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How Brookfield went from a potential lender to the owner of a massive Bronx project

When Somerset Partners and the Chetrit Group were getting started on their massive South Bronx project, Brookfield Property Partners was in talks to be a possible lender. Instead, it’s becoming the owner. Chetrit and Keith Rubenstein’s Somerset Partners are selling the site of their megaproject to Brookfield for about $165 million, according to sources familiar with the deal. The developers initially spent $58 million acquiring 2401 Third Avenue and 101 Lincoln Avenue along the Mott […]

Source: realdeal


Welcome to the Easy Life: The Retirees From Last Year’s Power 50

Late last year when George Klett announced his retirement from Signature Bank, it felt a little early. The guy was only 67.

But, in fairness to Klett, as the son of a sanitation worker who grew up in the Bronx, he’s been working since he was 11 years old. Nobody can blame him for wanting a break.

Still, Klett went out as chairman of the Commercial Real Estate Committee of Signature Bank on a high note: In 2016 Signature did $6 billion in originations, which earned him the No. 7 spot on the Power 50 list last year.

Klett wasn’t the only marquee name that decided to take a step back from the hustle and bustle of high finance and, thus, surrender his spot on the Power 50.

Richard Bassuk, the co-chairman and CEO of the Greystone Bassuk Group, had an extremely comfortable perch at No. 33 with a career that started in tax law. He made detours to pre-revolutionary Iran to do Starrett Housing developments and included forming the Singer & Bassuk Organization with Andy Singer, before partnering with Greystone’s Stephen Rosenberg. But Bassuk also decided that this was the year to sit back and enjoy retirement.

Finally, Michael Mazzei, the co-founder and COO of Ladder Capital, who shared last year’s No. 44 spot with co-Founder and CEO Brian Harris, decided to retire. But it looks like Mazzei has left his company in ship-shape: With a resurgent CMBS market Ladder’s originations edged up 6 percent to a healthy $3.4 billion.

Farewell, gentlemen—you might not be on Power 50 any more, but your deeds will not be forgotten.

Source: commercial


The DC Five: Trump Admin Big Shots Most Likely to Shape Financial Markets

Just as 2017’s hyper-zealous financing market had many of Commercial Observer’s Power 50 honorees keeping one eye fixed on the competition, record-setting levels of executive branch turnover during the first full year of the Trump administration—and the media’s insatiable appetite for palace intrigue—made it difficult for executive branch bigwigs to carve out a comfortable niche.

That’s one reason that Treasury Secretary Steven Mnuchin—last year’s honoree in the No. 5 spot—missed out on a place in this year’s power list. A constant stream of controversy on Pennsylvania Avenue—from President Donald Trump’s dithering after a rally tinged with white supremacism in Charlottesville, Va., to the expansive investigation into connections between the Trump campaign and the Russian government—had the White House playing defense for much of the year. When it came to the biggest piece of landmark legislation, for example, the president’s men largely took a back seat to Congress in crafting December’s tax overhaul.

And although Mnuchin has been bumped from the rarified company of CO’s list, at least he survived a year and a quarter on the job. That’s more than you can say for Gary Cohn, the former Goldman Sachs executive who resigned last month as director of the National Economic Council, and Tom Price, who stepped back from overseeing a gigantic share of America’s budget when he resigned from his job as secretary of Health and Human Services in September, embroiled in a brouhaha over his use of private jets.

Still, as the Trump White House embarks on a second year that will include congressional elections, new attention fixed on international tariffs, an economy absorbing a series of interest-rate hikes and even a planned summit with North Korea’s Kim Jong-un, unpredictability remains the only sure bet. As the dust settles, these five government power players—in no particular order, mind you—could have the biggest impact on financial markets nationwide this year.

Larry Kudlow

Director, National Economic Council

kudlow e1522770664237 The DC Five: Trump Admin Big Shots Most Likely to Shape Financial MarketsWith Gary Cohn out of the picture, Trump has asked longtime CNBC host Larry Kudlow to the dance as his new director of the National Economic Council. The role won’t be Kudlow’s first foray into conservative politics—the 70-year-old New Jersey native served in the Office of Management and Budget in the Reagan administration—but his early 2015 endorsement of long-shot candidate Trump’s tax plan couldn’t have hurt his chances to join the administration.

As an economic prognosticator, Kudlow’s prophecies have not always been the most prescient: take the embarrassing matter of his mid-2000s enthusiasm for Florida’s housing market, or his bullish statements about the prospects of a recession as late as December 2007. But critics lamenting Cohn’s loss as a force for stability in Trumpland can at least be grateful that Kudlow has asked the former director’s staff to stay on for his tenure. A reliable free-trader, Kudlow has already criticized Trump’s readiness to enact tariffs on aluminum and steel produced abroad—and given the sharp equity-market declines since those policies were announced, investors will be keen to track whether Kudlow can talk Trump down from the edge of a trade war.

