From Bidding For Tottenham To Buying Beverly Hills: Cain International Breaks Into America
Not many British-based property companies manage to break into America. And very few companies manage to do it on the scale of Cain International. After a few years spent relatively under the radar, in the past 12 months it has made waves on both sides of the Atlantic in a big way.
Its 18-acre development in the heart of Beverly Hills is a gigantic scheme in one of the most famous and fanciest ZIP codes in the world. And its private equity division is planning to roll out a new leisure concept that could be filling up defunct department store space across the U.S., starting with New York and Washington, D.C.
The $5B of debt it has put out in the past five years on both sides of the Atlantic means it is competing in the same field of nonbank lenders as global giants like Starwood and Blackstone.
In the old world, it has written the biggest London development loans of any lender since Brexit, backed a £1B London residential development programme and is now expanding into Europe.
The man leading the charge is Chief Executive Jonathan Goldstein, whose hyperactive, highly intelligent conversational style roams well beyond real estate.
Over the course of an hour and a half with Goldstein ahead of his appearance at Bisnow's London State of the Market event, he starts with his beloved Tottenham Hotspur, which he tried to buy for £1B and who have just been thumped 7-2 at home to Bayern Munich, and takes in the multiple follies of the UK leaving the European Union and why Trump’s unique style of leadership doesn’t hit the U.S. as hard as Brexit.
WeWork’s demise, anti-Semitism and dealing with internet trolls, and of course where the business goes next, are all thrown in for good measure.
Goldstein set up Cain International, or Cain Hoy as it was then called, in 2014 alongside Todd Boehly, part owner of the LA Dodgers baseball team. The company was initially backed by the investment division of Guggenheim Partners, the investment manager backed by America’s patrician Guggenheim family. Cain International is now a majority-owned subsidiary of Eldridge Industries.
It first came to international attention because shortly after forming, it weighed a £1B offer to buy Tottenham Hotspur, the English Premier League football team owned by financier Joe Lewis. A £1B bid was mooted before ultimately being pulled after it received little traction.
Since then Tottenham’s fortunes have risen, with the club reaching the Champions League final last year but losing to Liverpool. This year the team has started poorly, with a 3-0 loss to lowly Brighton following the loss at home to Bayern.
Despite being a boyhood fan and season ticket holder, Goldstein said the bid was based on a financial analysis that proved correct in hindsight. Tottenham had a major stadium project underway at that point, which finished late and over budget last year, but Goldstein said it was not the real estate element which appealed.
“In 2014 the TV deal for Tottenham was worth £85M a year, and today it is £130M,” he said. “We thought that deal was undervalued, and the revenue would rise. These are unique assets with unique brands and power around the world. It is very hard to break into that group of big clubs.”
For those of you interested in his analysis of Tottenham’s on-pitch fortunes, Goldstein pointed to an ageing squad all coming to the end of their contracts at the same time as a “warning klaxon” that things were not right with the team. And he said a future bid for Spurs or any other team is unlikely.
“These are not very liquid assets and they don’t trade very often, unlike U.S. sports teams,” he said. “I have seen investment memorandums for about eight Premier League clubs cross my desk in the past year, and none of them have traded.”
The bid highlights how Cain thinks outside the box when it comes to its investments. It has a private equity division which currently backs four businesses: the St. James sports complex in Washington, D.C.; Maslow’s coworking and members club in London; all-female members’ club The Allbright, which has outposts in London and West Hollywood; and Competitive Socialising, which owns leisure brands including Swingers, the concept which combines crazy golf, cocktails and street food.
Cain bought London-based Competitive Socialising last year, and Goldstein said there is the potential to roll it out widely across the U.S. It has the potential to fill up defunct retail space — one of its two London locations is on the 21K SF lower floors of a former department store on Oxford Street.
“When it started, the private equity investments were essentially just ‘businesses that Todd and Jonathan liked’, but really there is a link: they are all experiential concepts with links to real estate,” he said. “Swingers is golf, but you don’t have to even really like golf to go and play, you go there with your friends and enjoy yourself with a bit of friendly competition.”
On the locations he said: “Who would have thought 10 years ago that we would have been renting part of the BHS on Oxford Street for £40/SF. These big-boxes are going to need new concepts to fill them. We liked the management, which is the main thing, but the concept also becomes profitable quickly, which gives you the opportunity to roll it out.”
He sees the possibilities in the U.S. as huge.
“If it works in New York and Washington then there is the opportunity to grow the business nationwide to 30 or 40 sites.”
In terms of straight real estate deals, Cain has gained a foothold on both sides of the pond by providing both equity and debt for development, on a large scale and often on a speculative basis.
On the equity side, in the UK it backed housebuilder Galliard Homes in a £1B London residential development joint venture which Goldstein said had beaten return expectations. It also teamed up with Galliard and China Vanke to build The Stage, a mixed-use scheme in Shoreditch that comprises 400 homes and 180K SF of office space pre-leased to — WeWork. Any worries about that, given the company’s current turmoil?
“I think the timing is in our favour because they haven’t taken possession of the building yet,” he said. “If you were in the middle of your rent-free period with them or had already provided [capital expenditures] for them to fit out space, then you might be more nervous. But they have a groundbreaking, world-beating business, and I’m sure what they’re trying to do is concentrate on their existing assets rather than on growth.”
Cain’s flagship project is an 18-acre site it pieced together through multiple deals over the last few years. It includes the Beverly Hilton and Waldorf Astoria hotels and the neighbouring One Beverly Hills site, bought from Dalian Wanda last year for around $450M.
Cain has teamed up with Alagem Capital to develop the site, with a scheme of up to 1.6M SF planned and Foster & Partners appointed as architect. The scheme will be residential and hotel-led, with the final planning consents being sought from the local municipality.
