Solid Goldstein: How Jonathan Goldstein’s Cain International Made Its US Debt Debut
The debt markets have been awash in eager capital for years. But ratchet up the deal size and complexity of a prospectus and the list of willing lenders falls off quickly.
Is it a construction deal, or an intensive renovation? Watch a large number of banks flee the scene. Is there lodging involved? That business’s operational aspect scares off plenty of sources too. And if you cry out for a lender to fund luxury condominiums in Manhattan these days, be prepared to hear only your own desperate echo in reply.
But what about a deal that combines all of the above? Cain International, the ambitious 5-year-old British real estate firm led by Jonathan Goldstein, says game on.
In one of the most interesting Manhattan deals of 2019 to date, Goldstein’s company turned up as the source of a $284.5 million loan on the Crown Building in January. There, at 730 Fifth Avenue, Vladislav Doronin’s OKO Group is at work on a project to install an Aman luxury hotel on the building’s upper floors, in addition to about two-dozen sure-to-be-pricey condominiums.
The total price tag tops $1 billion. Kid stuff, this ain’t.
But look behind the curtain, and the identity of the debt’s originator starts to make some sense. The 53-year-old Goldstein, a London native who trained as a lawyer before making the jump to real estate, has amassed an impressive roster of transatlantic investments under the Cain umbrella since he spun the firm off from Guggenheim Partners in 2014. As a private equity investor, Cain runs a British coworking firm, a hip chain of indoor mini-golf spots cheekily named Swingers, and even a sprawling sports complex in the suburbs of Washington, D.C.
He’s also made waves as an equity investor in some of America’s biggest gateway markets. In Los Angeles, you can find Cain’s shingle hung on the illustrious Beverly Hilton — home of the Golden Globes — as well as the Waldorf Astoria Beverly Hills. All told, he owns 18 acres in Beverly Hills, with plans for some significant new multifamily development down the road.
In Miami, Cain has partnered with OKO Group to build Una, a 135-unit condo building that’s going up on a prime waterfront site on Biscayne Bay, as well as Missoni Baia, a similarly ritzy condo project with its own beachfront plot.
It’s all a bit larger than life: institutional-level deals with an emphasis on luxury, all famous names and places and dramatic architecture. But if Goldstein’s brand of enterprise includes a heavy dose of passion — he’s such a fan of Tottenham Hotspur, a London soccer team, that he tried to buy it for more than a billion dollars — he brings a healthy measure of conviction as well. In September, he doubled-down on his Crown Building investment, handing OKO a larger $750 million financing package on the project, with the senior $300 million tranche syndicated off to Bank OZK. You see it on his Twitter page as well, where he rails against both the nationalist Brexit campaign and against the progressive leader of Britain’s Labour Party, Jeremy Corbyn, with matching tenacity.
Covering the transatlantic Mr. Goldstein is a complicated affair: Last week, after a photo session in Los Angeles days earlier, the Cain CEO invited Commercial Observer to the office he keeps in Midtown to talk debt. Diet Coke in hand, the self-described “loudest kid in the room” was ready to talk shop.
Commercial Observer: Your first debt deal in the U.S. was a nearly $300 million investment in the Crown Building renovation in Midtown, followed by an even larger refinancing there this autumn. Why start with something so ambitious?
Jonathan Goldstein: In order to explain the Crown, you need to understand a bit of our history over the last five years.
When we started this business in 2014, we saw outsized loans as a significant opportunity. We were prepared by [what] we saw in the debt markets to take positions that the classic funders were not prepared to take. The greatest example I have of that is actually an English one. Post the Brexit referendum, we were asked by Canary Wharf Group [owners of a major financial district in London] to fund a tower on the Wharf, a huge tower that was 30 percent pre-leased to Société Générale. And it surprised us that with the strength of Canary Wharf, its well-regarded management team — we couldn’t understand why the classic banks wouldn’t do it. So we agreed to write a loan of £450 million [just over $580 million]. It was the biggest loan we’d ever written. Roll forward to 2019. The building is fully leased, rather ironically, to the European Bank of Reconstruction and Development. We’re about to be refinanced by Canary Wharf and vacate the building having had a three-year period we’re very happy with.
And you see the Crown Building as a similar play?
If you draw the analogy, at the Crown Building we see prime real estate. Fifth Avenue and 56th Street: You don’t get much more prime in the world. Number two, it’s a great story: Bulgari, GGP, et cetera. Number three, Aman is one of the great growing luxury brands of the world. We’re believers in the luxury hotel space, and we believe that a signature hotel in the middle of Manhattan will be a resounding success.
Note: GGP, now a part of Brookfield Property Partners, controls the Crown Building’s retail space, which is leased by Bulgari. Singapore’s Aman Resorts will run the building’s planned hotel.
On the other hand, the project also has a condominium component, and that’s not a bright spot in Manhattan these days. How did you have to structure the deal to be comfortable with it?
When you look at what we need to have to be covered on our loan, it’s very different from what you might have as an equity investor. Our job is to lend money, get the interest and get repaid. It’s [developer] Vlad [Doronin]’s job — which I’m sure he’ll do very successfully — to make a significant profit out of the trade. So we’re very comfortable. Look, we all know that the New York residential market is not what it was. You don’t have to be a genius to work that one out. But New York is not going anywhere.
How do you place this loan in the context of Cain’s development? It was a big splash for a young company.
Since late 2014, we’ve written about $4.5 billion of debt, predominantly in the U.K. and Europe. Having gotten into the U.S. market now, we’re one of the very few [transatlantic lending] players at that level. And we believe it’s a significant opportunity. Sure, you’re not going to write one of these loans every week, because there just aren’t that many of them. There’s a bit of feast-and-famine. But it’s conviction lending. This is saying, “I looked in the whites of the eyes of the borrower, I understand him and I trust him.”
Tell us more about the conviction aspect. What precisely are your loans expressing a belief about?
The market in London in 2016 said that everybody’s going to flee to Europe [after Brexit.] That all the office blocks were going to empty, and that the financial firms would vacate. “We’ll live in Frankfurt, in Geneva! In Paris, in Luxembourg and Strasbourg!” And we said that that’s nonsense. That’s bullshit. London is London. The conviction is, don’t listen to the crowds. Look at the quality.
Aside from the Crown, your biggest U.S. real estate projects are equity investments in Miami and Los Angeles. So what’s your conviction about gateway cities?
It’s an issue around human capital. As the world develops, people are voting with their feet. If you look at Los Angeles, Miami — you wake up 300 days a year and it’s sunshine-y. Not too shabby. The tier-one cities in America and in the U.K. and Europe are all rising to the top. That’s why I never believed this narrative around Brexit. People were not going to leave London. It’s the same with New York. People want the live sports, the theater, the cinema, the cultural experience, the transparency, the legal system.
But with the Crown Building in mind, how do you grapple with the oversaturation of luxury residential stock here?
There’s no doubt that everybody flocked to the residential development world and oversupplied cities. You had it in London and New York. But ultimately that process will rectify itself because people want to live here and people want to own their own real estate.
You grew up in London yourself?
My father was a classic Jewish East-End story. He was in business with my grandfather. Their business was to make oversized ladies’ dresses. My mother was a coat-maker, a refugee from [mainland] Europe. Their world got seriously undercut in the 1980s and 1990s with an influx of imports from around the world. So I grew up in East London and went to university to do a law degree. I ended up at a relatively small law firm, and I started to run it at a young age. I was CEO of the firm at 32.
How did you then get into real estate?
I just felt, in soccer terms, that I needed to see if I could play in the Premier League. That was always my mantra. So I ended up as the deputy CEO of a company called Heron. Its leader, Gerald Ronson, was a very strong mentor of mine.
You later led European real estate investment for Guggenheim Partners before you spun off with Cain. What did that experience mean for you?
That’s how we started focusing on gateway cities. What started off by doing a few deals has obviously grown into much more of a platform. That requires energy and focus.