Steven Mnuchin

Secretary of the Treasury

mnuchin e1522770742647 The DC Five: Trump Admin Big Shots Most Likely to Shape Financial MarketsThe biggest economic policy news to hit the wires in 2018 hardly sprouted out of traditional executive branch policy-making. The White House mostly kept to the sidelines as Congressional committees hashed out last year’s tax reform, and by all accounts, Trump’s announcement of harsh new tariffs last month blindsided even his closest advisers. But through it all, Treasury Secretary Steven Mnuchin has been a dependable cheerleader for the president’s blend of protectionism and free-marketeering, lending him impressive staying power in an administration marked by whiplash turnover. Within the capital, the Treasury Department’s stone’s throw proximity to the White House means that Mnuchin is “always on the scene,” Politico has reported, attending meetings that are only tangentially related to Treasury business. As a result, he’s weighed in on everything from denuclearization in Iran and North Korea to the administration’s policy on affordable housing finance. Moreover, Mnuchin’s ability to weather a controversy over his use of government airplanes—the exact scenario that brought down Health and Human Services Secretary Tom Price—could be a sign of his relative strength in the administration. One of several Trumpland alumni of Goldman Sachs, the 55-year-old Yale University graduate brings deep Wall Street ties to Washington that continue to make him an important link between the White House and the financial industry.

Mick Mulvaney

Director of the Office of Management and Budget; Acting Director of the Consumer Financial Protection Bureau

mulvaney1 e1522770812314 The DC Five: Trump Admin Big Shots Most Likely to Shape Financial MarketsMick Mulvaney, a former Republican congressman who represented South Carolina’s fifth congressional district in the House of Representatives for six years, placed himself at the center of a bizarre Washington spectacle last November when Richard Cordray, the Obama appointee who served as the first director of the newfangled Consumer Financial Protection Bureau (CFPB), stepped aside. Trump appointed Mulvaney—who was already serving as the chief of the Office of Management and Budget—to take Cordray’s place, while Cordray’s deputy, Democrat Leandra English, argued that the job was rightfully hers. For a few confusing days, both showed up to work, with each attempting to control the agency from competing offices, until a federal judge ruled that Mulvaney was the proper heir.

In the months since, Mulvaney has crusaded from within against what he sees as the CFPB’s overbroad mandate, declining to submit a request for any congressional funding whatsoever for the agency. But don’t mistake Mulvaney for a dogmatic spendthrift. In his budget office role, Mulvaney presided this February over a federal budget process that plans for a trillion-dollar deficit in 2019, with overall levels of U.S. debt planned to rise by $7.1 trillion over the next 10 years. And all that deficit spending is already having an effect on financial markets. In just one week in February, the government issued more than a quarter of a trillion dollars in new obligations, sending two-year yields tumbling as investors demanded compensation for absorbing a rapid ramp-up in supply.

Given Mulvaney’s dual executive-branch roles at two separate control panels, few individuals have more concentrated leverage over U.S. financial markets.

Wilbur Ross

Secretary of Commerce

ross e1522770833705 The DC Five: Trump Admin Big Shots Most Likely to Shape Financial MarketsAs commerce secretary, Wilbur Ross has forged a less dynamic portfolio than some of his counterparts in Donald Trump’s cabinet, but Ross’ power to shape economic policy—especially in the area of international trade—should not be underestimated. Granted, the 80-year-old New Jersey native—once thought to be a billionaire but revealed in financial disclosures last year to land somewhat shy of that mark—generated embarrassing headlines this January, when Axios reported that Ross has a penchant for snoozing during high-level meetings.

But the Yale University and Harvard Business School graduate stands to play a crucial role overseeing tariffs on steel and aluminum that Trump announced in March, vested as he is with the power to adjudicate exclusions and exceptions to fees on foreign imports. Given that equity markets retreated sharply as fears of a trade war mounted in the weeks since, investors economy wide will stay keenly attuned to the details of how any new tariffs will be rolled out.

But Ross’ most far-reaching influence may well come in the form of his responsibility for the U.S. Census Bureau, set to next conduct its all-important decennial survey in 2020. That project’s results will have long-term implications for the shape of congressional districts and the disbursement of federal funds until at least 2030. It’s a role that puts the Department of Commerce, and by extension Ross, at the center of key questions of how Americans are represented in Washington and how the U.S. government allocates its resources.

Ben Carson

Secretary of Housing and Urban Development

carson e1522770853618 The DC Five: Trump Admin Big Shots Most Likely to Shape Financial MarketsAs documented in their tributes on our Power 50 list, the two big government-sponsored entities in the multifamily market, Fannie Mae and Freddie Mac, turned in record-breaking volumes in the housing sector in 2017. That’s evidence that despite nostalgia for the American dream of home ownership, shared housing has an increasingly important place in the American landscape—and a sign that federal policy plays a crucial role in shaping where working Americans call home.

