Masashi Oka

New York-based PB Capital, a wholly owned subsidiary of Deutsche Bank, has over $3.7 billion in loans outstanding on properties in major metropolitan areas across the U.S., 35 percent of which are in New York City. Among them are loans on properties such as the office tower 300 Park Avenue, SL Green's 10 East 53rd Street and 100 Park Avenue, and 56 Leonard Street, which is currently under construction.

The acquisition of the first tranche of loans is expected to be closed by the end of April, according to sources. The entire acquisition is expected to be completed in the second quarter of 2013.

With this deal Union Bank will become the ninth-largest commercial real-estate lender in the U.S., according to an investor presentation for this transaction. PB Capital currently occupies the 19th and 20th floors of 230 Park Avenue. Union Bank is expected to sublease one of the two floors.

“This is an important strategic acquisition for Union Bank, as it leverages our established CRE capabilities by adding a national origination platform and strong relationships with top-tier property owners,” said in a statement Union Bank President and CEO Masashi Oka. “The transaction also enables the Bank of Tokyo-Mitsubishi UFJ to efficiently leverage its strength in the Americas and deploy capital into high-quality assets, through the strong capital position and U.S. dollar funding capabilities of Union Bank,” added Mr. Oka, who is also CEO for the Americas for Bank of Tokyo-Mitsubishi UFJ.

“The PB Capital team brings deep experience and strong relationships with marquee property owners that will provide tremendous expansion of our capabilities,” said Michael Stedman, senior executive vice president and head of Union Bank’s Real Estate Industries. “The ability to originate, underwrite and service institutional CRE loans on a national platform will drive additional business opportunities for Union Bank and BTMU in the U.S.”

In this deal, Marc Young and Chris Delson, partners at Morrison & Foerster were legal advisors to Union Bank. Paul Sowell, a managing director at Bank of America Merrill Lynch was financial advisor to Union Bank. Russell Leaf and Jeffrey Goldfarb, partners at Willkie Farr & Gallagher LLP were legal advisor to Deutsche Bank.

apirolo@observer.com

“I want to see what we are financing,” Mr. Hayward told The Mortgage Observer recently, during a series of meetings in his Washington, D.C. office. “I have actually walked a lot of the properties that we financed—I know what they look like, I have seen the tenants.”

Jeffery Hayward.

When describing Mr. Hayward colleagues often mention his affable nature and his ability to put people at ease, even through tough times. His energy and his ability to listen, several people said, were pivotal in reenergizing the division. In fact, the first year under his leadership, which began in January 2012, Fannie Mae had its third highest year for loan acquisitions for financing to the multifamily market.

After 26 years at the GSE, spent both in the single family and in the multifamily business, Mr. Hayward speaks about working at Fannie Mae in almost mythical terms—referencing its mission to bring liquidity to the market and, more broadly, to solve the nation’s housing problems.

“When you ask people here what really gets them excited, it is knowing that you are helping the country and families to have decent rental housing,” he said. “It might sound corny, but this really is how people feel.”

When Mr. Hayward took over from Kenneth Bacon, who retired after having run the multifamily division since 2005, he found a business in good shape and in rebound after the recession, he said. In 2012, for instance, Fannie Mae provided financing for almost 560,000 units of multifamily housing, for a total volume of $33.8 billion. This was up from 423,000 units and $24.4 billion in financing the year previous.

“As a single entity we probably bought or acquired more multifamily mortgages than any single lender in the United States and we did it safe and sound, meeting our debt coverage standards and meeting our LTV standards,” he said.

Approximately 98 percent of the loans, for a volume of $33.1 billion, were delivered through mortgage-backed security executions. Enhancing the securitization program was one of the main goals that Mr. Hayward had set.

“Last year we kept enhancing a program we call GeMS [Guaranteed Multifamily Structures],” he said. “We expanded the appetite of the investors and brought in more private capital.”

Launched in 2010, the GeMS program involves the creation of structured multifamily securities created from MBS collateral. These structures, which look much like CMBS, attract larger institutional investors. The issuance of GeMS increased from $6 billion in 2011 to $10 billion in 2012. On March 14, 2013, Fannie Mae priced a $904.3 million multifamily DUS REMIC under its Fannie Mae GeMS program, the third so far this year. So far in 2013, total GeMS issuances have been $3.2 billion. Kimberly Johnson, senior vice president of Multifamily Capital Markets, estimated that GeMS issuances will reach approximately $12 billion by year’s end.

Being able to create these structures “has attracted hedge funds and other valuable players, so we are getting a lot of secondary trading and a lot of better liquidity,” Ms. Johnson said. “We started the GeMS program in 2010 before Jeff’s time, but we’ve seen a real increase in issuance and he has been a very big supporter of the GeMS program.”

For 25 years, the DUS program has granted approved lenders the ability to underwrite, close and sell loans on multifamily properties to Fannie Mae, retaining a risk position in the mortgages. In 2012, Fannie Mae’s DUS lenders delivered 98 percent of the company’s multifamily loan acquisitions. “It’s terrific to be part of a program like DUS where it’s almost like you are in a band together—a band that has been playing successfully for 25 years—where you all play the same tune, you all know the notes and it’s a perfect pitch every time it comes out,” Mr. Hayward said. The program’s 25th anniversary will be celebrated at a conference with the DUS lenders in May. Mr. Hayward had his own silver anniversary with Fannie Mae last year.

Originally from Philadelphia, and a graduate of nearby Widener University, Mr. Hayward worked at Germantown Savings Bank before joining Fannie Mae in 1987. Zach Oppenheimer, currently senior vice president of Customer Engagement at the agency, interviewed him at the time. From the start, he said that he recognized Mr. Hayward’s leadership qualities.

“He is very direct and very honest,” Mr. Oppenheimer said. “One of the attributes I found appealing when I interviewed him for his first job at Fannie Mae is his candor, his honesty. He is very straight, very direct.” And then: “He also has a good sense of humor.”

Mr. Oppenheimer added that moving from the single family division to the multifamily division, as Mr. Hayward has done in his career, is relatively rare, but that it can be very useful to learn all facets of the business. Hired as a senior MBS representative, Mr. Hayward initially planned to become a Wall Street trader. He quickly changed his mind and Fannie Mae became part of his life. In the 1990s he took roles such as vice president for Quality Control and Operations and vice president for Risk Management—moving between offices in Philadelphia, Washington D.C. and Chicago. Between 2004 and 2010, he served as a senior vice president of Community Lending, the predecessor of the current multifamily division.

From 2010 to 2012, he was senior vice president of the National Servicing Organization, which at the time had to deal with 1.1 million delinquent loans.

“I generally like the challenges of leadership,” he said. “What I like the most is an opportunity to work with people to achieve a set of goals.”

Challenges certainly still abound at Fannie Mae, which together with the other GSE, Freddie Mac, has been under conservatorship and run by the Federal Housing Finance Agency since September 2008. The GSEs have been pivotal in keeping the multifamily market alive during the crisis, providing up to 87 percent of the multifamily mortgages in 2009, from their historical average of approximately 40 percent. The trend shows that the market is slowly returning to normal. According to the most recent data from Real Capital Analytics, in the first half of 2012, GSEs accounted for 64 percent of all multifamily mortgage originations, down from 68 percent in 2011.

This share of the market could decrease further, following Edward DeMarco, the acting Director of FHFA’s, announcement that in 2013 Fannie Mae and Freddie Mac will have to shrink by 10 percent their business in the loan market for multifamily homes.

New York Attorney General Eric Schneiderman and Massachusetts Attorney General Martha Coakley are currently leading a nine state coalition calling for President Barack Obama to replace Mr. DeMarco, saying that such policies are an “obstacle to progress” for homeowners and the overall economic recovery.

However, many players in the business pointed out that banks, insurance and CMBS were already expanding their share of multifamily originations.

“I don’t think it has any impact,” said Alan Wiener, head of Wells Fargo Multifamily Capital, which in 2012 was the second largest DUS producer after Walker & Dunlop and closed deals such as the $450 million loan on Manhattan Plaza, a 1,689-unit affordable housing property at 400 West 43rd Street. The GSEs, Mr. Wiener said “are needed both in the single and multifamily side for consistency and liquidity. I think they have a segment of the market that is anywhere from 30 to 40 percent, and it’s important to the economy, particularly with the expanding number of rentals that the country needs, to have continue liquidity in the marketplace.”

Grace Huebscher, president and chief executive officer of Beech Street Capital, pointed out that the market was already going in the direction of a natural reduction of volume from Fannie Mae and Freddie Mac. On the other hand, she defined as “naïve” the idea that the market could do without the agencies, which, she said, are particularly important for “large and sophisticated transactions.” She added that they also provide liquidity in secondary and tertiary markets. