity is managed by Galbut’s daughter Marisa Galbut and Dayami Aguiar, with an address at Crescent Heights’ Biscayne Boulevard headquarters.

2751 South Dixie Highway, Scott Sherman and Ben Mandell

An organic grocer is coming to the site of the former Palm Beach Post building in West Palm Beach as part of the new owner’s plans to redevelop the property.

Tricera Capital announced its plans to rebrand the building that sits on 11 acres at 2751 South Dixie Highway. The property includes a 125,000 square feet of retail and 140,000 square feet of office space. The development will be rebranded as The Press.

The site was previously home to the printing press and headquarters for the Palm Beach Post, but was sold earlier this year by the Post’s parent company. Much of the existing structures will be preserved, including the Post’s office building and printing press, according to a release.

The Post will remain a tenant at the redeveloped property and is set to occupy 35,000 square feet on the second floor.

Tricera Capital, which is led by Scott Sherman and Ben Mandell, paid $24 million for the Palm Beach Post campus in February.

Sherman said the redevelopment plans are driven, in part, by a void for quality Class B office space in West Palm Beach amid an influx of new Class A buildings.

“There is a real gap in the market. There are four Class A office buildings, and if you want to get into those buildings you are paying $70 [per square foot],” Sherman said. “We are not going to compete against a Class A building. We are going to make this the best B building in the market.”

Sherman declined to announce the grocery store tenant, but said in the next 60 to 90 days Tricera will be able to provide more information on tenants.

The redevelopment of the Palm Beach Post building follows a trend of newspapers and legacy media companies selling off their real estate assets in order to compensate for dwindling circulation and advertising revenues.

Last year, Cox Media sold the Palm Beach Post and the Palm Beach Daily News to GateHouse Media.

NAI/Merin Hunter Codman Chairman Neil Merin and Commercial Associates Christopher Smith and Jaime Chamberlin are handling office leasing for the former Palm Beach Post building, on behalf of Tricera.

Tricera’s Justin Lustig and Mandell are handling retail leasing at the property.

Demolition of a two-story office building and bridge located on the site is already underway. The project is set for completion in the first quarter of 2021, according to a release.

Earlier this year, Tricera Capital, along with RRE Investments, paid $13.25 million for the Flagler Uptown and the Hive mixed-use buildings in Fort Lauderdale’s Flagler Village.

Rodrigo Niño (Illustration by Nazario Graziano)

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

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

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

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

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

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

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

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

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

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

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

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

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

Early promise 

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

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

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

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

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

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

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

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

Prodigy projected double-digit returns at both projects.

Cracks emerge 

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

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

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

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

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

331 Park Avenue South

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Back in time

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

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

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

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

But the project soon ran into trouble. 

AKA United Nations at 234 East 46th Street

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

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

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

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

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

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

BD Promotores could not be reached for comment. 

Prodigy’s next act

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

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

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

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

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

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

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

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

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

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

The Meridian at Boca Raton at 21865 Ponderosa Drive, and Kenneth Assiran

A company tied to Meridian Senior Living paid $60.9 million for a community near Boca Raton.

Property records show CHH GD Boca Realty LLC, managed by Kenneth Assiran, sold the 154-unit senior living facility at 21865 Ponderosa Drive to SOMH Boca Raton Holdings LLC. The buyer financed the deal with a $45 million loan from Capital One.

Assiran is managing principal of Capital Health Group, according to its website. The real estate development and investment firm focuses on independent, assisted living and memory care facilities.

The property, renamed The Meridian at Boca Raton, offers assisted living and memory care services. Meridian Senior Living is managing the complex. The 6-acre property was developed and completed in 2018, according to property records. It last sold in 2014 for $4.5 million.

Senior living has become a huge business, especially as baby boomers are expected to outnumber kids by 2035, according to the U.S. Census.

Developers and investors are increasingly building and trading senior living facilities in South Florida.

In August, a partnership between MRK Partners and R4 Capital bought a Deerfield Beach senior living facility for $24 million. A month earlier, AEW Capital Management sold a 120-unit senior living facility in Cooper City to Artemis Real Estate Partners for $37.5 million.

Earlier this year, Baptist Health South Florida and Belmont Village Senior Living formed a joint venture to develop senior living centers in Coral Gables and elsewhere in South Florida. The first project will be at 250 Bird Road in Coral Gables.

San Francisco’s Rincon Hill, New York’s Tribeca and Los Angeles’ Westwood (clockwise from top left) are among the most expensive places to rent in the country (Credit: iStock)

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

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

What’s the third…you get the point.

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

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

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

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

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

Westwood topped California zip-codes last year, too.

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

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

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

Retail stocks take a hit after Forever 21 files for bankruptcy (Credit: iStock, Phillip Pessar via Flickr)

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

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

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

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

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

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

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

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

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

Charter school Aspira found buyers for three of its locations, including 3300 Memorial Highway
in North Miami (pictured), just weeks after shutting them down.

In the summer of 2018, the Eagle Arts Academy was in a crisis. Gregory Blount, former model and events producer who founded the Wellington charter school, was accused of siphoning off $150,000 from the school to his personal companies, leaving the school unable to pay its teachers and attorneys.