Ben Carson, the accomplished neurosurgeon at the center of that effort in the Trump era, was always going to be an unlikely candidate for the post, having previously worked neither in government nor in any capacity connected to real estate. In his first year and change on the job, his efforts to house needy Americans have proceeded with ambivalence, pairing a new $2 billion grant to fund nationwide homelessness programs with exhortations that public housing not provide too many perks, lest those who benefit grow too comfortable there. But with broad control over crucial housing initiatives like the Section 8 program for federal rent assistance and the low-income housing tax credit, Carson—if he is destined to remain in the job despite complaints of his mishandling of an office interior-design budget—stands to exert considerable power over the status of America’s federally assisted multifamily stock.


Source: commercial


Lower Fifth Avenue just got high: New marijuana dispensary to open

Fifth Avenue, which runs along the full length of Central Park, is about to get even greener. Los Angeles-based MedMen plans to open a 10,000-square-foot medical marijuana dispensary at 433 Fifth Avenue, the New York Post reported. Billed as the “Barneys of weed,” the dispensary is slated to open on April 20, an unofficial stoner holiday. The shop will only sell to state residents who are medically qualified to receive marijuana and will be the […]

Source: realdeal


Varsity Letters: Chris Lee and Matt Salem on KKR’s Debt Strategies

Global investment firm Kohlberg Kravis Roberts & Co. was founded in 1976—so the story goes—when Henry Kravis and George Roberts dined together at (the now defunct) Joe and Rose restaurant on Third Avenue between East 46th and East 47th Streets. Today, KKR has $168 billion in assets under management (as of Dec.31, 2017).

The firm has had a private equity real estate strategy in place since 1981, but more recently it is being recognized as an increasingly powerful force in the debt space,  too.

The firm has two debt strategies; KKR Real Estate Finance Trust (KREF)—an externally managed real estate investment trust (REIT) that originates senior commercial mortgage loans—and KKR Real Estate Credit Opportunity Partners (RECOP), which purchases junior tranches of commercial mortgage-backed securities.

“What takes several people years to build, in terms of size and breadth, they’ve accomplished in a couple of years,” said A.J. Sfarra, a managing director at Wells Fargo Securities. “They’ve raised a $1 billion B-piece fund and a mortgage REIT.”

KREF currently has a total market capitalization of $1.1 billion and a total portfolio size of $2.5 billion. It originated $1.5 billion of loans last year alone—$800 million in the tristate area—playing in the large loan, transitional and value-add space and competing with private lenders such as Square Mile Capital Management, Blackstone and TPG.

In November of last year, it raised a $1.1 billion fund for its RECOP strategy and is the most active buyer of CMBS B-pieces in the market, with an impressive 35 percent of market share. In 2017, it bought junior tranches on 12 deals, comprising $10.9 billion in principal balance. For all transactions,  KKR satisfied either a portion or the entire risk retention requirement, retaining $949 million in face value of the bonds.

Chris Lee and Matt Salem, the firm’s co-heads of real estate credit, lead KKR’s debt business from the company’s headquarters at 9 West 57th Street between Fifth Avenue and Avenue of the Americas.

A “frustrated Cowboys fan,” Lee hails from Dallas. After studying economics at Emory University he got his industry start with a summer internship at J.P. Morgan Chase Securities, which then led to him to join Goldman Sachs’ commercial mortgage group as an analyst in 1990. He remained there until 2009 when he moved to Apollo Global Management, then to KKR in 2012.

“I like the competitive nature of it, where you’re out competing every day against very savvy investors to create transactions,” Lee—who turns 40 next month—said of his draw to commercial real estate. “I also like the personalities in real estate. You meet a lot of colorful people, and it’s one of the industries where you continuously interact, whether on the finance side or the development side.”

Jeff Fastov, a senior managing director at Square Mile Capital Management, was co-head of lending at Goldman Sachs when the young Lee joined the bulge-bracket bank, and Lee’s first boss out of college. “His raw intelligence is immediately apparent, and he’s incredibly personable and well-liked,” Fastov said of his protégé. “So when you put these two [attributes] together he’s a formidable competitor because people really like to do business with him.”

Salem, 44, is also a New York City transplant. A Kansas City native (and die-hard Kansas Jayhawks fan), he studied economics at Bates College in Maine and—bucking the traditional route of most Wall Street programs—moved back home after college instead to seek employment.

After “being turned down a bunch of times,” by local banks in his hometown, Salem took a job at Midland Loan Services in 1996. Its platform was growing and it was hiring college kids to assist in its expansion, he recalled. Three years later, he took a position at Travelers Insurance—owned by Citigroup at the time—and moved to New York City. It was there that Salem was tasked with investing in high-yield real estate debt and early mezzanine loans, before segwaying—serendipitously, perhaps—into buying CMBS B-pieces.

When Citi sold Travelers, Salem tried the sell side out for size, working at Morgan Stanley, before joining Goldman Sachs in 2006 as a CMBS trader and ultimately running CMBS trading for the investment bank through the crisis. In 2011, he joined Rialto Capital Management to build out its performing businesses, including high-yield lending platforms—such as preferred equity and mezzanine loans—as well as CMBS B-piece investing.

mattandchris 149 Varsity Letters: Chris Lee and Matt Salem on KKRs Debt Strategies
Matt Salem. Yvonne Albinowski/For Commercial Observer

Meanwhile, over at KKR, Lee and KKR’s head of real estate, Ralph Rosenberg, were planning the next iteration of the firm’s real estate business.

