Ackman-Ziff Market Update

Hope everyone’s enjoying their summer.

Unfortunately, we don’t have much positive news to share—which, frankly, is frustrating at this point in the cycle. Rather than dwell on macro commentary or geopolitical uncertainty, we thought it might be more useful to share a few live deal stories to highlight just how challenging the current environment is to transact in.

We’re working with a client who nearly lost their Midwest office portfolio to their lender during the depths of COVID.

Since then, they’ve executed an impressive turnaround—signing over 1 million square feet of new leases (nearly one-third of the portfolio). They also renewed another 1 million square feet at rents nearly triple their expiring base rents—all with zero free rent or TI/LC.

But despite the leasing success, the senior loan remains materially over-levered. Factor in reserves and the TI/LC needed to bridge through new tenant move-ins, and it becomes clear: the loan can’t be fully retired without an equity infusion that would be significantly out of the money Day 1.

The reality today: The cost of capital for large-scale suburban office—even with strong tenancy, Class A product, long WALT, and mission-critical occupancy—is now roughly double pre-COVID levels. Valuation metrics reflect a 25% drop in asset value, even as the contractual NOI will be a 50% increase from acquisition.

What’s the likely outcome? Pricing in the low double digits with a potential equity kicker—a structure that would’ve been unthinkable pre-COVID. The deal pencils to a 15% debt yield | 75% LTV | $65/SF—implying the credit market is effectively underwriting these assets at an ~11% cap.

The real issue isn’t the cost of capital or liquidity (there are plenty of lenders willing to transact). It’s counterparty risk: dealing with a lender that doesn’t want to own the asset but also can’t be fully taken out and will be required to accept a loss.

That, in many ways, defines today’s market.

And that brings us to Story #2…

In 2021–2022, the “gold” was premier development sites. Today, it’s common equity. And for opportunistic risk, equity allocators want downside protection structured into their investments to justify uncertainty in the markets. As the saying goes, those with the gold make the rules…

How long will that dynamic last? And how much protection will be required? Hard to say—and probably not something best put in writing. But until newly delivered assets consistently trade above replacement cost, common equity for ground-up, opportunistic projects will remain scarce.

Case in point: In March 2024, we launched a capital raise for senior debt and common equity to fund a 270-unit garden-style development in a strong Central Florida market. Every box was checked—strong sponsorship, prime site, thoughtful design, limited competing supply in the submarket, and a defensible projected ROC north of 6.25% on LP underwriting.

The challenge? Core multifamily values in the submarket had dropped from ~$400K/unit in 2022 to ~$250K/unit by mid-2024. Our projected basis was $285K/unit. As a result, preferred equity became the most realistic path—something we had proactively guided our client towards ahead of the launch.

At 80% LTC and a 6.75% ROC to the last-dollar of pref post-accrual, the pref’s basis would top-out slightly below bottom of market valuations for Class A product. An additional $5M in equity would be required from the sponsor to bridge the equity gap from what was already contributed into land + pre-dev.

Fortunately, our client had aligned with a family office willing to backstop the raise. After a nine-month process—including full-term sheet negotiations with two institutional equity groups—the family office paused, opting to sell other existing portfolio assets before committing new capital. Fast forward another six months: global tensions heightened, trade wars erupt, and the ground-up development likely pencils even worse.

We may finally be getting an answer from the family office this week. Kudos to the institutional capital partners who’ve remained committed to the terms they presented back in late 2024. We’re hopeful for clarity post-July 4th.

It’s been a long road, and just one of many in our pipeline.

It’s a battle out there. Sharing stories like these highlights the realities of navigating today’s capital markets, not just celebrating closings.

That said, liquidity is available, and deals are getting done—and next month we will shed some light on bright spots (we promise).

We remain cautiously optimistic heading into the second half of the year. Wishing you and your families a safe and Happy July 4th. As always, we’re here to help in any way.

Jordan Brustein; Andrew Rudy

E: [email protected]; [email protected]

M: (JB) 516-996-7722; (AR) 858-947-8738