The Real Deal New York

Paydirt: Soho’s billion-dollar abyss, the offshore $ fueling the condo boom, and other top industry news you need to start your week

LLCs x LLCs, fake parties and Chinese fugitives make an appearance
By Hiten Samtani | October 23, 2017 01:15PM

The ownership structure of 111 West 57th Street, Morpheus and a map of Soho’s retail vacancies

Soho’s billion-dollar abyss: “Out of all the neighborhoods in Manhattan, Soho in particular had the charged atmosphere of a movie set, populated with passersby who looked like extras from Central Casting, so perfectly did they fit into this environment,” writes Candace Bushnell in “Lipstick Jungle.” Gaudy rich tourists could have Upper Fifth all to themselves, Soho is where New Yorkers come to spend. Spurred by this belief, investors spent nearly $4 billion in the area since January 2011, according to a new analysis by my colleagues Adam Pincus and Lucas McGill. The likes of 60 Guilders, started by Savanna alum Kevin Chisholm and Bastien Broda, outbid old-school retail investors for prime space and pushed prices to new highs: 60 Guilders, for example, teamed up with Carlyle last April on two Spring Street deals for which it paid an astronomical $15,555 per foot.

But those pricey bets could end up being very painful: About $940 million worth of retail-focused properties purchased in Soho during the period is vacant, the analysis shows. You have a dangerous combination of landlords who paid top dollar holding out for higher rents, and tenants unwilling or unable to make expensive, long-term commitments. We knew that Soho was in trouble, but it was hard to put a dollar figure on the problem until now.

Inside the labyrinth at 111 W 57: “You take the red pill, you stay in Wonderland, and I show you how deep the rabbit hole goes.” – Morpheus

On a good day, finding the true owner of a regular building is complicated. But when the property in question is a supertall condo on Billionaires’ Row, you’re looking at a labyrinth of shell companies, offshore accounts, blind trusts, frontmen, and a document extravaganza. TRD’s Konrad Putzier discovered as much when he set about deciphering the ownership of 111 West 57th Street, a supertall with a projected sellout of $1.45 billion and one of the most hyped projects in the city. I could try to summarize it here, but it’s worth reading the whole thing. Here’s a teaser of just how intricate these things can get.

Had Stern raised the bonds, his Israeli investors would have funded a British Virgin Islands company called JDS Ltd., which would have owned 111 West 57th Street JDS LLC, which held a 50 percent stake (later increased to 51.1 percent) in 111 West 57th Street Control LLC, which held an 89.3 percent stake in 111 West 57th Street Sponsor LLC, which held a 37.84 percent stake in 111 West 57th Street Partners LLC, which as of mid-2017 owned 111 West 57th Mezz 1 LLC, which owned 111 West 57th Holdings LLC, which owned 111 West 57th Property Owner LLC, which owned the actual property.

Real estate’s answer to Tony Robbins: What’s the industry’s equivalent of blasting anthemic hip-hop to build up hype before a palm squeezing, crowd-embracing entrance?

Adam Neumann, CEO of WeWork, has figured it out. Before he brings potential investors through one of the company’s co-working locations, Neumann sends instructions to “activate the space.” Staffers quickly throw an impromptu party, and when Neumann and his would-be bankrollers walk in, Neumann casually comments on lively the space is.

That’s one of the great nuggets in a recent Wall Street Journal piece about the company, which at a valuation of $20 billion is the fourth most-valuable startup in the U.S., and also the strangest. It has few physical assets, and compared to its peers on the list (SpaceX, Airbnb, Tesla) isn’t exactly innovation central. Yet its ability to woo top investors, most recently Softbank’s Masayoshi Son, is unrivaled.

Wildcard: The Journal had a ripper of a piece Sunday about Guo Wengui, the Chinese real estate magnate who also goes by the name Miles Kwok. From his $67.5 million fortress at the Sherry-Netherland, Guo is causing a lot of trouble for the Chinese government, and continues to throw damaging shade at HNA Group, the buyer of 245 Park Avenue and several other Manhattan office properties. The story involves a tussle between the U.S. State Department and the FBI, a near-arrest of Chinese officials at JFK, and, best of all, a letter reportedly hand-delivered by Steve Wynn to President Trump. Have a read.

(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.)