“When I got here in 2012 we were figuring out where we wanted to start the business, so we started it in opportunistic real estate because we thought that would be the area we could differentiate ourselves the most,” Lee said. “The goal was to have an integrated business as a solutions provider where we could provide both equity and debt.”

KKR raised its first equity value-add fund—the $1.5 billion KKR Real Estate Partners Americas, or REPA—at the end of 2013. (“We bought a number of hotels in that fund as the hospitality recovery was starting to take hold,” Lee said. “So a lot of it was a buy-fix-sell strategy where we were buying assets that had broken capital structures or broken operations, fixing them then selling them.”) And it raised its $2 billion successor, REPA II, last year.

But Lee and Rosenberg wanted to further expand the business that KKR had evolved to include a credit business. They already knew that Salem was the man for the job.

“Matt had demonstrated the ability to lead and manage a team,” Lee said. “Rialto had a very active business across multiple products and we had very complementary skills. There was a view that we’d be able to do one plus one equals three if we put our different backgrounds together.”

Salem joined KKR, along with nine members of his Rialto team, in 2014.

“I thought it was an absolutely perfect move for him,” Sfarra said of Salem’s move to KKR, “and in way I couldn’t see him anyplace else. KKR is a world-class organization and he fits that mold perfectly.”

Since then, Lee and Salem have been off to the races, finding opportunity in the heightened regulatory environment and leveraging off KKR’s existing infrastructure.

“We both had a very consistent view of where the market opportunity was, and that was direct, transitional lending,” Salem said. “We didn’t think the banks were in a place to commit that capital anymore, and we thought that we had a different approach in being fully integrated into a global asset manager, and being able to draw not only from an experienced bench of private equity and credit professionals but also from those focused on real estate equity within our own team.

“We think like property owners and we can be flexible,” Salem continued. “So there was a great opportunity to commit capital both from a relative value perspective for our investors as well as differentiating ourselves in the market to our clients who are borrowers and property owners.”

KKR’s lending portfolio is heavily weighted toward office and multifamily assets (the opposite is true for hotels, which comprise less than 5 percent of KKR’s business) and it’s carving out a niche for itself in value-add plays in acquisitions as well as construction loan take-outs where leasing is taking longer than expected.

“We have tremendous range in our business,” Lee said. “This year we’ve quoted loans from $40 million up to $400 million and from Libor plus mid-200s to Libor plus 400. Borrowers are buying different properties and executing different business plans so being able to deliver a range of solutions across what they’re doing in their platform helps us to build that relationship and have more connectivity with them, as well as provide us with a better opportunity to prove our experience.”

Recent transactions include a $180 million loan on PIMCO and Zeller’s Fifth Street Towers—a 1.1-million-square-foot Class-A building in downtown Minneapolis. Like most of KKR’s loans, the deal included an initial funding component, in this case $130 million in upfront funding and $52 million in future funding. PIMCO purchased the building in 2015 and had implemented its business plan with some success but leasing was a little slower than expected and—midway through its business plan—it didn’t have access to additional capital to continue to lease the property. KKR stepped in, refinanced the existing loan and gave PIMCO the capital and runway to lease the building up further, closing the deal within three weeks.

The financing was arranged by Eastdil Secured, which has worked with KKR on multiple transactions.

“Chris can understand risks in a transaction very quickly,” said Grant Frankel, a managing director at Eastdil. “He’s very good at understanding the transactions where it makes sense to stretch, and which ones have the quantitative or qualitative intangibles that—as a lender—you may be willing to push a little harder on. He has a very good sense for that.”

Frankel said that the KKR team is easy to work with, too. “Chris and Matt’s originators are very collegial, very smart and they are all pleasant people,” he said. “They’ve built a really good culture. We [at Eastdil] have a similar culture from a collegiality perspective, so it works well.”

Closer to home, KKR made an inventory loan on the Zaha Hadid-designed apartments at 520 West 28th Street to Related Companies. The $200 million loan was collateralized by the property’s 30 remaining condos that were unsold at the time.

“It’s a very special project,” said Greg Gushee, an executive vice president at Related. “KKR quickly understood the structure, the value and our business plan and were extremely flexible in structuring something that would allow us to pursue that plan.”

Flexibility is one of Salem and Lee’s key selling points in making KKR stand out from the herd, Gushee said.  “Some lenders get very fixated on their loan documents when there’s a twist or turn in a deal,” Gushee said. “Chris just says, ‘Okay. Let’s see what makes sense to do here…’ He’s always flexible and open to doing what makes sense for the asset.”  

And, “they can come up with a structure very quickly, get a term sheet to you within days and they can close within 30 days, easily,” Gushee said. “[KKR is] the place to go if you want great execution. They look at the situation and they can customize the solution.” 

Like everyone else in the debt space today, KKR is having to compete with a variety of capital sources for deals.

