The Rise and Fall of a Multifamily Syndicator

0:05Lilah Burke: Welcome to Deconstruct, a podcast from The Real Deal. I'm Lilah Burke.

0:09Hannah Kramer: And I'm Hannah Kramer. Today, you'll hear from us about the Trump Org's latest real estate moves, about the Chobani House here in New York City, and the branded condo boom that could be coming to Brooklyn.

0:21Lilah Burke: And for our main interview, we'll be hearing from our reporter Jess Hardin about S2 Capital and Scott Everett and the rise and fall of multifamily syndicators. Let's get started.

0:35This morning on Deconstruct, we have our Texas Bureau Chief with us, Jess Hardin. Jess, welcome to the pod. Thanks for having me.

0:43Lilah Burke: So Jess, we'd like to talk to you a little bit about the rise and fall of S2 Capital, a multifamily syndicator. But first, if you could take us back a little bit, tell us what is S2? What is a syndicator? What's the background we need here? So syndicators are basically real estate operators who crowdfund to purchase properties. So the Jobs Act of 2012 unleashed this kraken of real estate crowdfunding. And because it allowed investors to suddenly solicit strangers and eased regulatory hurdles for that kind of activity. So it kind of birthed this whole group of syndicators and a lot of them work in the multifamily space.

1:26They purchased these kind of shabby old apartments in the Sunbelt where fundamentals were really strong, still are strong, but were, you know, really in the 20 teens. And they'd fix them up, raise the rents and sell them at a profit and distribute that to their investors. And this coincided with the rise of Twitter and Instagram. And so it created these kind of real estate influencers, people like Brad Stumrock, who sold this promise of passive investing where doctors and lawyers could contribute smaller chunks of money in the grand scheme of real estate investing to beef up their retirement savings and savvy business folks could become landlords.

2:09So that's the setting that brought us S2 Capital. And it was one of those multifamily syndicator firms. So tell us who Scott Everett is in particular in the kind of landscape of these multifamily syndicators. So Scott Everett was like one of the main characters of this multifamily syndicator space. He launched S2 Capital when he was really young. He was like 23. And his story just became really kind of narrativized. He was this college dropout teenage father who was pretty self-made and self-taught in the world of real estate. And so he came with this sort of really remarkable story. So he launched S2 Capital in 2012 after he started flipping houses and started scaling up dramatically in 2016 and, you know, was quickly at the helm of one of the fastest growing private companies in the country.

3:05So he launches the company in 2012. And that is, you know, during this kind of big run up of syndicators. And it's also happening at the same time, as you mentioned, that there's this viral element to this particular business model. One of the things that Scott Everett is known for is having gone on a real estate podcast and said basically, you know, fixed rate debt is for suckers. That has since kind of brought a lot of ridicule because so many of these multifamily syndicators have really been knocked out by how much rates have gone up in the last few years. And a lot of them have really seen, you know, big parts of their businesses fall apart.

3:44And Scott Everett has faced a lot of challenges, which we definitely want to talk about. But one thing that is kind of unique about Scott Everett and S2 is how many times he continues to kind of find a way to keep going. There are several different kind of rescue attempts that you've covered. So take us through some of the early challenges and then these initial different ways that he's come up with to keep the business moving forward. So first there was the REIT. Syndicators started to really feel the pain in 2023-ish when interest rates started climbing pretty quickly. And so we started to see foreclosures and a lot of distress for folks like tithes, equities, and GVA.

4:28And Scott Everett hatched this ballsy plan to fold individual deals into a real estate investment trust. And the idea behind that move was that by pulling these assets, he's mixing assets that are performing well and assets that are not performing well. So by kind of, you know, averaging them out a little bit, he would be able to get better debt. And he did get a credit facility to refinance this debt. And when he first announced this, he got pretty mixed reviews online. Some people thought he was brilliant. Some people were really pissed off. And the people who were upset were mostly investors in those deals that had been performing pretty well that were then going to be put in the same bucket as deals where he was having debt issues.

5:12So that was the first rescue event, the REIT creation. And that sort of held him through 2025. When this year, he started to feel some pain. This summer specifically, in the span of about six weeks, he announced to his investors in both the REIT and the firm's first fund, a$400 million value add fund, that their equity had been wiped out. And so in the aftermath of that, he devised this plan to save what he considered to be the viable properties in both of these now defunct funds that he was going to dissolve. And so he was going to launch another fund to save these properties that he had already kind of rolled over into the street.

6:01So it was, you know, trying to really renew them with a whole new vehicle.