The county declared the school unsafe due to understaffing and shut it down just weeks before the new school year began. The school’s landlord, ESJ Capital Partners, was forced to evict the school operator, claiming the school owed it more than $700,000 in unpaid rent, according to the Palm Beach Post.

Unlike other asset classes — such as retail, where the departure of a big box anchor is tough to recover from — charter school properties in South Florida are finding success in landing new tenants and selling quickly.

In December, Miami-based charter school operator Academica struck a deal to lease the 12.4-acre site. The property was never formerly marketed and eventually closed for $14 million in April — a 47 percent increase from what ESJ paid for the site in 2014.

In a similar situation, nonprofit Aspira of Florida found buyers this summer after three of its charter schools shut down, including one in Wynwood that sold for $12.8 million in less than two months after Aspira closed its schools.

Charter schools are increasingly becoming a popular option for investors in South Florida as the supply of available locations narrows, financing becomes more readily available and the demand for non-traditional schools in Florida grows. State lawmakers are backing charter schools as an alternative to public schools, and Governor Ron DeSantis is pushing the schools to take advantage of Opportunity Zone tax breaks by building schools in low-income areas. 

In addition, zoning for schools is getting more restrictive, driving up the demand for existing properties, according to industry experts.

“Charter schools are like gas stations —  everyone uses them and everyone says that they like them, but no one wants them in their backyard,” said Keith Poliakoff, an attorney at Saul Ewing Arnstein & Lehr who has worked on a number of charter school deals in South Florida.

Charting growth

Charter schools are a growing phenomenon in American education. They operate as nonprofits and receive state funding, but they have more flexibility around curricula and teaching while also allowing for-profit businesses to get involved.

This year, as Miami-Dade County’s overall student population dropped to 345,368 students from 350,000 last year, charter school population increased to 70,577 from about 68,000, according to the Sun Sentinel. 

Florida’s Republican-dominated legislative body and former Governor Rick Scott have championed charter schools over the past few years. In 2017, a law known as “Schools of Hope” was passed in Florida allowing more public funding for charter schools.

Perhaps no local player has been witness to charter school growth as much as Aventura-based real estate investment firm ESJ Capital, which has invested in 41 different school facilities in eight states over the past 10 years.

Matthew Fuller, chief investment officer of ESJ Capital, said it’s become harder to find available sites in South Florida as land has gotten more expensive, zoning has become more difficult and profit margins have diminished. The company is now more commonly finding itself as the interim buyer for schools, purchasing the property, then allowing the school to become stable so it can buy the school and become an owner.

Walter Duke, whose company Walter Duke + Partners has appraised more than 150 charter schools in Florida this cycle, said cap rates for charter schools have decreased. The median cap rates were around 9.2 percent in 2014, but today that number is about 7.5 percent, according to deals that Duke has appraised.

“At this point in the cycle, everything is a little skinnier,” Duke said.

Achikam Yogev of Colliers International South Florida specializes in charter schools and the education sector. He brokered one of the largest charter school portfolio deals in the country when he represented ESJ Capital and MG3 Developer Group in the $107 million portfolio sale of five schools to Portland, Oregon-based Charter School Capital in 2016 and 2017.

Yogev said he is seeing growing demand from new investors because of the consistent returns that charter schools provide. 

“Rents are very stable and very fixed and depend on the enrollment in the schools that they have. There is not a lot of guessing,” said Yogev.

But charter schools also have substantial risks: First, it can be hard to reposition the asset into something other than a school. In addition, if the school shuts down before the school year begins, the property owner is left without its main tenant until the next school year. Getting appropriate zoning to build new schools can also be difficult.

“Cities and counties don’t like to downzone land to land that no longer pays taxes, since schools are exempt,” Yogev said.

Jaime Sturgis, the CEO of Native Realty in Fort Lauderdale, is currently marketing the Andrews Charter School at 3500 North Andrews Avenue in Pompano Beach for $5.5 million and expects a cap rate of 6.82 percent for the property. He said that investing in charter schools isn’t as risky as it appears. For one, the schools have state funding. Second, while some schools have run into financial trouble like Eagle Arts, charter schools provide publicly available detailed audited financial statements.

“You can dive in their books and fully understand their in’s and out’s,” Sturgis said. 

Poliakoff said that many of the charter schools that have failed are normally those located in shopping centers. He also noted that over the past few years, charter schools have slowly consolidated into a few operators who have specialized in the field.

“A few years ago, everyone and their mother seemed to be applying to be a charter school operator,” said Poliakoff. “As a result, they were left with some very good operators and a lot of operators who have gone under.”

Easy money

A perk of building charter schools is that their developers are able to take advantage of cheaper financing.

As nonprofits, charter schools can tap into tax-exempt municipal bond financing, which is very attractive now that the interest rates are decreasing. This market has grown from $1 billion in 2007 to $3.5 billion in 2017, according to the Local Initiatives Support Corp. It’s also much cheaper than traditional bank financing.

With more indicators signaling that a recession is coming, Duke said that real estate investors see charter schools as a hedge against an economic downturn. Since the schools are dependent upon state funding, they are less vulnerable to the recession or industry disruptions impacting other sectors such as retail.

“Recession or no recession, the kids [have] got to go to school,” Duke said.