“It’s competitive, we wouldn’t argue with that, but it’s still a relationship business and it comes down to how you can help your borrower achieve their goal,” Lee said. “A lot of our borrowers aren’t looking to finance a property that is already stabilized; they’re looking for help to execute a business plan. Because we execute a lot of these business plans ourselves we can be very constructive in helping them to solve a capital issue.”

And while relationships are important, so are the cost of funds—something that definitely works to KKR’s advantage.

“Being part of a global asset management firm is extremely helpful for us and we think we have top-tier cost of capital in terms of what we receive from our lending counterparties,” Lee said. “We also have other ways to enhance returns because we have access to different tools at our disposal in terms of the way we finance ourselves, through our capital markets team and our $45 billion corporate credit business. A lot of those synergies accrue to the benefit of our company, KREF, and its shareholders. But that’s how you compete—on borrower experience and on price.”

Salem sees KKR’s speed of execution as the biggest differentiator in its segment of the market: “We’re a small team and not as rigid as [other lenders] so you don’t have to go through layers and layers of investment committee approvals and bank processes to get things changed if business plans evolve,” he said. “Things change in these buildings and they need flexibility and a lender that’s going to be able to work with them through these changes.”

KKR’s other vertical in its debt business, CMBS B-piece buying, has Salem’s name written all over it as a veteran in the space. Most recently, at Rialto, Salem had led a dominant team in the space.

The opportunity was driven by Dodd-Frank and risk retention regulations in the CMBS fixed-rate conduit market, specifically the carve-out that allows banks to pass some of  their risk retention to a third-party purchaser. 

mattandchris 058 Varsity Letters: Chris Lee and Matt Salem on KKRs Debt Strategies
Chris Lee. Yvonne Albinowski/For Commercial Observer

“We thought it was a great opportunity because the banks weren’t going to want to hold that risk and we have the expertise to do it,” Salem explained. “We can create a retention vehicle with our relationships with like-minded, long-dated investors. Combining the institutional client base of KKR with our broad internal underwriting resources across private equity, corporate credit and real estate works well. We draw from all these resources and do all of the underwriting and diligence, which makes us very credible investors in the space.”

Sfarra has known Salem for 15 years. He first met Salem when he was at Citi and buying B-pieces from Wells Fargo. Sfarra hired Salem at Morgan Stanley and sold him B-pieces at Rialto and KKR. Additionally, Wells Fargo took KREF mortgage REIT public last year, leading the underwriting group. “He’s been a B-piece buyer, he’s been a colleague, he’s been a client and he’s a really good friend as well,” Sfarra said.

Further cementing their relationship, Wells Fargo also sold KKR its very first B-piece. “We’re really thrilled to support their business,” Sfarra said. “What they’ve done is built a really successful B-piece business in a really short period of time and the only way you can really do that is by having the capital to do it and by having great relationships. Their word is their bond so people want to transact with them and they’re very smart guys.”

Fastov met Salem when he was on the mortgage desk at Goldman Sachs. “He’s an incredibly smart guy, and very straightforward,” he said. “The B-piece business is one part real estate and one part capital markets which is why he’s so effective at buying CMBS B-pieces because you need both of these skills.”

And while KREF and RECOP continue to have success, so does KKR’s real estate equity business. The opportunity has evolved since 2011 from investing in broken capital structures coming out of post-crisis distress to more thematic investing, with KKR finding macro themes of interest and applying them through the real estate sector.

It also presents opportunities to lend to some of its competitors in the debt space.

Square Mile and KKR teamed up last June on a California office deal, with Square Mile providing a $92 million loan for KKR’s acquisition of 180 Grand—a 15-story, 279,000-square foot-office building located in the Lake Merritt submarket of Downtown Oakland.

“There was a lot of trust that we could deliver on the terms we offered and that we’d focus on what mattered in the transaction,” Fastov said. “When we agreed to do the deal together, Chris said, ‘Let’s stay in touch if there are any real issues in the documentation,’ and guess what? There were none. It’s an example of KKR doing a lot of different things, just as we are, and there are opportunities to be lenders to each other.”

Maybe it’s that out-of-state charm, but—as well as being highly respected deal counterparties—Lee and Salem are known for being all around good people and family guys.

Frankel describes Lee as “a good guy, smart and pretty cerebral. He’s a straight shooter and just a pleasant person you enjoy doing business with.”

“I get Chris’ holiday card every year and his kids are exceedingly cute. If Matt would send me his holiday cards I could comment there, but he doesn’t. So…that’s an issue,” Fastov said, laughing.

As for the future of KKR’s real estate credit business, “I think there’s a lot of growth ahead of us,” Salem said. “We’re one of the newer businesses at KKR. The firm views real estate and real estate credit as strategically important and a growth initiative, and so we’ll have resources and capital available to us to grow.” O.K., KKR.

Source: commercial


Brains & Braun: SL Green’s David Schonbraun on His New York Lending Strategy

David Schonbraun may be competing for deals like everyone else, but the 40-year-old father of three is no stranger to competition. When he was a high school senior, he nursed dreams of being a professional tennis player.