6:05Lilah Burke: And do you think that those sort of creative funding strategies are translating to real changes in how the buildings are operating? Not that I can tell. In practice, S2's rescue efforts have been more like survival strategies. And when you're barely paying your bills, it's hard to imagine having enough cash for basic maintenance, let alone the renovations that were initially promised when these properties were purchased. How much real estate does S2 or kind of its, you know, affiliated companies have left at this point? So S2 started to lose properties to foreclosure this summer, and it takes kind of a long time for properties to go back to lenders.

6:53So he still controls quite a bit of property, especially in Texas. That's where a lot of his properties are located. and a recent number put S2 at about 14 ,000 units, I believe, which still makes S2 one of the biggest, if not the biggest multifamily landlord in DFW.

7:14Lilah Burke: And so just you visited some of these properties, right? What was that like? Yes, I met this couple, Callie Gray and Leland Burke. They lived in an S2-owned property in Dallas. They had decided to move out because Gray became pregnant with their second child. And I caught them on their move out day, actually. And they invited me into their unit to show me what kind of conditions they'd been living in. They had a bunch of water damage, a lot of roof leaks, what looked like mold. And they had, you know, a young child and another on the way. They also showed me management solution to the leaks in their apartment, which was just this giant plastic bucket that they were given to to catch the water that was, you know, coming out of the roof in their apartment.

8:01Their unit was also one of the only occupied units in this smaller building and several other units in the building had been boarded up. You could see into like the backyards of these vacant units. There was trash everywhere. And they also told me this story about, you know, there had been a group of unhoused people who broke into the unit below theirs and started a fire, causing there to be, you know, lots of smoke in their apartment unit. The stories were kind of endless for the stuff that they'd been going through at this apartment complex. And then they showed me their bill, which is, you know, an itemized rent bill that includes the various fees that they're paying, including this$150 common area maintenance fee.

8:44The common area really didn't reflect that each of these tenants were paying$150 every month for, you know, trash to be picked up and the pool to be maintained and things like that. So suffice it to say that this sort of syndicators financial strategy has not always translated into, you know, a great experience for the people actually living in the buildings. And from the online comments, you know, we get a sense that it hasn't always translated into a great strategy for the kind of piecemeal investors who come into it, too. Scott Everett in particular has attracted so much hate online. Do you think at this point it's affecting his ability to continue to raise, to kind of keep getting, you know, new investors and open new funds and new businesses?

9:34That's a good question. And I feel like only time will tell. It's interesting because on X, that's kind of where the virality of Scott Everett has taken place. He got really successful really quickly during the heyday of real estate Twitter. And his online persona kind of embodied in that statement, fixed rate is for suckers, is a bit brazen and a bit defiant and sort of is the essence of Scott Everett. He's this young newcomer who hasn't necessarily played by the rules to achieve success in real estate. And plus, his glamorous life has kind of been part of his sales pitch. His wife is the local Dallas influencer and showcases their fancy vacations and beautiful home on Instagram.

10:23That kind of openness made him a target even before the firm had financial trouble. I believe it was the summer of 2024, this Twitter troll called LP Whisperer made a target of Everett claiming he was taking investor money, squandering it, spending it on this lavish lifestyle. And so when investors actually started losing money, images of his wealth really started pissing people off. It's hard to imagine that that hasn't tarnished his ability to sell. But you contrast that with what's going on on LinkedIn and the tenor is like really completely different. A couple days after Everett had announced that his first fund was closing with no returns, he announced this industrial purchase on LinkedIn before he had made any real public statement about the fund being gone.

11:15And there's dozens of comments on the post, and they're all pretty positive. You imagine that maybe he could rise from the ashes and successfully raise money again.

11:25Lilah Burke: And Jess, how do you think this downfall is affecting Scott Everett personally? You know, Scott Everett seems sort of like capable of endless reinvention, but it does seem like the financial issues of S2 could catch up with him, especially when one of his lenders, Capital One. sued him earlier this summer over an$85 million default and claimed that he's on the hook for something like almost$12 million based on guarantees that he signed for this loan. So that could definitely hit him where it hurts. And quickly thereafter, he listed his Dallas home for$45 million. So I would say that it could definitely be hitting Everett personally.

12:09And then just to kind of wrap things up here, you know, Scott Everett is a particularly viral example, but just one example of the multifamily syndicators that in a lot of ways kind of defined, you know, the last cycle of real estate with this huge rush into multifamily investing. Now we have so many examples of folks who have crashed and burned. Now we have a couple of examples of people who are being investigated for their real estate strategies. What does this say about, you know, the syndicator strategy as a whole? And where does it go from here? It's hard to know if the syndicator dream is dead with this really punishing economic cycle.

