The Real Deal New York

Paydirt: Go directly to jail. Do not pass Go.

The industry news you need to start your week, and what’s ahead
By Hiten Samtani | May 08, 2017 09:05AM

Steve Croman and Spencer Rascoff

Go directly to jail. Do not pass Go. Do not collect $200.

It’s one of the most famous cards in Monopoly. But in New York real estate, it’s almost never drawn. Most days, in fact, it seems like landlords carry a “Get out of jail free” card: No matter how egregious their offenses against tenants, bad actors get away almost every time – without serving time.

Consider Joel and Aaron Israel. The brothers were indicted in 2015 on charges of unlawful eviction and tenant harassment, including hiring people to intimidate rent-stabilized tenants with pit bulls and sledgehammers. In November, they reached a plea deal that will see them pay about $350,000 to tenants and received five years probation.  Cost of doing business. One rare case that ended with jail time involved Leonard Spodek, the recently-deceased “Dracula” of landlords who served 45 days back in 1986 for failing to make court-ordered repairs.

But throw in mortgage fraud and the stakes change. You’re no longer messing with no-name tenants, but with banks, and the law takes that much more seriously.

Steve Croman, who according to charges leveled by the New York AG’s office applied the craft of tenant harassment on a near-industrial scale, is nearing a plea deal that would see him serve eight months of jail time, the New York Post reports.  The landlord, who owns more than 140 buildings and about 2,500 units in Manhattan, allegedly secured $45 million in loans by inflating rental income in mortgage documents. If convicted on all charges, Croman faces up to 25 years in prison, and the AG is seeking to appoint a receiver for each of Croman’s companies and revoke his brokerage license.

He was also accused in a civil suit brought by the AG of being the ringmaster of an operation that harassed and tricked tenants into giving up their rent-stabilized pads.

The plea deal, according to the Post, would also see Croman pay a fine of up to $10 million. “Croman is said to be thrilled he will get off so lightly,” the newspaper reported. Ten million is real money, but consider that, according to a recent analysis by The Real Deal, Croman took in at least $63 million from his properties in 2014. The man’s holdings may mostly be unglamorous, but he lives the lifestyle of the flashiest of developers, complete with Playboy Mansion-themed parties in the Hamptons.  He’s next due in court May 23.

Price of the brick going up: TRD’s E.B. Solomont and Kathy Clarke took a peek inside Premier Agent, StreetEasy’s pay-to-play lead generation feature that in just two months has rattled the big boys. Early indications are that a good chunk of brokers are giving it a shot, including agents from firms whose CEOs made a big fuss about it.

StreetEasy’s parent Zillow, well-versed in gamification, has created a leaderboard on which brokers can constantly track where they stand. The more money you spend in a certain neighborhood on Premier Agent, the more leads you receive. It reminded me of “Black Mirror’s” “Nosedive” episode, where a higher personal rating got strivers access to all kinds of perks, and low scorers were consigned to social purgatory.

After the story ran, Zillow’s CEO Spencer Rascoff said it demonstrated how Premier Agent resulted in “agents getting opportunities & consumers getting choice.” Both those things are certainly true. But think also of how much more power the program gives StreetEasy, already the dominant listings platform in the city. If agents become even more dependent on it for business and further fuel its growth with their ad dollars, what’s to stop StreetEasy from jacking up rates?

CRE opens its wallets for tech: It’s been a fertile week for venture-backed commercial real estate startups. Convene, which operates office buildings for landlords, raised $68 million in a Brookfield-led round.
A development I found really interesting was Fifth Wall Ventures’ raise of a $212 million fund dedicated to CRE tech investment, with half of that money coming from companies within the industry. Fifth Wall positions itself as a company that not only backs the next hot CRE startups, but also connects them with their eventual clients – the real estate firms that invested in Fifth Wall. It’s an interesting way for the VC firm to stand out, and might improve the batting average of the startups that do get funding. The industry as a whole could benefit from that – too much stupid money was thrown at fly-by-nighter crowdfunding startups in the last wave.

Litigation nation: The only thing missing was the ring entrance music.

In its first-quarter earnings call, CoStar said it expects to spend up to $20 million in 2017 on litigation related to the copyright infringement lawsuit it brought against Xceligent in December. The public statement on the cost of the litigation, including CEO Andy Florance’s description of it as a “vital and prudent investment,” were seen by some critics of the firm as a classic CoStar maneuver: bringing a howitzer to a knife fight.

Koosh Kins: Kushner Companies raises EB-5 funds for its projects. As does every third developer. No problem there. But it gets murky (or should I swampy) as hell when Jared Kushner’s sister, Nicole Meyer, specifically cites Jared’s history with the company when raising funds in Beijing for a new Jersey City project dubbed One Journal Square. The project “means a lot to me and my entire family,” Meyer said, according to the Times.

“Ms. Meyer wanted to make clear that her brother had stepped away from the company in January and has nothing to do with this project,” a Kushner Companies spokesperson told the paper. “Kushner Companies apologizes if that mention of her brother was in any way interpreted as an attempt to lure investors. That was not Ms. Meyer’s intention.”

But in promotional materials for the event, Meyer was introduced as Jared’s sister, the Washington Post reported, rather than simply as a principal at the company.

And one slide presented to the audience described the power brokers that would decide the future of the visa program: it included a photograph of Donald Trump.

The Times’ Nick Confessore put it best: “The Trump-Kushner family businesses are no longer a hypothetical conflict.”

(Paydirt is a weekly column that riffs on the biggest NYC real estate news of the moment, providing analysis and historical context on the deals and players that make this town tick. Read more from Paydirt here.)