Now, unlike the majority of lenders out there scrambling to deploy capital, he has an advantage: Schonbraun is charged with keeping real estate investment trust SL Green Realty Corp.’s debt business to a tidy 10 percent of its assets.

As a result, Schonbraun, the co-chief investment officer for Gotham’s largest office landlord, and his team cherry-pick the lending opportunities that are the best fit for the company, selling positions along the way to keep the book balanced. Weighing in at No. 27 on Commercial Observer’s Power 50 list (see page 42), Schonbraun had quite the year in 2017, running SL Green’s side of its and RXR’s purchase of a 49 percent stake in Worldwide Plaza. And like a lot of athletes, he has the stamina to keep going. He gave CO the low-down on which transactions have piqued his team’s interest lately.

Commercial Observer: Congratulations on being on the Power 50 list! How was 2017 for you, overall?

David Schonbraun: Our main focus is always to work to optimize our book…We maximize profit by limiting risk and, with that, run a $200-plus-million revenue business. Last year, we picked good spots for us to invest in—so projects that we really liked with very good sponsors. And one of the trademarks of our business is that we were one of the first groups to have the strategy of taking down the whole loan—or the larger piece of a loan—and then syndicating it out to enhance our yields. It’s very important for us to constantly be evolving our strategies as the market changes, especially in the debt business.

How has your strategy evolved since joining SL Green in 2002?

When we started this business within the REIT, our focus was really on buying subordinate debt. As we grew and the markets changed, we began co-originating, then originating by ourselves and syndicating. Now we’re holding whole loans more and financing them through repo facilities. We’re always trying to evolve the business to stay one step ahead because there are so many more competitors in the market now. We look to where the inefficiency is in the market, and that’s where we think we’ll make the most money.

Where do you see that inefficiency right now?

This is the most efficient market we’ve seen, unfortunately [laughs]. There’s so much capital. We’re focusing on using our relationships and being quick to get deals. We still have a big advantage with transitional assets, given our real estate background. A lot of sponsors—and it may be counterintuitive—prefer us to be in the more complicated deals with some redevelopment and leasing because as their business plans change they know they can come to us and say, “Look, we know this wasn’t on the initial plan, but as we’re looking at the market, we’ve re-evaluated, here’s how we think we should change it.” From a real estate perspective, we can understand those assets quickly and say, “That wasn’t the original plan, maybe it’s more expensive, but we think it makes sense,” or, “We understand you may have to sign a lease to less than underwriting to get the momentum in your leasing and you’ll make it up on the back end,” whereas a lot of pure lenders don’t understand that and are stuck in their model. So, I think in any real value-add real estate, I think we have a big advantage in working with clients. We view ourselves as partners with our borrowers on that.

The transitional space is extremely competitive right now.

Yes, but we’ve always been in that space. Some of the foreign capital is doing the cheap, 10-year fixed-rate [mezzanine lending], and that’s not a space we want to play in as much. Sometimes we’ll take down a mezz loan, sell pieces and lever up that way to get a yield that works for us, but otherwise we’re really looking for better yields for ourselves, and the transitional space tends to be a good fit us.

You provided a $110 million mezzanine loan on 245 Park Avenue and sold part of it. Are you looking at 245 Park again as a potential acquisition now that it’s back on the market?

We look at every asset that’s on the market, and we’re always looking to invest in a way that makes money. We always have conversations. But, for now, we’re a lender and we’re very happy being a lender.

That deal is a perfect example in terms of how we tried to buy [the property], and [HNA] paid a higher price than we were willing to. But when they lined up their financing—because we’d already done all the underwriting—we could quickly commit to doing the bottom mezzanine loan. So, early on that guaranteed us a position in the capital stack. The banks like it because they’re able to sell their bonds and their senior mezz at a lower rate with us as the anchor in the capital stack. And then, to enhance our yield, we sold a piece of our loan off. So it’s kind of a win-win for everyone; the bank that originated the loan gets a better execution with us anchoring and selling the pieces, and we were able to hold what we want, syndicate off a piece and get an above-market return.

Has barbell lending been a consistent strategy for SL Green? 

We’ve always kind of looked to run the business that way. For us, we try to have a blended yield, and in doing that we can do some higher-yielding stuff and some lower-yielding. It allows us to play where we want in each capital stack and at the right risk point. So there are a lot of deals where lenders are junior to us in the transaction, and a lot of people will view us as a first loss, and a lot of times we are. But there are a significant number of other deals where we take a more senior piece of the stack because, for us, that’s the better risk-adjusted return.

How are you choosing the “good spots” in the market and identifying potential opportunities?

Right now, we’re not growing the size of our book significantly. What that enables us to do is seek out transactions where we like the sponsor, the real estate and the basis. We do those deals and then look within our own portfolio and start selling off some other assets we’ve originated. If we can originate a loan on a new vintage at a little higher yield than something we’re selling, it makes the company a little bit more incremental money. Hopefully, we like the credit on the loans we’re [adding] a little more than those we’re selling, or they’re higher yielding but the same credit. We’re always looking to optimize the book.

Tell us about 888 Broadway. Why were you attracted to that particular financing opportunity?

It’s a great location and a great piece of real estate with two very good sponsors. We have a great relationship with Normandy [Real Estate]. They’re great guys and very good operators. We really believed in their business plan for the asset and think it’s going to be an incredibly successful project. It’s a typical transaction where there’s going to be redevelopment and a lot of lease-up, and if they have to come back and change their plans, they know that we’ll be very flexible with them.

Are there any examples of that flexibility you can give us?

For RFR on 285 Madison Avenue, as they got into the project, the scope of the project changed. We thought it was the right thing for the property, so not only did we say, “We agree with what you’re doing, but we’re also happy to upsize our loan to allow it and help fund it because we think it’s right for the project,” and we gave them additional capital to do that.

RXR has been upping its lending activities, joint venturing recently with a Canadian pension fund to do so. What’s the draw is in increasing that activity for New York City owners?

I think it’s driven by the strong desire for institutional capital to be investing in real estate right now. There’s not as much sales activity and so they use the debt space to get real estate exposure and returns.

Is the bid-ask spread still buoying sales?

I don’t think it’s so much that bid-ask spread is so wide, as much as over half the stock of New York City office buildings are owned by a handful of well-capitalized institutions. If they don’t see opportunity to reinvest their capital somewhere else, they’re not going to sell for the sake of selling and then sit on cash. We’ve sold assets to buy back stock and if we didn’t see that opportunity maybe we wouldn’t be as aggressive in selling assets. You’re also seeing some joint ventures because some people want to sell a little bit and have some need for reinvestment. I think a lot of it is driven by a lack of reinvestment opportunity.

That’s good news for the debt side, in terms of increased recapitalizations?

It is, and it isn’t. It’s good in terms of you’ll see a lot more recaps like you saw on 237 Park [Avenue] last year. One of the partners wanted to sell, but they got such attractive financing they said, “You know what, there’s really no reason to sell because this financing is so attractive it’s really not worth exiting.” We were in that loan but got paid off. So, it’s good from that perspective. But part of the spread compression is there’s so much money chasing not as many deals, and if the sales market had a little more transaction volume, you’d probably have a little more easing just because there’d be more financing.

It seems like last year was truly the year of competition.

Yes, and I think it’s even more competitive now. We’ve seen spreads come in significantly, and there are more people raising money to compete in the spaces, so it’s maybe even oversaturated right now. The pricing has come down and we have to work a little bit harder through syndications to get the yields we want.

How has the syndication side of the market evolved?

I just think the capital is much cheaper, so it used to be that you could take down a loan and there was a significant amount of room in the spread you were getting to syndicate out and get a good deal for yourself. Now, the capital stack and the pricing is so much tighter, you have to be right on top of the pricing when you’re going to sell more inventory or a mezz piece. There’s much less room for error in judging exactly where the capital markets are.

Are you seeing discipline slide anywhere in the lending market?

The only place we see a little less discipline is on refinancings on new acquisitions. When market value is pegged, I think it’s a lot clearer with refinancings when certain nondomestic or newer lenders are looking at appraised values but lending at a higher value. But, it’s still a very controlled market, and you haven’t seen as many financings where borrowers are looking to get very high leverage.

And borrowers are also being pretty disciplined, correct?

It’s a much more equitized market, which is good, as people are really stretching out financings. It leads to a few less mezz opportunities, but for a market as a whole it’s much healthier.

SL Green’s big acquisition last year was Worldwide Plaza. What appealed there?

It’s a Class-A building and we wanted a little more exposure on the West Side. We got in at a very good basis, a very good cap rate. If you look at our returns on a fee-enhanced basis, they were extremely attractive versus anything else we were seeing in the market. So, [it was] a Class-A building at a low basis and [in] an area on West Side [where] we wanted to be, with a great tenant roster. [And the fact that] we thought it was kind of an above-market attractive yield was great for us. It was also good to team up with RXR, with whom we have a great relationship.

Any specific strategy you’re working on for 2018?

We look every year to sell a couple of assets and then find the best way to redeploy that capital from a lending standpoint. We try to manage that to about 10 percent of the company’s assets but always optimizing, working on risk-adjustment return, duration and then finding the best projects and the best borrowers. So, I think that strategy stays throughout the cycle for us.

How many opportunities would you say come to your desk every year?

I would say hundreds of opportunities come across. You don’t dig deep on a lot of them. We really quickly kind of weed out the ones we think are right for us and then focus on them. One of the reasons is that we’ve underwritten almost every asset in New York already, know it and have a view. We generally already have a value on the building, so we can quickly look at it. We know exactly what we’re looking for.

Has SL Green’s debt business always been 10 percent of the company? Do you see it increasing at some point?

It’s been pretty steady for the past decade or so, so I think as a public equity REIT that’s the right level to keep it at. And, in some ways, it doesn’t force us to do transactions the way it does for other people. We have the ability to really just choose the transactions we think are best, and we aren’t forced to put out capital.