12:52But one of the things that shocked or surprised me is that some of the people buying the properties that the syndicators lost to foreclosure are also syndicators. So I'm not sure a new generation of multifamily syndication is about to take off. But it certainly won't look anything like it did before, given that we just don't have an interest rate environment that would allow for that kind of frenzy. But the investigations are also something to pay attention to. And to be fair to the syndicators, some of them just got caught being dumb about debt and losing people's money doesn't mean that you necessarily did something illegal.

13:34I have repeatedly heard from special servicers and folks working in distress that there's been more fraud in this cycle of multifamily distress than they've ever seen before. For example, I just reported on the FBI opening an investigation into John Vanettos' Lorin Capital. And so we'll be following that too. But I think it's important to remember that when fraud comes up in this distressed space, we don't just end up with angry investors and angry lenders, but it usually translates to some pretty inhumane conditions at these apartments for low-income tenants. water shutoffs, forced evacuations, seas of trash.

14:21I think it's fair to say that underwater investors engaging in fraud make some pretty bad landlords. Yeah. Well, Jess, thank you so much. Thank you.

14:33Hannah Kramer: Okay, Lila, what story are you obsessed with this week?

14:36Lilah Burke: So this week we're checking in on what is happening at Chobani House.

14:41Hannah Kramer: Okay, the only thing I know about Chobani is that they make my preferred coffee creamer. Why are we talking about their real estate?

14:49Lilah Burke: So Chobani House is basically where Chobani, the yogurt company, as you alluded to, rented out an entire 22-story office building in downtown Manhattan to use as a sort of yogurt civic center that goes along with their office.

15:04Hannah Kramer: Okay, and what is happening at the yogurt civic center?

15:08Lilah Burke: Well, apparently nothing and it hasn't opened yet. So backing way up, Chobani, way bigger company than I thought, than you perhaps thought. The New York Times last year gave Chobani a$20 billion valuation. It's a private company, so this is just an estimate. But that's like a tech company style valuation. And, you know, it reflects a lot of investor confidence in their growth. Now, Chobani has rented out the entirety of 360 Bowery, which is a 22-story building on Bowery and East 4th Street in New York to form this sort of yogurt office global headquarters. It's already kind of like an odd place for an office.

15:56Lilah Burke: It's like on the Bowery. It's kind of by the East Village, kind of a no man's land, but I guess it was cheap so they could rent out the entire 22 stories. And they plan to have a lot of different things there. Among them, they were planning to build what they called a, quote, new model for urban development. That would include Chobani's global business headquarters, a, quote, innovation center where food scientists would work to eradicate global hunger, an experiential retail space, and an incubator lab for NGOs and nonprofits.

16:29Hannah Kramer: Very ambitious, I think. Extremely ambitious for a yogurt company. Kind of a complicated play to take on, though, if your bread and butter is yogurt, right?

16:41Lilah Burke: Yeah. And, like, I think, like, fairly mid-yogurt. I mean, I'm not a yogurt eater. I am a vegan, little known fact. Little known if you don't know me at all. But, okay, they built this yogurt empire. They're trying to, you know, put it into this sort of like feel-good impact work. It's very admirable, but it seems like it's not really happening. This was all supposed to open at the end of 2025, but it hasn't yet. And our reporter Elizabeth Kryan went over there to 360 Bowery and found nothing really happening. No workers are checking in, no global headquarters, no innovation center. We asked Chobani what's going on here, and they said they're just working really hard to get it right.

17:30Lilah Burke: They said that they are designing Chobani House to be part of a community for all New Yorkers and to serve as a main hub for our impact work.

17:38Hannah Kramer: Very ambitious plans from my favorite yogurt company. I do like Shobani Yogurt. It's not a vegan. But always interesting to see a non-core real estate company coming in to kind of do their own complex real estate project like this. Certainly we've seen examples where, you know, it's worked really well. But I always have a little bit of a red flag when anybody is building, you know, a civic center or a hub for all people in one city because the plan seems maybe a little bit more ambitious than practical. But we'll keep an eye on this one and see what happens, right?

18:14Lilah Burke: Yeah, I mean, I think this sort of fits into the like experiential retail thing we're seeing now in a lot of cities, including New York. And maybe in the future, you, Hannah, can go to the yogurt incubator lab and experience some of that. Nice.