“Behind Hudson Yards, it is probably the second-most-exciting development project in North America, which is an incredible situation for a British-based company to be in,” he said. “The address is a jewel in the Californian crown. It will predominantly be residential and hotels. It backs on to the golf course so there will be unbroken views, it will be something to behold.”
When it comes to debt, Goldstein said that the company had already loaned $1.5B in the U.S. and the UK/Europe this year, and the figure will potentially touch $2B by end of year. Its most eye-catching recent loan was a $750M construction facility provided to Aman and OKO Group to fund the development of the $1.25B Crown building on the corner of Fifth Avenue and 57th Street in Manhattan. It is the first time Cain has syndicated a major loan, something it will look to do more of from now on, Goldstein said.
“No one has infinite capital,” he pointed out.
He said that of the lending the company had undertaken in the past five years, 40% has already been repaid.
“That’s good for your reputation, when you lend, you want the money back,” he said.
In terms of managing a transatlantic business, Goldstein points to an excellent team on the ground in the U.S. where the company has just opened an LA office to support the Beverly Hills development. The U.S. team is headed by former Witkoff Director Eric Poretsky.
“You implicitly understand your own culture and you can’t invest somewhere without having lived there your whole life, so my partners and the team there give us an ability to invest in the U.S., which is pretty unique among British managers.”
In the UK, Cain made its name writing large loans on big office development schemes, such as the £390M it lent to Almacantar in 2015 to fund the purchase and development of the 572K SF Southbank Place office scheme, completed this year and leased to Shell and WeWork; and the £450M it lent to Canary Wharf Group to build the 715K SF 1 and 5 Bank St., which is 40% pre-let to Société Générale.
Goldstein said those loans showed two things: the company’s willingness to back schemes and management teams that it believed in, but also one of the fallacies of the debate around Brexit.
“On Southbank Place, the banks decided that they didn’t want to lend to [Almacantar Chief Executive] Mike Hussey even though he had a pre-let to Shell for half the scheme, and they decided they didn’t want to lend to Canary Wharf. Since when do you not trust George Iacobescu,” he said, throwing his hands in the air in exasperation. “These bankers thought they knew better than him, but look at what he has done, you always trust him.”
“That is one of the things people got wrong about Brexit, that the financial companies would leave London,” he continued. “Companies are trying to attract human capital, to make sure they operate to the max. If you look at when I started my career, all of the big technology companies were outside of London in the suburbs. Now they are all in the centre of town, because the human capital all wants to live in cities like London, New York, Miami and LA. The companies were never going to leave, so of course Canary Wharf was going to let its next tower.”
All of this said, Goldstein is still a very, very staunch opponent of Brexit, for political, financial and, above all, moral reasons.
“If you ask what being in Europe has done for Britain, we are just nicer people,” he said. “If you go back to the 1970s and look at the sitcoms that were on TV at the time, then it just wouldn’t be acceptable today. We are a nicer, more cosmopolitan, more tolerant country. But there is a nostalgic arrogance that makes us think that we are just better than the Europeans.
“In economic terms, there are three main trading blocks in the world: NAFTA, the EU and China. We are the world’s seventh biggest economy today, but in 20 years time we will have been overtaken by the likes of South Korea and Indonesia. The idea that we can negotiate the modern future economy better on our own, rather than part of a larger block, is wrong, and the British psyche needs to adapt to make sure we can be part of the dynamic modern economy.”
In real estate terms, the implications are being seen already: while leasing has held up, UK investment volumes are more than 50% down in 2019 compared to 2018, according to Real Capital Analytics.
“The politicians can kid themselves that we are open for business in the world, but the truth is that people are confused and want to know if we are an environment that can still be trusted.”
Goldstein has been vocal in another political controversy that has run parallel to the Brexit process: the row about anti-Semitism that has engulfed the opposition Labour Party and its leader, Jeremy Corbyn. Goldstein is a lifelong Labour supporter, but as chair of the Jewish Leadership Council and in a personal capacity he has been highly critical of Corbyn and the party for failing to properly address the anti-Semitism of party members and some lawmakers. Corbyn himself has been criticised for endorsing anti-Semitic posts on social media. Goldstein has said he cannot support the party in its current form.
This stance has attracted abuse on Twitter. He said he was offered extra security but declined.
“The truth is, a lot of these keyboard warriors are just cowards, hiding behind pseudonyms, tapping away in their studies or offices,” he said.
Goldstein said U.S. politics have far less of an impact on the economy and real estate market than Brexit in the UK.
“When I’m with my partners, and I point out the latest thing [President Donald] Trump has tweeted, they are amazed, because I’m the only one taking any notice,” he said. “You don’t have a system like in the UK where there is such a concentration of power in the sitting government. The U.S. has become somewhat immune to the impact of politics, although that might change with the trade war.”
As far as new initiatives for the company go, it has recently invested in Continental Europe and Ireland for the first time. In June it announced five deals across Spain, Poland and Hungary, all developments or redevelopments, which will have a potential end value of €1B. SEC documents show that the investments were made through a fund that Cain is raising for European investing, with $150M of equity secured so far. Bloomberg reported that the fund could raise up to $500M.
“We came out hard in the UK in 2014 and 2015, and Europe is a bit of a hedge against Brexit,” Goldstein said. On the fund he declined to comment in detail, but pointed again that “no one has unlimited capital” and said that Cain and its backers were likely to continue to provide significant equity on deals alongside any external capital.
Since the Beatles, plenty of Brits have tried to crack America, and very few have succeeded. With local backing and a team in place, Cain International has managed it. But if results don’t pick up, just don’t mention Tottenham.