Edgewater Harbor, a 24-Acre Mixed-Use In- Professionally, He Got His Start in the Chase Global Credit Training Program

APRIL 2012 The Insider’s Monthly Guide to New York’s Commercial Mortgage Industry

Power Profile: Q&A: the M.O. chats with Ackman-Ziff’s Simon Matt Ziff

Lending Powerhouse Galligan M&T Bank On CIT Group’s Plus: Top Large Deals New Real Estate Top Smaller Deals Monthly Mortgage Finance Challenge Charts and more

CMO_0412_Cover.indd 1 3/22/12 8:12:13 PM Relationship Driven. Execution Focused. Recent Commercial Financing Highlights

Columbus Square U.S. Steel Tower 1551 Broadway Hotel Chelsea New York, NY Pittsburgh, PA New York, NY New York, NY 500,000 SF Retail Portfolio 2,200,000 SF Office Property 25,600 SF Retail Property 175,900 SF Hospitality Property $280,000,000 $220,000,000 $180,000,000 $85,000,000 Balance Sheet Financing Conduit Financing Conduit Financing Balance Sheet Financing

North Elston Avenue West 14th Street Steelworks Lofts Route 17 North Chicago, IL New York, NY Brooklyn, NY Paramus, NJ 178,700 SF Shopping Center 61,000 SF Mixed-Use Property 110,000 SF Mixed-Use Property 125,000 SF Retail Property $66,000,000 $55,000,000 $28,400,000 $23,350,000 Balance Sheet Financing Balance Sheet & Mezz Financing Construction Financing Balance Sheet Financing

In 2011, Meridian proudly advised on nearly 2,800 real estate financing transactions. Over our 20-year history, Meridian has earned the trust and confidence of the market, becoming a leading advisor to many of the world’s most sophisticated real estate investment firms. www.meridiancapital.com

New York Office New Jersey Office Florida Office Illinois Office California Office California Office Maryland Office 1 Battery Park Plaza 485 Route 1 South 2385 Executive Center Dr. 8170 McCormick Blvd 2029 Century Park East 2173 Salk Ave. 7600 Wisconsin Avenue 26th Floor Building F, Suite 110 Suite 400 Suite 220 Suite 1400 Suite 250 Suite 800 New York, NY 10004 Iselin, NJ 08830 Boca Raton, FL 33431 Skokie , IL 60076 Century City, CA 90067 Carlsbad, CA 92008 Bethesda, MD 20814 Tel: 212-972-3600 Tel: 732-301-3200 Tel: 561-367-0005 Tel: 773-439-1200 Tel: 310-867-2300 Tel: 858-964-0300 Tel: 240-507-1919 Fax: 212-612-0100 Fax: 732-301-3299 Fax: 561-367-0099 Fax: 773-439-1299 Fax: 310-867-2350 Fax: 212-201-5141 Fax: 410-504-5748

Untitled-8 1 3/22/12 1:11 PM ADpage.indd 31 3/22/12 8:05:18 PM contents

Editor’s letter 2 321 West 44th Street, New York, NY 10036

4 news exchange 212.755.2400

work force 12 Jared Kushner, Publisher

14 Originations Barbara Ginsburg Shapiro, Associate Publisher

The Mortgage Observer’s picks for 5 deals over Robyn Weiss, Director of Real Estate and under $30 million

Jotham Sederstrom, Editorial Director

16 m&t bank Carl Gaines, Editor

Dan Geiger, Daniel Edward Rosen, The secrets behind M&T’s lending might

Staff Writers

20 power profile Sam Chandan, Joshua Stein, CIT’s new real estate finance division Columnists

24 Q&A The M.O. chats with Simon Ziff

26 The scheme of things

Peter Lettre, Photo Editor Monthly mortgage charts Mark Stinson, Designer

28 Stein’s law Lisa Medchill, Advertising production

29 the basis point

30 in-depth look Christopher Barnes, President,

Michael Stoler on insurance companies Observer Media Group

31 the schedule Barry Lewis,

32 of interest Executive Vice President,

Observer Media Group

Cover photo by Hannah Mattix

APRIL 2012 the MORTGAGE OBSERVER 1

CMO_0412_TOC & Masthead.indd 1 3/22/12 8:57:38 PM Editor’s Letter

Spring’s Here Might Optimism Follow?

So welcome to The Mortgage Observer. Stick around and stay a while. We’re dedicated to bringing you all the commercial real estate finance news happening in the New York tristate area, with a focus on tracking and diving down deep into recent mortgages— that’s our mission. As we head further into spring, it’s easy to feel optimistic and ready to start something new with vigor. The weather’s warmer, the flowers are blooming, the sun sticks around later… Well, optimism regarding the economy and what our collective financial recovery means for commercial real estate seems to be in bloom once again, too. No doubt uncertainties still loom, but several of the stories we’re bringing you this month attest to this. For instance, my profile of CIT Group’s Matt Galligan, formerly of Bank of Ireland. After helping to set up Bank of Ireland’s U.S. portfolio, Matt found himself having to wind it—and his position— down when Irish regulators called for the bank to deleverage. Matt and much of his team from Bank of Ireland weathered that storm and started something new—the real estate finance division at CIT Group. The move isn’t without risk. But as Matt told me, everyone has risk—whether they know it or not. For me, optimism abounds in the story of M&T Bank, as well. With its focus on community lending and a loyalty for its long-time customers, the bank weathered the financial crisis and recently acquired Wilmington Trust, which will allow it to provide new wealth management services to those customers. As someone helping to start something new myself, I took a lot from all of these stories. And I’m sure that you’ll find them valuable and informative, too. Also of value, I hope, will be our analysis of commercial mortgage deals in the New York tristate area. We’ve populated this magazine with lists, charts and graphs—all designed to give you an on- going, easy to access snapshot of who the lenders, borrowers and brokers are. As we continue on, please feel free to get in touch and let me know what’s working for you and what’s not. And, of course, as we continue on into spring and deals bloom for you, reach out and share them with us. Happy spring.

2 the MORTGAGE OBSERVER APRIL 2012

CMO_0412_EditorLetter.indd 2 3/22/12 8:03:01 PM The Connecticut Portfolio $163,800,000 | 1,170 residential units

Hoyt Bedford Apartments Montoya Apartments Stamford, CT Branford, CT

Morgan Manor Apartments Seramonte Apartments Stamford, CT Hamden, CT

Drew Anderman Financing provided by: [email protected] Alan Blank [email protected] Commercial Real Estate Finance

ADpage.indd 30 3/22/12 8:06:17 PM NEWS EXCHANGE Note sales, investments, mortgage originations, mergers, aquisitions

MetLife’s Commercial Mortgage Volume Hit $11 Billion in 2011 Life insurance companies continue to exceed ex- about the loan origination volumes. “Our commitment pectations in the commercial mortgage originations to prudent risk management and our long-term invest- space. Insurer MetLife said recently that its Real Estate ment approach has allowed us to take advantage of Investments department originated over $11 billion in attractive opportunities in the U.S. and internationally, commercial mortgages in 2011, compared to more than and we will continue to focus on top quality properties $8 billion that the company originated in 2010. And in major markets in 2012.” according to a MetLife spokesperson, those 2010 num- The company, which had a total commercial mort- bers were twice those seen in 2009. gage portfolio of $40 billion as of the end of 2011, In Manhattan last year, the company’s volume was bol- was “able to originate top quality loans at yields that stered by several high profile originations, including $350 provided a pick-up of more than 100 basis points over million for 1540 Broadway and a $374 million loan issued comparable risk corporate bonds,” according to Mark for Boston Properties’ 601 Lexington Avenue, where Pru- Wilsmann, managing director and head of MetLife’s dential Mortgage Capital Co. and New York Life’s contri- mortgage lending group. butions brought the loan total to $735 million. MetLife’s increase in originations volume is in line Robert Merck, senior managing director and head with the industry as a whole, based upon data from the of real estate investments at MetLife, sees the in- American Council of Life Insurers. The group reports surer’s strengths as being tied to its reputation, size, total commitment volume of $45.42 billion for 2011, a financial strength and the speed at which it can ex- 48.23 percent increase from the previous year. ecute transactions. For the remainder of 2012, the company says it will “MetLife has built its commercial real estate lending focus on expanding its commercial mortgage activity business on key guiding principles, which enabled us to across the globe, but particularly in the United King- strategically navigate through the economic downturn dom, where it views market conditions as particularly during the past few years and remain an active lender favorable. It targets office, multifamily, industrial and in the market,” Mr. Merck said in a prepared statement 1540 Broadway. retail properties in top markets.

$33 Million Williamsburg ues to be on fire. And the co-developers on the project where ten to twenty years ago, “there wasn’t a whole lot weren’t even looking for a buyer. happening.” Trade Shows Hotel Craze Hotel Williamsburg, a 64-key, full-service hotel The hotel was co-developed by Minneapolis-based that opened its doors just last November, was bought Graves Hospitality Corp. and Williamsburg-based KSK Filtering to Boroughs by King & Grove on March 8 for over $33 million. Re- Construction Group—developer of the GEM Hotel The trade of a boutique hotel in Brooklyn is the latest named King & Grove Williamsburg, the hotel, at 160 Union Square. indication that the New York City hotel market contin- North 12th Street in Williamsburg, has followers of the According to a statement from Graves Hospitality, city’s hotel sector abuzz. the developers hadn’t anticipated selling. Rather, they Daniel Lesser, president planned to “indefinitely operate the property,” until and CEO of LW Hospitality “the market’s overwhelmingly enthusiastic response to Advisors, told The Mortgage the high-profile project attracted a non-solicited pur- Observer that the deal speaks chase offer that was simply too good to refuse.” to the city’s overall health. “It’s Benjamin Graves, president of Graves Hospitality, a brand new hotel in a really said that the sale highlights the company’s “skills at dynamic market—Williams- understanding the intricacies of specific locations and burg is very much a happening submarkets, identifying the right concept and develop- place,” Mr. Lesser said. “It’s ing relevant, high-quality projects to drive demand and very emblematic of the funda- profitability.” mental health of New York and Mr. Lesser, at LW Hospitality, referenced a “New how all parts of the city have York metropolitan renaissance,” the benefits of which been, and continue to be, gen- are making their way to the outer boroughs. “That’s trified.” Mr. Lesser also pointed what we’re seeing in Brooklyn and that’s why we’re Hotel Williamsburg. to areas like Long Island City, { Continued on Page 6 }

4 THE MORTGAGE OBSERVER APRIL 2012

CMO_0412_Exchange.indd 4 3/22/12 7:54:42 PM BERKLEY | ACQUISITIONS

Eli Braha Managing Member of the G.P. [email protected] | +1 212 867 1234 140W57 NYC 10019

BerkleyAcq.com Berkley Asset Management LLC is the General Partner of BERKLEY ASSET FUND I, L.P. This is not an offer to sell or a solicitation of an offer to buy interests in the fund. Any offer or silicitation will be made only pursuant to the Fund’s Private Placement Memorandum and subscription documents. The above terms may change. The principals make no guarantee of any results. An investment in the Fund is speculative and may result in a partial or total loss of any investment.

ADpage.indd 30 3/22/12 8:07:33 PM NEWS EXCHANGE

seeing hotels like this get built in the first place, and then secondly they end up trading at some very healthy CBRE: Investments in European numbers,” Mr. Lesser added. “These are evolving markets on the upswing.” CRE Flowing from North America

$325 Million Refi for 100 The European commercial real es- multiple dimensions about ways mar- tate market is being dominated by U.S. kets operate.” West 33rd Street and Canadian investors, with several Blackstone Real Estate Debt Strate- Vornado Realty Trust has refinanced its 100 West New York-based asset managers pur- gies, a division started in 2008, cur- 33rd Street building—home of Manhattan Mall—for suing routes into real estate—like debt rently has $4 billion of assets under $325 million. The REIT realized $87 million of net pro- portfolios—that others pass by. management, according to the compa- ceeds in the process. According to data from CBRE, ny, whose total real estate assets under The new loan, at an interest rate of LIBOR plus 2.5 North American investors were management as of December 31, 2011, percent, matures in March of 2015 and has two one- responsible for 30 percent of invest- were $42.9 billion. year extension options built in. Net proceeds were real- ments in European commercial real The increase in non-European buy- ized upon paying off the existing loan and closing costs estate last year. This was up from 21 ers of European commercial real estate for the current refinancing. percent in 2010. Of this capital in 2011, caused a 7 percent increase in overall The 12-story building sits on the entire eastern block Euro 9 billion was from the U.S. and investment activity in the market. It of Sixth Avenue between 32nd and 33rd Streets. It is 1.1 Euro 2 billion was from Canada. rose from Euro 110 billion in 2010 to million square feet and includes the mall, at 243,000 Michael Haddock, a London-based Euro 118 billion in 2011. square feet, and 847,000 square feet of office space. senior director, EMEA Research and Michael Haddock. After the UK, the next most popular Retail tenants at the Penn Plaza district building in- Consulting, at CBRE said that inves- market for North American investors clude JC Penney, Victoria’s Secret and Gamestop. Office tors tiptoe around the countries hardest hit by the was Germany, Mr. Haddock said. “That has certainly tenants include Draftfcb and Polo Ralph Lauren. European debt crisis. He said that the general trend is been the case for the last couple of years,” he added. investors looking for core real estate in core markets “Next largest—pretty much equally for last year—were and avoiding the risk associated with distressed assets. France and Russia. And then it trails off pretty quickly Deutsche Bank Berkshire “But there is a small group of investors,” he pointed after that.” To that point, the CBRE data showed only out, “who do actively seek out risk in the hope of get- about Euro 350 million in Italy, Euro 170 million in Mortgage Acquired ting very good returns.” Part of this is due to a different Spain and nothing Mr. Haddock could see in Portugal, Real estate financial services company Ranieri Real mindset, Mr. Haddock pointed out. Ireland or Greece—among the weakest of the Euro Estate Partners and private equity funds affiliated with “With somebody like Blackstone, it’s quite interest- zone markets. New York’s WL Ross & Co. have completed their acqui- ing that they’re pursuing quite a number of different Though the investment activity was spread across sition of Deutsche Bank Berkshire Mortgage. routes into real estate—so Blackstone [Group] has been markets in countries least impacted by economic tur- Jeffrey Day, DBBM’s CEO, will continue in that role quite prominent as buyers of debt portfolios, as well as moil, the London office market fared the best. Central at the company, which has been dubbed Berkeley Point direct real estate,” he said. “That’s reasonably typical London took 18 percent of total North American capital Capital. It originates multifamily loans for Fannie Mae, of U.S. investors. That they have the ability to think in invested in Europe in 2011. Freddie Mac and the Federal Housing Administration. Berkeley Point services a $29 billion portfolio of multifamily loans and, according to a release, is the second multifamily originations last year.” He added that WL Enterprise’s Multifamily Mortgage Finance business, largest originator of Fannie Mae loans. Ross looked forward to working with Mr. Day and his told The Mortgage Observer. Mr. Seats will head up the Jon Vaccaro, founder of Ranieri Real Estate Partners team “to help them grow in this critical part of our na- newly formed entity as its CEO. Bellwether Real Estate and head of real estate at Ranieri Partners, lauded the tion’s housing market.” Capital’s Ned Huffman will serve as its president. value of the acquisition. “A high-quality acquisition of Mr. Seats said that the two companies have very this scale within the multi-family sector is unique and little overlap and will bring different strengths to the rare,” Mr. Vaccaro said in a prepared statement about Enterprise, Bellwether table. the deal. “The new Berkeley Point provides us with an “They bring a very strong commercial lending plat- excellent in-place team, that we know well and is ca- form JV and Eye $1.5 form through over 25 life companies to the new orga- pable of much more. With the benefit of the strong WL nization, and that’s everything Ross and Ranieri partnership, we believe Berkeley Point Billion in Mortgages from office, retail, hospitality is poised for growth.” Enterprise Community Investment’s mortgage fi- and industrial, and they also Mr. Vaccaro was previously global head of commer- nance business is merging with Bellwether Real Estate bring a very robust multifam- cial real estate at Deutsche Bank, a position he held Capital, The Mortgage Observer has learned. The new ily platform,” he said of Bell- from 1997 to 2010. DBBM was a subsidiary of Deutsche company, Bellwether Enterprise Real Estate Capital, is wether. “As for Enterprise, we Bank. aiming for $1.5 billion in mortgage production volume are solely multifamily focused According to James B. Lockhart III, vice chairman this year, some of that based here in the tristate region. and our core focus is really low of WL Ross and former director of the Federal Housing The merger is expected to be completed by the end income and affordable hous- Finance Agency, “Berkeley Point did over $3 billion in of May or June, Lamar Seats, senior vice president of Lamar Seats. ing, which we execute through

6 THE MORTGAGE OBSERVER APRIL 2012

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2012-03-22 Flushing RE Ad for the Comm Mort Obs FINAL.indd 1 3/22/2012 5:19:20 PM ADpage.indd 30 3/22/12 8:08:04 PM NEWS EXCHANGE

Fannie Mae, Freddie Mac and FHA. So we’ll be merg- Based in Woodbridge, NJ, Helios opened a Madison ing two companies—one with a focus on multifamily Helios Capital Retained to Avenue location in response to over $300 million in rental housing and the low income to moderate income Advise on Two Loan Sales transactions in 2011, the firm said at the time. Managing side with Bellwether, which has a very strong commer- director Josh Malka and associate director Ben Shul- cial and then market-rate multifamily business.” Totaling $9.3 Million man both work out of that office. Bellwether Enterprise will be based in Cleveland, Mr. Malka said that, since opening, “Helios has Ohio, but will retain a presence in the New York tristate Helios Capital Advisors has been retained to provide sourced many exclusive assignments in the borough of area, where Mr. Seats said that it will target low income advisory services on the sale of two non-performing Manhattan and the outer boroughs from noted banks and affordable housing. first mortgages. The loans are secured by a develop- such as Northfield, BNB as well as two private lenders.” “We cover the entire New York City metro area and ment sites in Hell’s Kitchen and Harlem. all five boroughs, so we want to do business in all of The firm, which opened its New York City office in them,” he explained. As for its deal pipeline—there are January, will use a controlled bid process for the two Madison Realty Capital targeted loans moving through, he said, both in New loans. The first mortgage on the Hell’s Kitchen develop- York City and New Jersey. ment site—80,000 square feet—has an unpaid principal Gets $28.7 Million Portfolio Overall, Mr. Seats said, the company expects to hit balance of roughly $7.5 million. Meanwhile, the first Real estate investment firm Madison Realty Capital $1.5 billion in mortgage production from the time the mortgage on the Harlem property has an unpaid princi- has grabbed a portfolio of New York City loans from merger takes effect, through the end of 2012, a figure he pal balance of $1.8 million. That site is located on Fred- a regional savings bank. The portfolio, secured by 11 conceded was both aggressive and “very solid volume.” erick Douglas Boulevard. Manhattan properties and 14 Brooklyn properties, is In a prepared statement about the merger, Charles “Helios will use our established, controlled bid pro- valued at $28.7 million and consists of 15 notes. Werhane, president and CEO of Enterprise Community cess to complete both of these sales,” Steven Schultz, The loans in the portfolio were originated between Investment, said that $1.5 billion was, in fact, only a chief executive officer for Helios Capital Advisors, said 2006 and 2009. start. “Through this merger and with planned strategic in a prepared statement about the assignment. “These Joshua Zegen, co-founder and managing principal of growth initiatives,” Mr. Werhane said, “we expect to diverse properties provide tremendous potential and MRC, told The Mortgage Observer that the Manhattan build Bellwether Enterprise’s annual production vol- we are sure they will attract much interest from knowl- properties were located in Hamilton Heights and west ume to over $3 billion.” edgeable investors.” Harlem. “A number of the properties we got deeds and

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8 THE MORTGAGE OBSERVER APRIL 2012

CMO_0412_Exchange.indd 8 3/22/12 7:56:09 PM NEWS EXCHANGE

debt—we bought the debt but it came along with the have strengthened—and so they have the ability to write tan, two in Brooklyn, three in the Bronx and one on deeds to the property as well at closing,” he said in ref- down assets and sell loans at some sort of a discount.” the South Shore of Long Island. Mr. Sozio declined to erence to the upper Manhattan portion of the portfolio. provide specific addresses or the name of the financial These number 125 apartment units and will be man- institution on whose behalf Ariel is marketing the port- aged by Silverstone Property Group, the property and Mixed Bag of Notes on folio. asset management arm of MCR. He said that they were Once signed confidentiality agreements are in place, working at the moment to maximize value on those Offer from Ariel however, he said that interested parties will have access properties. Ariel Property Advisors is marketing a note portfolio to the data room, “where they will be able to go through The 14 Brooklyn properties are in Park Slope, Carroll that is made up nine investment properties throughout all the mortgage files, see where they stand in the legal Gardens and Bed-Stuy. the New York City area. Its principal balance is a little process, if there is one, and they’ll see all the internal In many cases, MRC restructures the deal back to the under $9 million, according to Ariel. appraisals the institution has performed.” borrower, but Mr. Zegen said that his firm was uniquely Most notably, however, the portfolio includes proper- “It’s a good mix,” Mr. Sozio said of where the per- positioned should this not be the case. In cases where ties that are both performing and non-performing, a forming portion of the portfolio is located. “Both that it takes ownership, Silverstone is ready to take over fact that Ariel Property Advisors vice president Victor we have in Manhattan are performing. Of the two in management and reposition the buildings. “In many Sozio says makes them unique. Brooklyn—one is performing and one is in the legal of these deals we won’t own,” he said, “and obviously “Some note sale packages are just purely distressed, process—and in the Bronx one out of the three is per- we’re very happy to be paid off.” where they include notes that are in the midst of the forming.” Since 2010 MRC has closed over $150 million in dis- legal process,” Mr. Sozio told The Mortgage Observer. Despite the tremendous amount tressed debt transactions with more than 10 banks. Mr. “Here we have a mix of both performing and non- of commercial real estate loans Zegen said that he sees more distress on the horizon as performing notes. Five out of the nine are performing— coming due this year, Mr. Sozio well. and these notes offer up good returns.” Those returns doesn’t anticipate a huge wave of “In the recent 12 months a lot of the deals have this are being achieved, he added, as a result of the fact that distress hitting the market this year. kind of a restructuring or recapitalization component,” most are at an interest rate above 6 percent, collateral- He said that “banks have done well he said. “I see that happening more and more because ized by strong assets. in strategically unloading these some of the smaller banks—finally their balance sheets Those assets include three properties in Manhat- Victor Sozio. distressed notes,” which has kept a For Sale 117-119 West 21st Street Rare Vacant Chelsea Redevelopment Opportunity

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APRIL 2012 THE MORTGAGE OBSERVER 9

CMO_0412_Exchange.indd 9 3/22/12 7:56:14 PM NEWS EXCHANGE

large wave of them from coming along at once, a fact he behind.” Heyman Properties and Equity One didn’t return said has kept values up. phone calls in time for publication. Ariel Property Advisors is marketing two other notes from a different financial institution for Brooklyn prop- Staten Island Shopping USAA Real Estate Buys erties—one on Van Brunt Street in Red Hook and one on Sutter Avenue in East New York. Center Gets $18M Loan Interest in Square Mile A joint venture between Kimco Realty Corp. and a USAA Real Estate Co., based in San Antonio, Texas group of institutional investors has secured an $18 mil- has bought an interest in New York–based investment $1.7 Billion in Mortgage lion non-recourse first mortgage loan for Staten Island’s firm Square Mile Capital. Forest Avenue Shopping Center. According to a statement, founders Jeffrey Citrin Capital Hit NYC in Feb. Kimco Income Operating Partnership, the joint and Craig Solomon will continue to oversee day- According to data from Off-Market RADAR, Febru- venture, owns 59 community shopping centers to-day operations, retaining a majority interest. ary saw $1.7 billion in commercial real estate mortgage in 18 states around the U.S. This particular shop- A spokesperson for USAA declined to specify the capital flow into New York City, as investors continue to ping center is 190,000 square feet and includes amount of the investment, though sources told The target the city’s plum asset types. TJ Maxx, Michael’s and CVS among its long-term Mortgage Observer that it amounts to a 49.9 percent The month’s largest loan came in the form of $254 tenants. piece of the firm. million in financing from Citibank, which was used to “This is a relatively low-leverage financing, but the Pat Duncan, chairman and CEO of USAA Real Estate fund the buyout of the tenant-in-common interests in a loan has flexible pre-payment terms that were very at- Co., said in a prepared statement that the investment condo conversion at 870 Seventh Avenue, home of the tractive to Kimco and its partners,” Mark Ehlinger, a was meant to “broaden the investment opportunities Park Central Hotel. LaSalle Hotel Properties bought the Cushman & Wakefield Sonnenblick Goldman managing we can offer our clients.” He added that “Mr. Citrin and hotel last year for $405.5 million. director, said in a prepared statement about the deal. Mr. Solomon offer extensive investment expertise in Next on the list of top financings was a $160 million C&WSG was the borrower’s exclusive advisor and ar- the North American real estate and financial markets, loan secured by the leasehold interest on 992 and 1000 ranged the loan. and we look forward to working with them to expand Madison Avenue. Alexico Management Group took that The lender was not disclosed, but was described as the platform they have built.” loan out from German American Capital Corp. “the U.S. banking subsidiary of an international finan- Square Mile was launched in 2006 and has since de- All in all, the data shows, multifamily in the five bor- cial company.” ployed almost $2 billion of equity. Mr. Citrin, managing oughs took the lion’s share—over half, at $800 million. principal, said that the firm had made great strides and Hotels were second, at $360 million, and office received that the alliance would be complementary. less than half of that, at $150 million. Shopping Centers Head “Our platform’s alliance with USAA Real Estate Brian McCarthy, vice president and co-founder of Company will help us to open new doors and provide Off-Market RADAR, said in a prepared statement about to Equity One Portfolio us with even more firepower in the marketplace, while the findings that the firm expects debt capital in the According to sources, Heyman Properties is in the enabling Square Mile to remain nimble and decisive in New York marketplace to increase as the economy im- process of selling three Connecticut shopping centers our decision-making,” Mr. Citrin said. “Both organiza- proves. to Miami’s Equity One for a total of $79 million. They tions have strong real estate platforms that now can “Judging by the $1.7 billion in debt capital in the include the Darinor Plaza, at 500 Connecticut Avenue complement each other, and we look forward to jointly market in February alone, there will be many mort- in Norwalk; Compo Acres, at 374 Post Road East in taking full advantage of investment opportunities that gages and deeds for banks, lenders and owners to work Westport; and Post Road Plaza, at 430 Boston Post Road will emerge in the coming years, on behalf of our inves- through,” Mr. McCarthy said. “Based on the data we in Darien. tors.” have collected since the beginning of 2012, there are Darinor Plaza consists of 145,637 square feet of leas- Square Mile has three discretionary real estate funds. ample opportunities for investors and lenders to ac- able space and is 100 percent occupied by tenants such The $2 billion of equity it has deployed is across over quire all types of commercial real estate assets through- as Kohl’s, Old Navy and Payless Shoes. It’s currently 80 investments. Last year, it invested, along with equity out New York City.” under contract for $56 million, sources say. partner Mountain Development Corp., $18.1 million One surprise in the findings was the popularity of Compo Acres is 43,107 square feet and leased to ten- in an empty suburban office building in northern New land sites, which Mr. McCarthy said are gaining favor ants like Trader Joe’s and Jos. A. Bank. There is 4,024 Jersey—in Roseland. among both local and out-of-state developers. “This square feet of vacant space there. Post Road Plaza, It also teamed with Invesco Advisors, WL Ross & Co. trend indicates that speculative development may be on home of Trader Joe’s, Orvis and other stores, has 20,005 and the Canyon-Johnson Urban Funds in 2011 to ac- its way back to the strongest submarkets of Manhattan, square feet and is 100 percent occupied, according to quire a $880 million portfolio of real estate loans from meaning a full-blown economic expansion isn’t too far the Equity One Web site. Bank of America.

10 THE MORTGAGE OBSERVER APRIL 2012

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ADpage.indd 30 3/22/12 8:08:42 PM Hirings, promotions, defections, firings work force

Madison Capital has hired counsel is a natural extension Asia-Pacific,Peter Eastham, to its U.S. Commercial Jonathan Ratner as a director of the work Tom is already Mortgage-Backed Securities team as head of CMBS of asset management. He was performing for us and an im- Ratings. previously a VP at Emmes As- portant addition to GTIS as we Mr. Eastham joined the team at S&P in 2000. His set Management. Mr. Ratner continue our growth.” work spans all structured finance asset classes with works on capitalization, financ- Before joining GTIS Part- a specialization in commercial real estate and asset- ing, leasing, capital program- ners, Mr. Feldstein was an backed securitizations in Asia and Australia. Prior to ming and strategic planning attorney in private practice S&P, Mr. Eastham worked in the treasury department at the firm, which invests in representing a number of cli- in the Australian government. He holds a bachelor’s in retail and mixed-use properties ents, including GTIS, providing commerce and a graduate diploma in finance and in- Jonathan Ratner. in New York and other urban them with transactional legal Tom Feldstein. vestment from Australian institutes. markets. services. For several years, At Emmes, Mr. Ratner managed the firm’s $500 mil- from 2002 to 2009, he was a managing director at Tish- u lion New York City portfolio, which included 40 assets man Speyer, where he was responsible for overseeing and two million square feet. Other responsibilities at legal activities in the Midwest and western U.S. He then Natixis, the global asset manager, has hired Chris Emmes included the development and execution of served as CEO of Tishman Speyer Office Fund, which Reilly in it’s New York office, where he’ll serve as a value-enhancing strategies for the firm’s retail, office, is listed on the Australian Stock Exchange. managing director on the real estate finance team. multifamily and industrial assets. He also previously His past employers include Fitch Ratings and Morgan worked as a project manager for Richter+Ratner Con- u Stanley, though for the past five years he had been over- tracting Corp. seeing the large-loan operation at UBS. Last year, Mr. Terry Baydala, a former senior vice president at An- Reilly also served as interim group head in the commer- u glo Irish Bank, has joined Meridian Capital Group as cial mortgage backed securities group at the bank. an executive vice president. He heads the structured fi- John Monaghan, formerly a director in the Bank of nance division at Meridian. At Anglo Irish Bank, where u Ireland’s U.S. Property Finance division, has moved to he worked for nearly five years, Mr. Baydala helped to CIT Group as a director at CIT Real Estate Finance. lead the team that originated and syndicated U.S. com- KBS Realty Advisors, the private equity real estate He rejoins a group of former mercial property loans. company and Securities Ex- Bank of Ireland employees Once Anglo Irish Bank sold off its portfolio of U.S. change Commission-registered who moved to CIT when the commercial property loans, Mr. Baydala was one of investment advisor, has ap- bank spun off its U.S. real es- several employees whose positions were phased out. pointed Randi Kaufman as tate holdings. senior vice president and asset Mr. Monaghan had previ- u manager in the California-based ously worked as a manager in firm’s New York offices. the Property and Tax Unit at Fitch Ratings has rearranged Adam Fox within the Ms. Kaufman, who previously Specialist Business Bank- organization. Mr. Fox—who joined Fitch in 2003 from served four years at Blackrock, ing in Dublin and also as a Rockville, Md.–based REIT Criimi Mae—had been work- where she was a vice president business manager at College ing as a CMBS surveillance analyst. and asset manager, will oversee Green Branch, also in Dublin, John Monaghan. Now, however, he’s heading a all asset management functions Randi Kaufman. where he helped to manage a three-person team on the rating associated with KBS properties in New York, New Jersey, portfolio of over 200 small to medium-sized businesses. agency’s Operational Risk Group. Massachusetts, Ohio and Pennsylvania. The group is charged with CMBS “Randi has an impressive track record with an eye u primary, master and special towards reaching property performance goals,” said servicer ratings. No word yet on Chuck Lindwall, KBS regional president, in a prepared GTIS Partners has hired Thomas Feldstein as who will replace him in the posi- statement. “Her wealth of experience—both from an as- general counsel and managing director. He’ll be based tion he vacated at Fitch Ratings. set management and geographic standpoint—will bode in New York, at the company’s headquarters, and will Standard & Poor’s recently well for KBS in adding value to its portfolio.” report to Tom Shapiro, the company’s president. moved its managing director “I’ve known Tom personally for almost 25 years,” and lead analytical manager for Send news and tips to Carl Gaines at cgaines@ob- said Mr. Shapiro. “Having him fill the role of general Structured Finance Ratings in Adam Fox. server.com

12 THE MORTGAGE OBSERVER APRIL 2012

CMO_0412_TheCrew.indd 12 3/22/12 6:29:26 PM 8L\*:MFK*FL+T*L]5+5L*]6CCU5*

*********The State of the New York Real Estate Market '''''' Wednesday May 9, 2012

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211 E. 43rd St. 537 W. 27th St. 2100 Round Pointe 72 Madison Ave. 2121 State Route 27 $27 Million $26.3 Million Drive $22 Million $11 Million Mayrose Holdings A $26.3 million mortgage $22.5 Million The Moinian Group Morgan Stanley Mort- LLC obtained a $27 million for a property at 537 West Marcus & Millichap completed a $22 million gage Capital Holdings mortgage for an office build- 27th Street in Manhat- Capital Corp. arranged a mortgage deal for a loft build- provided a $11 million loan for ing at 211 East 43rd Street tan was finalized by W. 27th $22.5 million loan for the refi- ing it owns at 72 Madison a research and development in midtown Manhattan. The Street Rental LLC recently. nancing of Parkside Apart- Avenue. facility in Edison, NJ. The building is home to the Bo- Germany-based Landesbank ments, at 2100 Round The building features 12 financing was via a 10-year, livian Consulate in New is the lender. Landesbank’s Pointe Drive in Haverstraw. stories of loft offices at a to- fixed-rate securitized loan. York and the offices of City U.S. headquarters is located at The loan is adjustable for five tal of 52,965 square feet; the The facility, at 2121 State Councilmember Daniel Ga- 280 Park Avenue in midtown years and has a loan to value mortgage price per square foot Route 27, is fully leased by rodnick and State Senator Manhattan. ratio of 65 percent. is $415. It is located between Revlon Consumer Prod- Liz Krueger. W. 27th Street Rental The apartments refinanced 27th and 28th streets near ucts Corp. and is being used The property, which fea- LLC is the borrower on re- through this deal are part of Madison Square Park. Tenants as its worldwide research and tures office and retail space, cord, but the owner is West- the larger Harbors at Hav- include corporate firms such development center for all the is located two blocks from side Congregation of erstraw. According to Ste- as Wind-Up Entertain- company’s brands. Grand Central Terminal and Jehovah’s Witnesses Inc. ven Rock, a senior director ment and spiritual center HFF arranged the financ- has 177,000 square feet and The mortgage that Landes- in MMCC’s Manhattan office, Suhkyo Mahikari, according for an affiliate ofAngelo, over 24 stories. The mortgage mark provided had a price per the apartments are part of “a ing to the Moinian Group’s Gordon & Co., AG Net price per square foot is $136. unit of $295,557, and the mort- breathtaking master-planned Web site. Lease Fund II. The property The building has office rentals gage price per square foot is development on the Hudson In 2009, the Moinian Group is part of the 247,245-square- available ranging in size from $205. The loan-to-value ratio River that was completed in completed a capital improve- foot Edison Towne Center. 600 to 3,000 square feet, ac- on the deal was 63 percent. the spring of 2011.” He added, ment campaign on the build- HFF managing director cording to office listing Web The property is a multifam- in a statement about the fi- ing, including upgrading the Evan Pariser and director sites. ily building featuring 128,000 nancing, that the 110 units at lobby and modernizing the Michael Klein worked to Mayrose Holdings LLC is square feet across 89 units and the property are 70 percent elevator system. represent the borrower in the the owner/borrower, while 13 floors. It includes Chelsea leased. Sharim, which is listed as deal. Angelo, Gordon & Co. is Eastgate Realty manages Muse, a contemporary 28-unit The lender was Chase the borrower, has an office at an investment advisor dedi- the building. Mayrose Hold- apartment building that start- Bank.—CG 530 Fifth Avenue. cated to alternative invest- ings’ mortgage on the building ed leasing units in the middle Minneapolis-based U.S. ing. Currently, it has roughly was provided by HSBC.—Matt of last year. Those units range Bank was the lender. U.S. $22 billion of assets under Draper from 485 to nearly 1,300 Bank has an office at100 management.—Carl Gaines square feet. The site the prop- Wall Street in Lower Man- erty was built on was acquired hattan as well as branches for development in 2007 for throughout the city. approximately $42 million. Eleven finance deals were Of the 535 total mortgages completed within the prop- originated in February 2012, erty’s 10016 ZIP code in Feb- more than 50 percent, or 277, ruary 2012, ranking it in the were for multifamily proper- top five most-active ZIP codes ties, according to data from in New York City in terms of Actovia.—MD financing during that month. The 10016 ZIP code includes the neighborhoods of Kips Bay and Murray Hill.—MD

These are compiled and searched using Actovia, city records and published reports.

14 the MORTGAGE OBSERVER APRIL 2012

CMO_0412_Under30M.indd 14 3/22/12 8:27:10 PM 5 deals over $30M originations

1515 Broadway 1 W. 39th St. 200 E. 79th St. 130 Cedar St. 123 W. 44th St. $770 Million $210 Million $112 Million $70 Million $57 Million In another recent Bank 452 Fifth Owners LLC Skyline Developers Bank of China provided Metropolitan Times of China transaction, SL finalized another large Man- closed on a $112 million con- a $70 million mortgage to Square Associates LLC, a Green Realty Corp.’s 1515 hattan-based mortgage deal on struction loan for a condo borrower Cedar & Wash- New York-based lessor of real Broadway is being refinanced March 8, 2012, securing $210 building on Manhattan’s Up- ington Associates for its estate, finalized a $57 million with a $770 million first mort- million for property at 1 West per East Side. The develop- building at 130 Cedar Street in mortgage for a multifamily gage. Home to Viacom, whose 39th Street. ment site is located at 200 East lower Manhattan. The prop- property at 123 W. 44th Street lease there expires in 2015, the The property, which fea- 79th Street. Once completed, erty features 181,297 square in Manhattan. The deal is list- building is 56 stories and over tures lofts and offices, includes the site will be the location of feet and is 21 stories tall. The ed as having been originated 2 million square feet. 123,000 square feet over 12 a 19-story, 45-unit Cetra Rud- mortgage price per square foot Feb. 15, 2012. The loan was arranged by stories. It is located on the dy-designed condo, a spokes- is $386. The property, known as HFF. SL Green bought the corner of 39th street and Fifth person for the firm confirmed 130 Cedar Street is located AKA Times Square, is located building in 2002 in a joint Avenue, just south of Bryant to The Mortgage Observer. across the street from the in the heart of the Theater venture with Canadian pen- Park. The loan-to-value ratio The loan was provided by World Trade Center site and District and includes 115,355 sion fund SITQ whose inter- is 64 percent and the mortgage Wells Fargo. Skyline’s other has gone through renovations square feet across 122 units est there it bought out in 2011. price per square foot is $1,706. New York City-based condos and conversions since being on 13 floors. Metropolitan The joint venture paid $483.5 Israeli lender Bank Leumi include 170 East End Avenue, damaged in the Sep. 11 attacks. Times Square, which is both million for the building when provided the financing for while its rental properties A former office building, it was the borrower and owner, paid it was purchased from Equi- owner, the real estate arm include 37 Wall Street, Post closed for eight years after the $467,213 per unit and $494 per table Life. of IDB Group, Property and Towers at 75 West Street and attacks before being converted square foot in the mortgage Recent leases include 7,213 Building Corp. The interna- 194 East Second Street.—MD into twin hotels, with retail deal. Residences range from square feet taken by enter- tional investment arm of IDB, space and restaurants. 650 to 1,500 square feet, ac- tainment software company Koor Industries, purchased The owner of the prop- cording to real estate listings. Electronic Arts. The Redwood the building with PBC in April erty, according to data from The loan to value ratio of the City, Ca.-based company 2010, according to the IDB Actovia, is Brack Capital financing was 70 percent. signed a five year lease for part Group Web site. Real Estate, whose other Canada-based bank CIBC of the 36th floor. —MD There were a total of 29 loft- New York City investments is the lender. CIBC, which has office mortgages in New York have included 15 Union Square New York offices at 300 Madi- City, or about 5 percent of the West, the James Hotel and the son Avenue and 425 Lexington total mortgages, originated in Greystone Hotel. Avenue, recently announced February 2012, according to Last year, in a joint venture 2012 first quarter net income data from Actovia. —CG with InterContinental of $835 million, up from $763 Hotels Group, it also ac- million for the same period quired 180 Orchard Street for last year. roughly $46 million.—CG Multifamily/coop properties accounted for more than half of all mortgage deals in New York City between Feb. 15 and March 15, 2012, according to Actovia data. There were 277 multifamily/coop mortgage deals, about 53 percent of all deals, during the month-long period. —MD

APRIL 2012 the MORTGAGE OBSERVER 15

CMO_0412_Under30M.indd 15 3/22/12 7:43:59 PM The Secrets Behind M&T’s Lending Might

BY CARL GAINES

leet of foot, with a concentration on maintaining its focus on community banking and an ownership mentality, M&T Bank’s performance during the ﬁ nancial crisis might give competitors pause. Now, with May 2011’s acquisition of Wilmington Trust, the bank is branching out, providing high-wealth owners of real estate in New York and elsewhere with Fwealth management and services.

PHOTOS BY HANNAH MATTIX

16 THE MORTGAGE OBSERVER APRIL 2012

CMO_0412_M+T.indd 16 3/22/12 7:49:22 PM APRIL 2012 the MORTGAGE OBSERVER 17

CMO_0412_M+T.indd 17 3/22/12 7:46:17 PM Power Profile

or an underwriting ability than many of the big money center banks.” The company is smaller, yet less bureaucratic—conservative, yet opportunistic. “I think the point is that we’ve always been conservative and the consistency is what some of these bigger clients like,” added Jason Lipiec, a group vice president in Com- mercial and Private Banking at M&T. “In good times we’re not the most aggressive but they know if we give them the deal, the deal’s going to close. And in bad times no one else is out there and because of the safety of our balance sheet and the fact that we didn’t get ahead of ourselves, we were able to be there for them.” D’Arcy added that the bank’s approach has provided a good mixture for the marketplace. “We’ve expanded the names of who we deal with over the last couple of years in a way that we haven’t since I’ve been here,” he said. Which leads to the concept of institutional memory. Many of the top executives at the bank have been there for decades—Mr. Martocci joined 17 years ago, Mr. D’Arcy the same, and Mr. Lipiec 15 years ago. “One of the things that really differentiates M&T from a lot of the lenders,” Mr. Mar- tocci said, “is that management has been the same management for 25 years. The low turnover allows for a great deal of institutional memory, and institutional memory is critical for protecting your balance sheet and making loans and making sure you’re choosing not only the right kinds of loans but the right people to do business with.” He estimated that roughly 25 percent of the bank is held by insiders. These include Warren Buffett as well as the chairman and CEO of the bank, Robert Wilmers and Mr. Wilmer’s original investment committee and management. “For an $11 billion or so, $10.5 billion market cap,” Mr. Martocci said, “it is highly unusual—highly unusual, to have such a great deal of insider ownership.” So how does the bank keep a fresh and talented group of newcomers streaming in? Martocci cited its Executive Associate Program, which he said has been crucial since Mr. Lipiec, Martocci, Gore and D’Arcy. Wilmers arrived in 1983. In New York, M&T Bank’s real estate portfolio has grown significantly over the past “Our EA program recruits people from some of the best graduate schools in the coun- few years. Executives cited, between 2009 and 2011, an increase of $1.1 billion—up to $5.6 try—Wharton, Northwestern, Columbia here in New York and NYU,” he said. “We bring billion. them in to the bank early and we help foster their growth and promote them to senior To get some insight into the bank’s success, The Commercial Mortgager met with some positions as appropriate and as they prove themselves so this keeps the talent and the of its top executives who gave an unfettered glimpse into the approach that has helped blood flowing and the intelligence level and the intellectual capital high.” keep the bank a lending powerhouse. He then named a number of high-level executives that had come through the pro- “We really started out here as a multifamily lender but it’s really evolved into a much gram—including the bank’s current CFO Rene Jones and vice chairman Mike Pinto. broader set of commercial real estate products and it’s really across the board,” Gino Mar- In M&T Bank Corp.’s 2011 Annual Report, Mr. Wilmers highlighted many of that year’s tocci, the bank’s regional president for New York City and Long Island, said in his office most notable events across the bank and one that stands out, and which will provide ad- recently. “In fact our largest concentration is in urban retail.” He added that after retail ditional services to clients, executives said, was the acquisition of Delaware’s Wilmington comes office, multifamily, “other” and hotel. Trust Corp. “As a subset of ‘other’ we’ll do construction and transition real estate as well—transition defined as it needs to be repositioned somehow.” Mr. Martocci described the bank’s approach as “pretty conservative,” but was quick to add that it doesn’t shy away from deals that contain “an appropriate level of risk.” Asked what that might include, he pointed back to the transitional real estate deals that it put “In good times we’re not the most together several years ago, as the financial crisis gripped many lending institutions. “We were one of the few lenders out there willing to do an asset that required res- aggressive but they know if we positioning during 2010, even 2011,” he said. “It’s changing to some degree now, but we made a good many loans. Or construction loans in 2011—we were one of the more active give them the deal, the deal’s construction lenders for the right sponsors, for the right people that we’ve done business going to close. And in bad times no with for a very long time.” Recurrent themes in its lending strategy seem to include the familiarity that Mr. Mar- one else is out there and because tocci mentioned, as well as the maintenance of a healthy balance sheet. In some ways both have helped it to maintain calm in the midst of chaos. Peter D’Arcy, a group vice of the safety of our balance sheet president at the bank and a senior group manager in the Commercial Real Estate division, pointed out that top players rely on it for both. and the fact that we didn’t get “The last four or five years—we were so clean because the competition was so broken,” Mr. D’Arcy said. “The top names in the marketplace needed flexibility but they also need- ahead of ourselves, we were able ed a company with a balance sheet and we made so many client acquisitions that—we sort of came into our own from a size standpoint, where our capabilities of what we could do to be there for them.” for the top tier of New York City as a bank really wasn’t different from a hold standpoint —Jason Lipiec

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CMO_0412_M+T.indd 18 3/22/12 7:46:22 PM “It’s been a tremendous asset,” Mr. Martocci said of the committee. “Because of this “The environment that we live board, you think about a piece of real estate differently than most bankers.” Sometimes the news for a potential borrower is good, sometimes it’s not what they might have in today where there’s a lot of wanted to hear, but because of the committee’s insights it that news always includes some clues the borrower might use the next time around. volatility. People are more focused “You’ve sort of given a man a fish in that moment but you’re also teaching a man to fish on preservation of capital and they because the next time that they go back, they’re thinking about that,” said Mr. Martocci. “Or the next time that they have a conversation with a client, they’re thinking in a way seek out firms like ours. People are that a mortgage committee member might be thinking about a piece of real estate. Now that’s leavened with obviously the bank’s credit culture and the discipline of banking, but seeking out additional information, the expertise or the understanding of a piece of real estate is greatly enhanced by having this committee asking the questions of the relationship managers and group managers. they’re benchmarking their We’re all there and it’s just a huge benefit to the team, not only as a piece of information existing vendors and providers and also an informational advantage as it relates to real estate.” for those types of things and they’re also very concerned about mitigating risks.” —Lawrence Gore

“Wilmington Trust and affiliates brought with them some $50 billion of assets managed for an array of financially substantial individuals and corporations, increasing our year-over-year revenue from trust related services by 171 percent,” Wilmers wrote in the report. The sale went through in May 2011 for a reported price of $351 million and made M&T Bank the largest bank in Delaware. It added $10.8 billion of assets and $8.9 billion of de- posits to its balance sheets. Notably for New York tri-state, however, was the access it gives M&T’s high net worth clients—venerable, large family owners of commercial real estate—to trust and estate planning. Lawrence Gore, president of Wealth Advisory Services at Wilmington Trust, told The Commercial Mortgager that the firm’s two major focus areas—wealth and investment management—dovetail nicely with M&T’s roster of wealthy tri-state clients. “The environment that we live in today where there’s a lot of volatility,” Gore pointed out, “people are more focused on preservation of capital and they seek out firms like ours. People are seeking out additional information, they’re benchmarking their existing vendors and providers for those types of things and they’re also very concerned about mitigating risks.” Mr. Gore’s team in New York is 26 strong, Mr. Martocci added, which will allow it to serve those bank clients looking to mitigate the risks that Mr. Gore referenced. “We have a great many clients who we’ve been banking since the 80s and 90s and I’d say they were worth $15 million or $20 million back in the 90s,” Mr. Martocci said. “Well they’re worth $250 million today. To varying degrees they’ve done their estate planning— some not at all, some a great deal—to varying degrees they’ve got good wealth management. Typically a lot of real estate guys don’t put a lot of money in equities because they feel like they have enough risk, but nevertheless many still do. But everybody’s in need of good estate planning, good succession planning. And Wilmington Trust really brings that to the table in a world class way, in a way frankly that M&T really didn’t have up until this acquisition.” Another bonus for the bank The Commercial Mortgager wanted to hear about was its advisory board in the tri-state area. The mortgage investment committee, as Mr. Martocci calls it, is made up of eight outside directors, as well as some internal directors. They vote on every loan made in New York City and Long Island. Gino Martocci.

APRIL 2012 the MORTGAGE OBSERVER 19

CMO_0412_M+T.indd 19 3/22/12 7:46:27 PM PAUL KISSELEV PAUL 20 the MORTGAGE OBSERVER APRIL 2012

CMO_0412_Galligan2.indd 20 3/22/12 7:51:44 PM Power Profile

Matt Galligan On CIT Group’s New Real Estate Finance Division

Newcomer to sector Takes Bet on Former Bank of Ireland Executive’s Luck

BY CARL GAINES

hen Bank of Ireland was ordered by regulators to equipment leasing as well as financing—the arrival of Mr. Gal- ligan and his colleagues is a positive sign. deleverage in the midst of the debt crisis that was “CIT wouldn’t have hired them if they weren’t committed to the business,” Mr. Davis said over the phone recently. “I roiling Europe, it meant letting go of a portfolio of think from 10,000 feet it looks to be a really good fit for CIT. well-performing U.S. real estate loans. If you’re an investor, I think you like it because it provides diversification. Secondly, as I understand the situation, we WIt was a development that Matt Galligan described over lunch one drizzly and dreary have a lot of commercial real estate mortgages that are financed elsewhere that are look- afternoon as “heartbreaking.” At the time, Mr. Galligan was Bank of Ireland’s managing ing for new balance sheets.” director and head of U.S. Property Finance, having joined in 2007 to start the group. Some Back at lunch, Mr. Galligan said that he had just returned the previous day from a four years later he was helping to wind it down. scouting trip of sorts. “We were in northern Vermont yesterday looking at an office “They did not want to sell that portfolio,” he said. “But it was the only opportunity that deal coming out of the CMBS market,” he said, adding that the team has a “good feel for they had to repatriate capital.” what’s in their wheelhouse.” And they should. That wheelhouse includes much of the After an experience like this, many people might balk at the thought of once again same geographic targets that made up Bank of Ireland’s portfolio—gateway cities such as starting something new. But Mr. Galligan, and the bulk of his Bank of Ireland team, is New York, Boston and Washington, DC. doing just that—launching a real estate finance division at CIT Group on the heels of its Asked whether the move into commercial real estate finance was by its nature at odds emergence from bankruptcy protection. with any effort to fine-tune the company’s core, Mr. Galligan referenced the gap that the Analysts are taking note of the move. Guggenheim Partners’ Jeffrey Davis said that, lack of real estate product left in CIT’s roster of businesses. “I think the executives here along with a refocusing along its core businesses—these include transportation and looked at the businesses that we did have, and across each line of business we were a

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CMO_0412_Galligan2.indd 21 3/22/12 6:34:15 PM Power Profile

senior secured lender,” he said. “The only product type that we were not playing in—and “He became what I would label the high priest of the syndications world,” Mr. Mc- it was a vast hole—was this real estate product type.” Since Bank of Ireland’s team was Cahill said of his friend. “He was by far, I think, the most respected banker in putting essentially taken as a whole and dropped in to fill that vast hole, it becomes a much less major syndicated deals together. That reputation really put Fleet into the big leagues, so risky move. Plus, as Mr. Galligan added, the company figured that “if it could be done on we were able to do $200 million and $300 million deals because we knew Matt and his a moderately leveraged basis in both the middle market and in the larger trophy assets, group could sell them down very quickly.” then they were interested in being in the business.” When asked about the title later, in CIT Group’s offices, Mr. Galligan shunned the The move came about as the Bank of Ireland portfolio was being shopped around. CIT credit. “He’s being very modest,” he explained. “He’s really who put Fleet into the big looked at the portfolio and passed. It ultimately went to Wells Fargo for roughly $1.2 bil- leagues here in the city.” lion. It sold at a premium. Wells later bought Bank of Ireland’s Burdale Financial Hold- But structuring syndicated loans was definitely an area of focus, and one that provided ings Limited and Burdale Capital Finance’s portfolio of loans, about $1 billion outstanding him with a plethora of contacts. “I syndicated debt for 15 years, and that’s how I estab- in the U.S. and United Kingdom. lished a lot of my contacts here in New York, because I was here for 10 and then I went to During the marketing of the loans, CIT Group and Boston for 20, but I was constantly on the phone with Mr. Galligan started talking and an agreement was bankers in New York,” he explained. “And I got into reached to do a lift-out of his entire team. Paul Mc- I think from 10,000 feet it that business when it was developing so I was one of Donnell, head of the Property Finance Group at Bank the early guys, and I’ve gotten to know an awful lot of of Ireland, told The Mortgage Observer that Mr. Galli- looks to be a really good people as a result of it.” gan and his team had worked professionally through- At CIT Group’s midtown offices, homage is paid to out the closure of the business. He also underscored fit for CIT. If you’re an one of the bank’s primary business areas. The bank is the success the portfolio had achieved. a leading aircraft lessor and dozens of aircraft models “We had a very good experience with Matt—he did investor, I think you like line cabinets and walls on the route back to the area a fantastic job for us,” Mr. McDonnell said. “I think where Mr. Galligan and his team sit. By industry, that the best way to confirm that was the success that it because it provides commercial and regional airlines comprise the largest we had with our book over there. And when we had diversification. Secondly, chunk of the assets in its portfolio, at 25.9 percent. And to sell it—and we had to sell it in terms of broader as of December 31, 2011, transportation finance was issues—we achieved a very strong price for it. A lot of as I understand the a $13.3 billion portion of the bank’s business. Student that I would put down to Matt’s management of the lending—originations ceased by April 2008—still made business.” situation, we have a up 18.5 percent as of its assets at the time, followed by An announcement went out over the wires at the manufacturing, at 12.9 percent. beginning of November 2011. CIT Group Inc. presi- lot of commercial real Its total assets, as of December 31, 2011, were $45.3 dent Nelson Chai heralded the arrival of Mr. Galligan billion and total loans decreased from $21.9 billion to and his team as indicative of CIT’s focus on opportu- estate mortgages that $19.9 billion over the fourth quarter of 2011, mainly nities for growth. “The deep relationships and indus- due to the termination of student loan originations and try expertise of our team will enable us to capitalize are financed elsewhere the transfer of $2.2 billion of student loans to held-for- on market conditions while pursuing a conservative sale status. approach in middle market commercial real estate that are looking for new Mr. Davis, at Guggenheim Partners, said that a part financing,” Mr. Chai said in a prepared statement at balance sheets. of this new chapter for CIT Group “is a return of CIT the time. He added the launch highlighted a “focus on to being a more active lender after having reduced growth opportunities and efforts to source and build —Jeffrey Davis, its loan and lease portfolio by about 50 percent from assets at CIT Bank.” where it was pre-crisis.” The road to CIT Real Estate Finance—his fifth Guggenheim Partners So with its focus on top-tier sponsors and develop- start-up, no less—has taken Mr. Galligan through a ers in major cities, what kind of loans might come out long list of familiar bank names. He grew up in Wall- of CIT Real Estate Finance? ingford, Conn. and attended college in Worcester, Mass. at the College of the Holy Cross. “Well, first of all, what we’re looking for is not necessarily the largest developer,” Galli- He and his wife, whom he met at Chase, have two sons and live on 41st Street, an easy gan said when asked that question. “We’re looking for one that’s kind of best-in-class. We walk to his new office. typically would like developers that are building very close to the urban core because we Personal projects include golf, travel and reading (on a recent trip to Aguadilla on think that there’s less risk being associated with the marketplace because there are much Puerto Rico’s western coast, he worked his way through His Way: The Unauthorized Bi- higher barriers to entry.” ography of Frank Sinatra, by Kitty Kelley). He meditates twice a day. One recent project the bank financed is Edgewater Harbor, a 24-acre mixed-use in- Professionally, he got his start in the Chase global credit training program. While dustrial complex that is being converted into 495 residential units and 100,000 square finishing up the program, he met and started doing some analytical work for William feet of retail and restaurants. The project is being undertaken by National Resources, McCahill, who retired last October from Capital One, where he was an executive vice whose president, Joseph Cotter, called Mr. Galligan “the right blend of the traditional president. The two became mentor and mentee. relationship banker and a market-savvy New York real estate lender.” Reached at his home, Mr. McCahill told The Mortgage Observer that he saw at the time Relationships and character seem to be key themes, in fact. In addition to terms like “a fantastic young guy—very bright and energetic.” After 10 years at Chase, where he left “best in class” and “urban core,” Galligan referenced “the three Cs” in talking about what as a vice president and team leader in the Real Estate Department, Mr. Galligan went to he looks for in a borrower—character, capacity and capital. the Bank of Boston. There, he created and managed its real estate distribution process— “The driver there is character,” he said, “if the people are going to do the right thing structuring, arranging and placing multi-bank syndications. when it’s easy to walk away and leave us with a property and perhaps a loss.” Recruited to run its syndications desk, he rejoined Mr. McCahill at Fleet in 1996. As to how well capitalized a borrower needs to be, he indicated that it depends on the

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CMO_0412_Galligan2.indd 22 3/22/12 6:34:22 PM project. “There’s no specific dollar limit on it,” he said. “It’s pertinent to the project. We’re generally The driver there is getting 30 percent or more equity in the deal up front and very often they’re using third-party sources of character—If the people capital—private equity money or one of the other sources out there—so it’s not necessarily all their are going to do the right capital. And it varies by transaction as well—the larger transactions, if you’re doing a $100 million deal thing when it’s easy to you might want $50 million in capital where if you’re doing $25 million deals you might want $8 million.” walk away and leave As CIT Real Estate Finance forges ahead, and looks to carve out its place alongside the bank’s other us with a property and businesses, Mr. Galligan seemed calm about his latest perhaps a loss. startup, and having taken on something new, though familiar. “I really like the early stages—particularly of developing a business,” he explained. “One of my key —Matt Galligan, strengths is that I’m able to get people to really give their all to what they do and that’s one reason I try to CIT Real Estate Finance be enthusiastic—if I’m giving my all to this, then perhaps it’s also what they do.”

CIT Real Estate Finance is off to a fast start. Here’s a look at some recent deals that Mr. Galligan and his team there have closed.

One57—CIT Real Estate Finance closed on a $50 million commitment in a $700 million syndicated construction loan. Bank of America was administrative agent on the deal. The loan is funding 50 percent of the construction costs associated with putting Extell Development’s 90-story, mixed-use residential and hotel tower up. One57 will include a 210-room Park- Hyatt Hotel topped by 95 luxury residences.

Hilton Orlando—In a deal that Mr. Galligan conceded was a bit outside the financings his group will ordinarily target, CIT Real Estate Finance recently closed on a $50 million commitment in a $285 million syndicated term loan to refinance the original construction loan for the Hilton Orlando. HSBC was administrative agent for the 1,417-key, four-star hotel’s loan.

Edgewater Harbor—This $25 million construction loan will be used to partially finance the 70-unit condo conversion of the National RE/Sources project. HANNAH MATTIX

APRIL 2012 The MORTGAGE OBSERVER 23

CMO_0412_Galligan2.indd 23 3/22/12 7:50:33 PM Q&A Simon Ziff / Ackman-Ziff

or our Q&A, The Mortgage Observer caught up with Ackman-Ziff’s Simon Ziff. We touched on a wide range of issues—from how no love for clothes led to a start in commercial real estate Fto the volume of debt and equity his firm might help place this year.

The Mortgage Observer: I was wondering if you It sounds like more senior people. Will you be hir- could talk a bit about how you got started in the real ing more junior folks as well? estate business. Well, we are obsessively recruiting junior people, Simon Ziff: I grew up in central Pennsylvania, and probably more so than any firm. We have been forever. my family was in the clothing business, but I knew I We recruit at all the top business schools every year. didn’t want to stay in the clothing business. I majored We generally hire second-year MBAs in the summer, in finance at Penn State, and my junior year, I took a and we generally hire people with five to seven years of real estate course and decided that this was something work experience and a masters for our junior positions. that I could do anywhere. Knowing that I didn’t want to return to my hometown, I needed a profession where I Do you look for any particular qualities in the new could go anywhere in the country. talent that you hire? I thought real estate was great for me because it Yes. Probably seventy-five percent of the associates involved finance, which I enjoyed, and I felt that it in- we hire are technically excellent in finance. And twen- volved entrepreneurialism. So this course got me very ty-five percent has to be technically excellent with a excited. Penn State had a real estate program, and I potential salesmanship—because our model is not to get ended up taking four real estate courses, directing all salesmen. It’s to have what we call an execution model, of my efforts to find a position in real estate. And I was which is to have the best execution people, not origina- very fortunate that Mass Mutual recruited at Penn State tion people. To have execution people, we believe once my senior year, which was not an easy year to get a a client, always a client. So we have very few natural job—1987. They recruited six kids nationally at schools, salespeople who are hired for their salesmanship. But including Wharton, and they took one from Penn State. we have an incredibly analytical group.

And you also took classes at the NYU Schack Insti- Do you anticipate being active in a lot of debt tute of Real Estate, is that right? placement this year? Any predictions about CMBS issuance for the Yes, after a year in Springfield, they decided to send me About seventy-five percent of our business is debt year? to Chicago, and then I applied to the NYU Masters in Real placement, and roughly twenty-five percent is joint I don’t have a number prediction, but I do think that Estate program, which I ultimately graduated from. venture equity, or sales, and we’re having a very busy we’ve seen CMBS spreads spike up and down over year. the last two years, and eventually they’ll spike down, How about your firm? Do you anticipate growing I think, to a level where they’ll be more competitive this year? I know that you were growing a lot in past Interest rates are still low, but as they begin to and will become a more significant part of the overall years. What do you see happening now? rise, with so much of your business focused on debt financing markets. Having said that, the past two years We have had a very focused business plan for many placement, any concern that that might negatively they’ve been a fairly insignificant part of our practice. years. And while—probably twice a month someone affect business? Over the last three years, they’ve been fairly insignifi- comes to us with what I would call an add-on busi- Not at all. People that we represent generally have to cant—a quarter to a third, maybe a quarter of our business or an extension, or something that people feel is a do things. Over half our business are institutional bor- ness. natural for us to be doing—we rarely do anything. We rowers, and they remain active. If rates go up a hundred added a joint venture equity practice over ten years basis points, they’ll continue to be active. If they go up a As far as lending in general is concerned, do you ago. We feel that we are the best today at doing that. hundred and fifty basis points they’ll probably continue think it’s loosening up a bit? Easier to get financing? We added hotel sales a few years back, and this week to remain active. For stabilized assets the market has, I think, gener- we brought in two very old friends of mine whom I’ve We’re not in the commodity financing business— ally and steadily improved. And on transition assets, known for twenty years from philanthropy and through we’re more in the structured arena. there’s still a fairly inefficient market. the industry. One, Marc Warren, will help expand our business—generally with our existing business lines. I see. And what volume of equity and debt do you Any thoughts on distress in the city and where it’s The second, David Robinov, who I think was eighteen predict placing this year, or helping to put in place? focused? Certainly in the boroughs, there is some... years at Eastdil, will be expanding our sales brokerage We’re boutique, so our goals are probably to do We’ve recapped a few busted residential deals in business beyond hotels into retail, and eventually, office somewhere between two and a half, three billion of the boroughs, but beyond that, we haven’t seen much and multifamily. debt equity. distress.

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CMO_0412_Q+A_Ziff.indd 24 3/22/12 7:33:18 PM Must-read commercial real estate e-newsletter

All the deals. All the news. Read it here ﬁ r s t. delivered to your inbox 3 times a week

For advertising opportunities, contact Robyn Reiss, Associate Publisher, 212.407.9382 [email protected]

GO TO OBSERVER.COM/COSIGNUP TO REGISTER

ADpage.indd 30 3/22/12 8:10:01 PM MetLife’s Commercial Mortgage Volume Hit $11 Billion in 2011 scheme of things CBRE: Investments in European

CRE Flowing from North America The Mortgage Observer has compiled a month’s into a larger context. Check back each month, as snapshot of top commercial real estate financings we’ll target different areas to spotlight. The data $33 Million Williamsburg Trade Shows Hotel Craze Fil- Monthly in the five boroughs of New York City—including is collected from Actovia, a cloud-based system top lenders, most active property types, cap rates that tracks mortgage information and streamlines tering to Boroughs and the zip codes that saw the most action. We leads, from city records. Accordingly, it reflects the The trade of a boutique hotel in Brooklyn is the latest indication that the New York City hotel market continues Charts look back in time a bit, too, to put the activity date the city recorded the transaction. to be on fire. And the co-developers on the project weren’t even looking for a buyer. Hotel Williamsburg, a 64-key, full service hotel that opened its doors just last November, was bought by King & Grove March 8th for over $33 million. Renamed King & Grove Williamsburg, the hotel, at 160 North 12th Street in Williamsburg, has followers of the city’s hotel sector abuzz. Daniel Lesser, president and CEO of LW Hospitality Advisors, told The Commercial Observer that the deal speaks to the city’s overall health. “It’s a brand new hotel in a really dynamic market—Williamsburg is very much a happening place,” Mr. Lesser said. “It’s very emblematic of the fundamental health of New York and how all parts Top Lenders, By Transaction of the city have been, and continue to be, gentrified.” Mr. Lesser also pointed to areas like Long Island City, where ten to twenty years ago, “there wasn’t a whole lot happening.” The hotel was co-developed by Minneapolis-based Graves Hospitality Corp. and Williamsburg-based KSK Con- February’s top struction Group—developer of the GEM Hotel Union Square. According to a statement from Graves Hospitality, the developers hadn’t anticipated selling. Rather, they lenders. A look back at planned to “indefinitely operate the property,” until “the market’s overwhelmingly enthusiastic response to the February of last year high-profile project attracted a non-solicited purchase offer that was simply too good to refuse.” shows how the stack Benjamin Graves, president of Graves Hospitality, said that the sale highlights the company’s “skills at understanding the intricacies of specific locations and submarkets, identifying the right concept and developing relevant, has rearranged. high-quality projects to drive demand and profitability.” Mr. Lesser, at LW Hospitality, referenced a “New York metropolitan renaissance,” the benefits of which are mak-

Most Active Zip Codes

What a difference a year makes. So far, 2012 financing activity has been bolstered by an uptick in Williamsburg’s development scene as well as a rush of activity in the East Village and Lower East Side of Manhattan. Neither really registered in 2011.

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CMO_0412_Charts.indd 26 3/22/12 6:32:16 PM scheme of things

Financings by Property Type

Not surprisingly, data showed that Multifamily/Co-op properties saw the most financings—both this February and last. In fact, most property types followed last year’s trends, with one exception being vacant properties, which saw nearly twice the amount of activity in February 2012.

Cap Rates

Thanks to data from Massey Knakal Realty Services, The Mortgage Observer can give insight into where cap rates stood the past several months.

Mortgage origination data is provided by Actovia and taken from recent listings of mortgages filed by New York City.

APRIL 2012 the MORTGAGE OBSERVER 27

CMO_0412_Charts.indd 27 3/22/12 6:32:22 PM Stein’s law Guaranties Bite

by Joshua Stein the guarantor became personally liable for the entire loan. The court agreed. It’s only a nonrecourse carveout guaranty—nothing These two cases have shocked the commercial to worry about, right? Well just don’t file bankruptcy, real estate lending community, by making a guaran- mess around with the collateral or get up to other mis- tor liable for the whole loan at exactly the point—loan chief. It’s still a nonrecourse loan. default—where nonrecourse treatment matters most. That was the mantra for thousands of commercial Any nonrecourse loan fundamentally contemplates that real estate loans that closed in the boom years. And if a property gets into trouble, the borrower can walk everyone believed it—until recently, when some non- away without liability. The borrower and its principals recourse carveout guaranties started blowing up in are not supposed to place their “other assets” at risk if the faces of guarantors, in ways that no one ever envi- the collateral can’t support the loan. The borrower has sioned. choices very much like dealing with a pawn shop, at a Opportunitistic loan purchasers have scrutinized the different stratum of the credit market. fine print of the nonrecourse carveouts. Using that fine The two Michigan cases may represent the begin- print and interpretations that were never anticipated, ning of a trend, though, where opportunistic loan pur- the loan purchasers are demanding that “carveout chasers scrutinize a nonrecourse carveout guaranty, guarantors” pay the entire loan under circumstances and assert claims against guarantors in ways that no that no one ever thought one ever expected. would trigger such liability. In other cases, innocent In one Michigan case, or trivial actions by bor- The converse situation could also produce surprises: Cherryland Mall, the loan Regardless of how rowers have been asserted a mezzanine lender forecloses, takes control of the documents required the as the basis for triggering mortgage borrower, and throws it into bankruptcy. guarantor to pay the entire today’s litigations claims under nonrecourse Next thing you know the mortgage lender can sue the loan out of its personal as- turn out, tomorrow’s carveout guaranties. We can carveout guarantor for the entire loan, because the sets if the borrower didn’t expect to see more of this. mortgage borrower filed bankruptcy. remain a “single purpose loan negotiators In one case, a limited In a pending case, the lender is claiming the guaran- entity.” One of the single liability company borrower tor must repay the entire loan because the borrower purpose entity covenants now know about wasn’t supposed to change incurred levels of indebtedness—in this case, ordinary (covering ground that its business purpose— unpaid trade payables—that violated the loan docu- would typically fall under one more problem but someone foolishly ments, and didn’t remove some mechanics’ liens. a different provision of the and probably innocently In all these cases, everyone expected that the ordinary loan documents) required area on which to amended the organizational vicissitudes of commercial real estate were part of the the borrower to stay “sol- papers to broaden the com- lender’s risk—not the guarantor’s risk—when the parties vent.” The collateral value focus. And deal pany’s permitted activities. negotiated their loans. But aggressive loan purchasers dropped below the loan sponsors may “just This, again, violated the have sometimes been able to interpret loan documents in balance, the loan went into single-purpose entity cov- a way that no one would have anticipated, and in fact in a default, and—bingo!—the say no” when asked enants and—again, bingo!— way entirely inconsistent with the underlying theory and loan holder successfully the lender claimed the deal structure of nonrecourse financing. We are probably claimed that the borrower to sign nonrecourse guarantor had to pay the not done with surprises in this area. was insolvent, so the guar- entire loan. Regardless of how today’s litigations turn out, tomor- antor faced liability for the carveout guaranties. Mortgage/mezzanine row’s loan negotiators now know about one more prob- entire loan. financing structures offer lem area on which to focus. And deal sponsors may The documents in an- The risk of surprises fertile ground for these “just say no” when asked to sign nonrecourse carveout other Michigan case, Ches- claims. In one case, the guaranties. The risk of surprises is just too great. terfield, produced a similar is just too great. mortgage lender foreclosed. surprise. Here, the guaran- The mezzanine lender said Joshua Stein is the sole principal of Joshua Stein tor had to pay the loan if the borrower didn’t comply this was a prohibited transfer, triggering the nonre- PLLC. He acted as an expert witness on industry stan- with “separateness covenants.” One required the bor- course carveout guaranty for the mezzanine loan. The dards and expectations in two of the litigations discussed rower to pay its debts from its own assets. When the court ultimately didn’t buy it, but the guarantor spent in this column. The views expressed here are his own. Mr. borrower stopped paying the loan, the lender claimed many months in litigation to get there. Stein can be reached at [email protected].

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CMO_0412_Stein.indd 28 3/22/12 6:34:56 PM The basis point

The Smartest Guy in the Room

Has cognitive dissonance allowed investors to believe they’re outsmarting each other?

By Sam Chandan, phd tor, where the cost of financing than property income, reflecting has plumbed new depths with the expectations of continued growth A slow increase in bank lending, competition to fi- support of government guarantees, in property cash flow and the avail- nance apartment trades, and hopes for a deeper CMBS fomenting excesses in pricing that ability of low-cost financing. The pipeline define the outlook for commercial mortgage are observable in remarkably low latter is endogenous in the former markets in early 2012. Offsetting these sources of mar- cap rates. since leverage is increasing as a ket optimism, threats range from the potential for rising Asset price bubbles arise function of fundamentals projec- interest rates to waves of maturating loans from the when prices diverge from levels tions. Exacerbating this dynamic, market’s bacchanal days. consistent with a market that is the government-sponsored enter- Months of improving economic data and the coin- functioning efficiently. In this ef- prises’ position as the dominant ciding stock market rally have failed to lift the Federal ficient market scenario, currently source of apartment financing has Reserve’s dour assessment of downside risks to growth. available information with regard introduced a unique feature to the The language coming out of the March FOMC meeting to the future performance of an market pricing of apartment credit acknowledged the improving indicators but also held asset is reflected rationally in its risk. fast to historically accommodative monetary policy. price. Since mispricing is therefore Has the virtuous dynamic of ris- Extending the commitment to its current targets rooted in irrational expectations ing fundamentals and exception- into 2014, the Fed has put its credibility with investors with respect to the present value ally low-cost credit developed an on the line. Borrowers and bond buyers expect short- of future cash flow, the ex ante identification of bubbles independent momentum? Across a range of interest term rates to remain low for another two years, even is elusive in practice. By definition, the identification rate and underwriting scenarios, my tests of more than if the crisis that called for extraordinary interventions of bubbles will be contrary to the market’s widely held $12 billion in fourth quarter 2012 apartment loans show recedes further. views until such time as it deflates. A correct identifica- that individual properties are systematically projected The Fed has far less control over long-term Treasury tion may be rejected incorrectly because the market to outperform investors’ expectations for the market yields. Washington’s dereliction in addressing the na- deems it a false positive result. Since the bubble is as a whole. A state of cognitive dissonance is allowing tion’s fiscal imbalance and our cowardice in encamping largely a behavioral phenomenon, a purely statistical each investor to believe that he has outsmarted every- on the Cisalpine bank of the Rubicon constrains mon- exercise cannot settle the matter conclusively. one else. etary policy. In spite of the inherent complications, the identifica- The credit policy implications of these finding relate The maturity extension program is soaking up a sur- tion of bubbles is not limited in its relevance to policy principally to the refinancing capacity of newly origi- plus of bond issuance but its mettle has not been tested. applications; it has real implication for lending and nated loans. Higher rates of balloon default imply costs At least for the time being, the failure of European investment strategy, as well. As the housing crisis has that will be borne by agency guarantees and on bank governance is doing more to keep American interest demonstrated, property price bubbles are particularly balance sheets, albeit not until current loans mature. rates low. If the sovereign debt crisis abates, stanching pernicious. Because of the widespread use of lever- For investors in the apartment sector, the findings em- demand for Treasuries, Operation Twist will prove its age in property markets, the impact of a sharp drop in phasize a need to identify and circumnavigate segments ineffectiveness. assets prices may cascade through a mature, interde- of the market where financing conditions and aggres- Over the last two weeks, as Greece has stepped back pendent financial system, impacting the availability of sive cash flow assumptions have inflated values and from the brink, free market mechanisms have made a credit in unrelated sectors. While the lesson is readily where agency financing may recede from the landscape rare appearance. Rattling investors and providing fod- apparent as relates to single-family houses, the market as housing finance reform progresses. der for the broadsheets, long-term Treasury rates have may now be fomenting a bubble in the rental market. inched up from their historic lows. Markets have been As house prices have fallen and households’ tenure Sam Chandan, PhD, is president and chief economist rattled by their first taste of an inevitable and much bias has shifted in favor of renting, apartment fun- of Chandan Economics and an adjunct professor at the larger shift in the cost of capital. damentals have necessarily improved. But prices of Wharton School. H ecan be reached at dsc@chandan. The challenges are most acute in the apartment sec- apartment properties have been rising relatively faster com. The views expressed here are the author’s own.

APRIL 2012 the MORTGAGE OBSERVER 29

CMO_0412_Chandan.indd 29 3/22/12 8:56:00 PM In-depth look

With Treasury Yields at Record Lows, Insurance Companies Remain Bullish

by michael stoler Management, told me that the company originated ap- For example, Northwestern Mutual has been a partner Special to the Mortgage Observer proximately $4.7 billion in debt and $2 billion in equity in with the Albanese Development Corp. in the develop- With investment sales volume across the major prop- 2011. The company was active in the local market originat- ment of rental properties in Battery Park City, including erty types in the U.S. expected to grow by 50 percent to ing about $850 million for variety of asset classes. its latest building—the Verdesian—as well as the Solaire, approximately $300 billion according to some sources, “Everyone is in the market to lend and provide the first luxury residential property constructed in Lower there’s a real need for the lending community to pro- equity,” Mr. Jahnke said. “Lots of competition in the Manhattan since the 9/11 terrorist attacks. vide funds for acquisitions and refinancing. market is driving rates down to sub 3.5 percent for five- New Jersey–based SJP Properties entered the New The Mortgage Bankers Associa- to seven-year, and 4 percent for 10- York City marketplace in the ground-up development tion expects loans for commercial Riverbank. year money.” of 45 Park Avenue, a condominium at Park Avenue and real estate to surge this year. The Last year Northwestern provided 37th Street. Its second condominium development was group reported that U.S. commer- financing for residential rental apart- the Platinum on Eight Avenue and 46th Street, and it’s cial mortgage originations are pro- ment buildings, including a $60 the developer of the 1.1-million-square-foot 11 Times jected to hit $230 billion this year, million loan on the apartment build- Square. SJP’s equity partner in all of these develop- up 17 percent from $197 billion last ing Riverbank on West 42nd Street ments was Prudential Real Estate Investors. year. Commercial and multifamily and $115 million in financing for the Prudential is also a joint venture equity partner with originations are expected to grow to apartment building at 1510 Lexington Roseland Property Co. on many of its residential devel- $265 billion in 2014 and will prob- Avenue. The insurer provided $270 opments, including the Monaco in Jersey City, which ably reach $290 billion by 2015. million in financing for the Staten was financed by Northwestern Mutual. Life insurance companies, Island Mall and $87 million for Forest TIAA-CREF is a leading financial services organization once the lifelines of commercial City’s Queens Place Mall. In a club with $440.7 billion in combined assets under manage- mortgage financing, are expected deal with Great West Life, the com- ment. Last year, it purchased the residential rental com- to increase their debt and equity pany provided a $250 million loan to ponent of the Corner, a luxury rental apartment building placements to meet the demand. the Canadian REIT, H&R REIT, for at 200 West 72nd Street, for $209 million. A few weeks Approximately 23 percent of the its purchase of the 670,000-square- later, the pension fund manager and institutional investor commercial mortgages originated last year were provided by foot office building Two Gotham Center. purchased the land beneath the office building at 425 Park life insurance companies. The American Council of Life In- Melissa Farrell, managing director at Prudential Avenue for $315 million. And earlier this year, it purchased surers reported total commitment volume of $45.4 billion in Mortgage Capital Co., concurred with Mr. Jahnke, say- the retail condominium at 2300 Broadway at 83rd Street 2011, a 48.2 percent increase from the previous year. ing “everyone is after the same type of deals, making in the residential condominium tower, paying $44.73 mil- “Our forecast anticipated continued strength in lend- the market very, very competitive. lion. In the summer of 2010, TIAA-CREF purchased the ing by life companies and the GSEs, increased lending “The insurance companies are working together club 559,000-square-foot, 33-story office tower at 685 Third by banks and others, and a slow but steady return in deal or syndicating deals over $300 million,” she added. Avenue, paying about $190 million. CMBS activity,” MBA vice president of Commercial This was evidenced a number of times last year with In December, Manulife Real Estate, the global real Real Estate Research Jamie Woodwell said about the one major deal specifically, the club deal of MetLife, estate arm of Canada-based Manulife Financial Corp., group’s predictions. Prudential Mortgage Capital Co. and New York Life one of the largest life insurance companies in the world Of the $45.4 billion in commercial mortgage loans origi- for the $725 million loan on Boston Properties’ office and parent of John Hancock Financial, acquired three nated by insurance companies, the most active lenders building at 601 Lexington Avenue. Prudential provided real estate assets, totaling $555 million. They included were companies based in the NYC metro area. Leading $200 million, with MetLife providing $375 million 10 Exchange Place, a 748,000-square-foot office tower the pack was MetLife, which reported that it had originat- and New York Life with the balance of $150 million in acquired for $285 million. The acquisition represented ed $11 billion in commercial mortgages in 2011, compared financing. The fixed rate loan, with a 10-year, seven- Manulife’s entry into the New York City metropolitan to the more than $8 billion that it originated in 2010. New month term, was secured by the 59-story, 1.6-million- real estate investment market and its second acquisi- Jersey–based Prudential Mortgage Capital Co. originated square-foot, Class A office tower and retail property. tion in New Jersey. $9.7 billion surpassing its 2010 level of $9.1 billion, making Another insurance company that has continued to pro- With yields on 10 year treasuries at 2 percent, these life it the company’s third-largest production year ever. The vide financing in the market is Pacific Life. Last year, the insurance companies and others are evaluating opportunities company announced that it is looking to provide up to West Coast insurance company teamed up and originated to purchase and make direct equity investments in com- $11.6 billion in financing for 2012. a $500 million fixed rate financing for the joint venture mercial real estate around the nation and in the metropolitan Other active life insurance companies include TIAA- of SL Green Realty and New York State Teachers on the area. Expect this trend to continue for the foreseeable future. CREF, New York Life, Guardian Life and Pacific Life, Class A office building at 919 Third Avenue. as well as Northwestern Mutual Life Insurance Com- As I mentioned earlier, many of the major life insur- Michael Stoler is managing director of Madison Realty pany and Principal Insurance Company. ance companies are active purchasers and provide joint Capitol, president of New York Real Estate TV and host Nicholas Jahnke, director at Northwestern Investment venture equity for commercial real estate transactions. of the Stoler Report.

30 the MORTGAGE OBSERVER APRIL 2012

CMO_0412_Stoler.indd 30 3/22/12 6:22:03 PM The commercial mortgage and real estate industry’s 10 biggest tickets for April the schedule

2 3 4 MONDAY, APRIL 2 TUESDAY, APRIL 3 WEDNESDAY, APRIL 4

Don’t be the last to understand the pipeline of Metropolitan Transportation Authority Chair- The White Plains region’s new organizer of new taxation, real estate and sustainability law man Joseph Lhota will be the guest speaker when commercial real estate information and network- coming down the pike. Join the Real Estate Board the New York Building Congress hosts its next ing events, CapRate Events, will present the of New York as it gathers a host of panelists at breakfast forum at the Trianon Ballroom at the Northern Metro Multifamily & Mixed-Use CRE its “Proposed Law and Real Estate” panel. Real Hilton New York. New York Building Congress summit. The Northern Metro Multifamily & Mixed Estate Board of New York “Proposed Law and Real breakfast forum, Hilton New York, 1335 Avenue of Use Commercial Real Estate Summit, White Plains Estate” seminar, REBNY Mendik Education Center, the Americas, 8-9:30 a.m., visit www.buildingcon- Performing Arts Center, White Plains, NY., 570 Lexington Avenue, 5:30-8:30 p.m., contact Indi gress.com for more info Jaipal at [email protected] for info

9 15 17 MONDAY, APRIL 9 SUNDAY, APRIL 15 TUESDAY, APRIL 17 This New York Real Estate Salesperson class is These quiet tree-lined streets near the Hudson The 25th Annual Commercial Real Estate Awards Gala scheduled to meet for 10 days, Monday through River from West 96th Street to West 110th Street will be presented by the New Jersey Chapter of the Na- Friday, April 9-20, between 9 a.m. and 5:30 p.m. boast some of New York’s finest remaining turn- tional Association of Industrial and Office Properties. Rob- The final exam will take place on Friday, April 20. of-the-century row houses, apartments, institu- ert Lieb of the Mountain Development Corp. will receive The New York University Schack Institute of Real tional structures and public monuments, often the Lifetime Achievement Award and Andrew Merin of Estate 75-hour New York Real Estate Salesperson designed by leading architects. Municipal Art So- Cushman & Wakefield will receive the Impact Award. Course, April 9-20, Midtown Center, 11 West 42nd ciety “Bloomingdale Blocks” walking tour, meeting National Association of Industrial and Office Proper- Street, Fifth Floor, contact Sal Gulino at 212-992- place will be provided upon registration, 2 p.m., call ties 25th Annual Commercial Real Estate Development 3305 or [email protected] for more info. 212-935-2075 or visit www.mas.org Awards, The Palace at Sommerset Park, Somserset, N.J., visit www.naiopnj.org/25gala for more info. 19 20 THURSDAY, APRIL 19 SUNDAY, APRIL 20 Prudential Douglas Elliman’s Thousands will attend the International Coun- Faith Hope Consolo will be cil of Shopping Centers event when it comes to among the honorees receiving Las Vegas this year. International Council of Shop- Mercy College’s Trustee Medal ping Centers, Las Vegas Convention Center, Las at the school’s 31st Annual Vegas, May 21-23, visit www.icsc.org/2012RECON/ Trustees event. Mercy College index.php for more info Annual Trustees Scholarship Dinner, the Plaza Hotel, 6:30- 9:30 p.m.,

24 26 TUESDAY, APRIL 24 THURSDAY, APRIL 26 Learn the inside secrets of top brokers when Massey Knakal Realty Services is hosting the the Real Estate Board of New York hosts its “In- second annual Commercial Real Estate Invest- side Secrets of Top Brokers” seminar. Real Estate ment Summit, with guests that will include head- Board of New York “Inside Secrets of Top Brokers” liner Michael Fascitelli of Vornado Realty Trust. seminar, REBNY Mendik Education Center, 570 Commercial Real Estate Investment Summit, New Lexington Avenue, 5:30-7 p.m. call 212-532-3100 for York Bar Association, 42 West 44th Street, 8:30 a.m. more info to 3:30 p.m., visit http://mkcresummit.com/register

APRIL 2012 THE MORTGAGE OBSERVER 31

CMO_0412_Calendar.indd 31 3/22/12 6:42:54 PM of interest A comprehensive index of all the people, places, addresses and companies mentioned in this month’s issue

10. 21. 30. 6. 15. 6. A Compo Acres 10 Corp. 10 Malka, Josh 8 Principal Insurance Trader Joe’s 10 AG Net Lease Fund II 15 Cotter, Joseph 21 Gore, Lawrence 19 Manhattan Mall 6 Company 30 Two Gotham Center 30 Albanese Development Criimi Mae 12 Graves Hospitality Corp. 4 Manulife Financial Corp. 30 Prudential Capital Co. U Corp. 30 Cushman & Wakefield Great West Life 30 Manulife Real Estate 30 Prudential Mortgage USAA Real Estate Co. 10 Alexico Management Sonnenblick Goldman 10 GTIS Partners 12 Marcus & Millichap Capital Capital Co. 4, 30 U.S. Bank 15 Group 10 CVS 10 Guardian Life 30 Corp. 15 Prudential Real Estate V American Council of Life D Guggenheim Partners 20 Martocci, Gino 18-19 Investors 30 Vaccaro, Jon 6 Insurers 4 D’Arcy, Peter 18-19 H Mayrose Holdings LLC 15 Q Victoria’s Secret 6 Angelo, Gordon & Co. 15 Darinor Plaza 10 H & R REIT 30 McCahill, William 21 Queens Place Mall 30 W Anglo-Irish Bank 12 Davis, Jeffrey 20-21 Haddock, Michael 6 McCarthy, Brian 10 R Wells Fargo 21 Ariel Property Advisors Day, Jeffrey 6 Harbors at Haverstraw 15 McDonnell, Paul 21 Ranieri Real Estate Werhane, Charles 8 9-10 Deutsche Bank 6 Helios Capital Advisors 8 Merck, Robert 4 Partners 6 W. 27th Street Rental Australian Stock Exchange Deutsche Bank Berskshire Heyman Properties 10 Meridian Capital Group 12 Ratner, Jonathan 12 LLC 15 12 Mortgage 6 HFF 15 MetLife 4, 30 Real Estate Capital Westside Congregration B Draft/Foote Cone & Hilton Orlando 22 Miami Equity One 10 Revlon Consumer of Jehovah’s Witnesses Inc. Bank of America 10, 22 Belding 6 Hotel Williamsburg 4 Michael’s 10 Products Corp. 15 15 Bank of Boston 21 Duncan, Pat 10 HSBC 15, 22 Monoghan, John 12 Richter & Ratner 12 Wilmers, Robert 18 Bank of Ireland 12, 20-21 E Huffman, Ned 6 Morgan Stanley Mortgage Riverbank 30 Wilmington Trust 16-19 Baydala, Terry 12 Eastgate Realty 15 I Capital Holdings 15 Rock, Steven 15 Wilsmann, Mark 4 Bellwether Enterprise Real Edgewater Habor 21-22 Invesco Advisors 10 Mortgage Bankers Roseland Property Co. 30 Wind-Up Entertainment 15 Estate Capital 6, 8 Ehlinger, Mark 10 J Association 30 S WL Ross & Co. 6, 10 Bellwether Enterprise EMEA Research & Jahnke, Nicholas 30 Mountain Development Schultz, Steven 8 Woodwell, Jamie 30 Community Investment 6 Consulting 6 JC Penney 6 Corp 10 Seats, Lamar 6, 8 Z Berkeley Point Capital 6 Emmes Asset John Hancock Financial 30 N Shapiro, Tom 12 Zegen, Joshua 8-9 Blackrock Group 12 Management 12 Jos. A. Bank 10 National Resources 21 Shulman, Ben 8 Ziff, Simon 24 Blackstone Group 6 Enterprise Community K New York Life 4, 30 Silverstone Property # Blackstone Real Estate Investment 8 Kaufman, Randi 12 New York State Teachers Group 9 10 Exchange Place 30 Debt Strategies 6 Extell Development 22 KBS Realty Advisors 12 30 Sinatra, Frank 21 100 Wall Street 15 BNB Bank 8 F Kelly, Kitty 21 Northfield Bank 8 SJP Properties 30 100 West 33rd Street 6 Bolivian Consulate 15 Fannie Mae 6 Kimco Income Operating Northwestern Investment SL Green Realty 30 1000 Madison Ave 10 Boston Properties 4, 30 Farrell, Melissa 30 Partnership 10 Management 30 Solomon, Craig 10 11 Times Square 30 Buffet, Warren 18 Federal Housing Kimco Realty Group 10 Northwestern Mutual Life Sozio, Victor 9 1510 Lexington Ave 30 Burdale Capital Finance 21 Commission 6 King & Grove 4 Insurance Company 30 Specialist Business 1540 Broadway 4 Burdale Financial Holdings Federal Housing Finance Klein, Michael 15 NYU Schack Institute of Banking 12 160 North 12th Street 4 Limited 21 Agency 6 Kohl’s 10 Real Estate 24 Square Mile Capital 10 200 West 72nd Street 30 C Feldstein, Thomas 12 Krueger, Liz 15 O Stein, Joshua 28 2100 Round Pointe Drive 15 Canyon-Johnson Urban Fitch Ratings 12 KSK Construction Group 4 Off-market RADAR 10 Stoler, Michael 30 211 East 43rd Street 15 Funds 10 Fleet 21 L Old Navy 10 Sunkyo Mahikari 15 2121 State Route 27 15 Capital One 21 Forest Avenue Shopping LandesBank 15 One57 22 T 2300 Broadway 30 CBRE 6 Center 10 LaSalle Hotel Properties 10 Orvis 10 The American Council of 374 Post Road East 10 Chai, Nelson 21 Fox, Adam 12 Lesser, Daniel 4, 6 P Life Insurers 30 425 Park Ave 30 Chase Bank 15, 21 Freddie Mac 6 Lindwalk, Chuck 12 Pacific Life 30 The Corner 30 430 Boston Post Road 10 Cherryland Mall 28 G Lipiec, Jason 18-19 Pariser, Evan 15 The Moinian Group 15 45 Park Avenue 30 Chesterfield 28 Galligan, Matt 20-22 Lockhart III, James 6 Park Central Hotel 10 The Platinum 30 500 Connecticut Avenue 10 CIT Group 12, 20-21 Gamestop 6 LW Hospitality Advisors 4 Park Hyatt Hotel 22 The Solaire 30 537 West 27th Street 15 CIT Real Estate Finance Garodnick, Daniel 15 M Parkside Apartments 15 The Verdesian 30 601 Lexington Ave 4 12, 22 GEM Hotel Union M&T Bank 16-19 Payless Shoes 10 TIAA-CREF 30 72 Madison Avenue 15 Citrin, Jeffrey 10 Square 4 Madison Realty Capital Polo Ralph Lauren 6 Tishman Speyer 12 870 Seventh Ave 10 College Green Branch 12 German American Capital 8-9, 12 Post Road Plaza 10 TJ Maxx 10 992 Madison Ave 10

32 the MORTGAGE OBSERVER APRIL 2012

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