18:28Hannah Kramer: Looking forward to it. All right. So for our first headline for the day, I have a brand that I think makes a little bit more natural real estate sense than Chobani. No offense to them, but we have the first Ritz-Carlton residences coming to Brooklyn. OK, tell me about that. So Samara Road and Marriott International, which owns the Ritz-Carlton brand, they are diving into the historical Hotel Bossert at 98 Montague Street in a really, really beautiful part of Brooklyn Heights. And the plan is to come into this hotel that's been kind of languishing for a couple of decades, really, and turn it into a bunch of Ritz-Carlton residences.

19:09Lilah Burke: Okay, I've heard of these like sort of Ritz-Carlton branded condo sort of deals, but not in Brooklyn, right?

19:15Hannah Kramer: Yeah, the branded condo boom hasn't really come to Brooklyn yet. So this is going to be one of, if not the first branded condos in the area. It's big in Manhattan. It's huge in Miami. And it's really huge in Dubai. There's some tension with, you know, I think oversaturation of branded condos in some of those markets. But here right now in Brooklyn, I mean, it makes a lot of sense. Brooklyn Heights is a super tony, really beautiful area, one that's in a lot of demand, especially from the super wealthy. And so you get a brand like Ritz Carlton, you know, they are very experienced in doing branded condos as well.

19:52Hannah Kramer: I think this is something like their 50th branded condo project. I have a feeling they're going to be able to build a probably pretty beautiful project in this old hotel.

20:01Lilah Burke: All right. What else do you have for us?

20:02Hannah Kramer: We wanted to check in on the Trump Organization and their real estate efforts, right? And so they had a big announcement last week that also ties them in with a pretty well-known real estate character for us here in New York, Alex Sapir. So the latest project that Trump Org is working on is licensing and branding their name for a Trump Tower in Tbilisi, Georgia. Georgia, the country, not the state. The last couple of years, I think everybody in real estate knows, you know, the core of the Trump Org's real estate has not been about real estate itself, but about the marketing, the branding, the licensing deals.

20:40Hannah Kramer: So they're not actually building this tower. So Alex Sapir introduced the Trump org now run by Eric and Don Jr. to a bunch of operators in Georgia, the country, who are building this big project in Tbilisi. And the Trump Tower seems to be sort of the centerpiece of it. Alex, whose dad, Tamir Sapir, worked with Don Sr. on the Trump Soho Hotel here in New York, now the Dominic. So Eric spoke to our reporter Keith Larson about, you know, the Trump org's plans for the project. They're not putting any equity in. This is really a marketing and branding deal for them. They say they're going to be involved with the design and, of course, you know, the marketing and lease up.

21:21Hannah Kramer: But the announcement itself, I have to say, was crazy. We have a video of it going up online shortly. There were dancers. There's a big crowd and a stage with lights. It is a lot of showmanship in the kind of Georgian announcement of this project and speaks to a lot of the Trump org sort of strategy with their, you know, branding and licensing deals. A lot of international deals, things in places like Oman. Obviously, this is abroad in Georgia, right? Now, there are some pretty complicated political ties here. The land that the tower is being built on was purchased from the former prime minister of Georgia, who was in the pro-Russia party and was sanctioned by the U.S.

22:04Hannah Kramer: as recently as 2024. So there's a little bit of whiplash in going from, you know, sanctioning to doing deals with the U.S. president's sons. Keith Larson, our reporter, asked Eric Trump whether they see any potential conflicts of interest here. And Eric said that his father isn't influenced by anyone. All right, then. That settles that. Of course. So we will definitely be keeping an eye on what happens with this international project as well as Trump Org's other real estate deals both here and abroad.

22:37Lilah Burke: All right. We will be keeping tabs on that. Yeah. Finally, before we go, the sentencing date for the Alexander Brothers is approaching. The Alexander Brothers, to remind you, are top brokers in New York and Florida who were accused of rape by many women and found guilty of federal sex trafficking charges a few months ago. Their sentencing date is approaching. Six victims are scheduled to speak. They are jockeying for a pardon at the same time, and they have hired well-known attorney Alan Dershowitz to help with that effort.

23:11Hannah Kramer: The sentencing is scheduled to start on October 6th. We will certainly be covering that on therealdeal.com. Until then, thanks for listening. Have a great week. Our script today was written by Lila Burke and Hannah Kramer, edited by Kara Ivan Press, and our in-room producers were Mary Jaduk and Usha Sukai. Our sound engineer and post-producer is Mila Miller. Thank you.