Tell me more about what enabled you to go off on your own.
Well, it’s all about having a good bench. It’s no good having just one pitcher. You need at least a few good pitchers, to use your baseball as an analogy. I’m the unusual Englishman who can actually talk baseball.
The structure of your business feels very 2019. It’s very fashionable to be doing a blend of equity, JV equity, mezzanine debt, senior debt. Was that the plan from the beginning, or did it evolve?
We’ve all had to accept that in a low interest rate environment, we’ve all had to accept lower returns. And therefore, [you’re happy] if you can generate a piece of that with senior secured debt, which is generating an 8 percent or 9 percent return. You know, the days of a 20 to 25 percent internal rate of return are gone. Any investor who tells you otherwise is living a fantasy. You’re looking for those bespoke opportunities which can generate alpha. You know, interest rates in Britain have been low now since 2008. It’s 11 years. And in Europe, they’ve been low since 2009 or 2010 — and then now, they’re often negative. And in the U.S., your 10-year rate fluctuates around 150 to 170 [basis points], and you’ve got a president who wants to drive interest rates even lower.
As the leader of a young real estate firm, are there any industry companies that you look up to?
You have to look at the giants. If you look at the way Blackstone or Brookfield operate, they’re just unbelievably sophisticated. I don’t ever expect in my lifetime to match that. I’m trying to head in the same direction, but, I mean, I’m not even aiming at their coattails. I’m not trying to play myself up.
Have examples like that inspired the audacity of the projects you’ve taken on? For a new entrant, you certainly haven’t started with the easy stuff.
Hmm. Audacity? That’s an unusual phrase. I don’t know that I regard myself as audacious. I mean, verbose, maybe. I like a good argument. Audacity, huh?
I don’t mean it in a bad way.
No, I don’t take it as an insult. Look, [our] Beverly Hills [project] is a monster, granted. But it’s about having the strength of character, the depth of belief in what you’re doing. I think the audacity comes from creating relationships [with developers and partners], more than it comes from the developments themselves. It can go horrendously wrong, but I don’t believe that. I think the chances of that happening are very small.
Your two biggest markets, the U.K. and the U.S., have both reached very turbulent political moments and both seem to have a new isolationist bent. Have the parallels on both sides of the ocean been informative for you?
When you went through this 2016 election, I was fascinated and obsessed by it whenever I was here. But I found most American businesspeople were trying to ignore it. I remember watching CNN in our New York office the day that Trump fired [Deputy Attorney General] Sally Yates, and none of the Americans in the office knew about it. Similarly in Britain now, people are so bored with Brexit. I mean, at least in America you’ve had variety, with Russia, Ukraine, Syria, this and that. Domestic, international. We’ve had one big issue for three and a half years. On which there is no resolution or prospect of one. And it’s only the beginning, because we haven’t even started on a post-Brexit trade deal.
Your rather withering Twitter commentary isn’t shy about where you stand on British politics, but most U.S. real estate execs aren’t so outspoken.
People like me should really be espousing talk about change much louder. The values of moderation and partnership go back to my business. You cannot bludgeon your way through a partnership. This is a factor that the political class has forgotten. I watch it here, and I watch it at home. For God’s sake, where are the politicians coming forward who can embody that sense of compromise? The Brexit vote was 52-48, and the 52 think that they own the 48. To people like me, 52-48 says, “Wow, that was close! We should find a middle way to keep everyone happy.” But the 52 believe that they get the spoils. To them, it’s like the vote was 100-naught.
Do you have children? Would you encourage them to go into real estate?
I’ve got four. One’s still at school, and one’s a teacher. My youngest daughter has just gone into the fashion industry, and my oldest son is actually an accountant. But I don’t think it’s a good dynamic for him to follow me too closely. I don’t believe in this father-son dynamic. The joy of working with your child must be enormous, just seeing them at the office every day. But the ability to let them flourish on their own is a rare gift. I think it’s best if he goes off and does his own thing. And you know, with where my business is, in five or 10 years it will be so different that I really don’t even know what that looks like.