Given how busy you are, do you still have time to play tennis?

I do [laughs]. I’ve started playing much more frequently. My kids play, so I’ve started getting more into it.

So they take after you?

They do. The oldest one [9] is playing tournaments, and she’s doing really well. My little guy loves it—and is excellent for a 6-year-old—my 3-year-old has not gotten into it. Yet. What’s interesting is [Fried Frank’s] John Mechanic hosts a lot of tennis games. I’ve played with him a lot. He introduced me to a lot of people in the industry when I was just starting out, and through him, I was fortunate enough to meet a lot of people.

Do you have any career mentors?

My father was in the real estate business—he had an accounting and consulting business—so from a young age I got to learn from him. I grew up listening to his phone calls with people talking about real estate deals and how to structure things. At my first job at Credit Suisse I worked with David Genovese, who—lucky for me—took a big interest in my wellbeing. He would allow me to sit in when we were working on selling properties. I came [to SL Green] in my mid-20s and have been beyond fortunate to work for Andrew [Mathias] and Marc [Holliday]. They’re the best in the industry, and the amount they have taught me is invaluable.

Is your dad happy with your career choices?

He is. I’ve been very fortunate. I’ve worked hard but was at the right companies with the right guys, and it’s worked out pretty well.

Source: commercial


Judge calls Cushman “wage thief” in decision favoring JLL brokers

Real estate brokers are in it for the money, and when they don’t get it, they’re often inclined to sue. So in 2011, when a five-man troupe of Cushman and Wakefield leasing agents left an expiring contract to head to competing brokerage JLL, they expected to take their final paychecks with them. Instead, the agents — Mitchell Konsker, Paul Glickman, Matthew Astrachan, Mitti Liebersohn and Alexander Chudnoff — said they were given short shrift and […]

Source: realdeal


The 50 Most Important Figures of Commercial Real Estate Finance

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With even the industry’s top lenders battling it out for every deal—bank against debt fund, CMBS shop against life insurer—never has there been a more competitive year in American commercial real estate finance than 2017

“We were doing head-to-head combat every day,” as UBS’ Chris LaBianca, this year’s No. 31 honoree, put it. That made it trickier than ever before for our survey of the battlefield to rank the most exemplary victors—especially given our desire to take a broader nationwide perspective this time around.

This fresh outlook widened the field like never before. As a result, a painstaking dive into the companies behind the big-number deals—as well as due consideration to fearsome feats of entrepreneurship among some of the field’s newest entrants—went into crowning our champions of real estate deal-making. Volumes were up nearly across the board, creating a dog-eat-dog environment where firms had to sprint ahead merely to stay in place among our ranks.

In that context, the performance of some of our dynamic newbies rings all the more impressive. Lotus Capital, Faisal Ashraf’s year-old startup, expanded its debt-advisory reach to three continents and launched a new loan sale distribution platform, landing with a splash for its first year on the list in the No. 41 spot.

KKR’s debt business is off to the races, already going blow for blow with stalwarts like Blackstone and TPG. And CBRE’s Tom Traynor and James Millon turned in a stellar debut performance we couldn’t ignore, arranging $5.1 billion in debt in just their first eight months on the job.

In the world of securitized mortgages, the era of risk retention opened more space between the haves and the have-nots, pushing the most aggressive CMBS shops into some of our top spots. Fueled by eye-popping single-asset deals, those firms claimed 2017’s most exciting trophy asset financings all to themselves.

And the formidable Freddie Mac and Fannie Mae each surpassed their own high-water marks, producing record volumes that affirmed their places at the forefront of America’s multifamily market. Their wake propelled some of our honorees’ impressive leaps this year, like Walker & Dunlop’s jump to the No. 19 slot, vaulting 30 places from last year.

Finally, we made sure to tip our hats to the market’s envelope-pushers, outfits like Bank of the Ozarks (No. 17), who has charged boldly but astutely into the forbidding territory of construction lending, and Starwood (No.4) whose multicylinder approach continues to impress.

It’s that brand of dynamism—shared in different ways by all our honorees—that writes the stories that fill our pages all year long.

Source: commercial


Sale-leaseback activity up 40% to $75B

Sale-leaseback deal activity exploded in 2017 as corporations look to cash in on demand for fully-occupied real estate, particularly in manufacturing and healthcare. Sales of single-tenant, owner-occupied buildings grew 40 percent to $74.8 billion in 2017, according to Real Capital Analytics. The data only includes deals valued at $2.5 million or more. “On the deals that we are doing right now I’m seeing some of the lowest cap rates on the credit and the product […]

Source: realdeal


Anbang gets $9.7B bailout

Anbang Insurance Group is getting a $9.7 billion government bailout to prevent it from collapsing. The China Insurance Regulatory Commission said Wednesday that the move is meant to protect policyholders. The money comes from the China Insurance Industry Fund, a bailout fund backed by the industry, Bloomberg reported. In February, Beijing took control of the struggling insurer, which owns the Waldorf Astoria hotel, for at least a year. The company funded long-term investments, for example […]

Source: realdeal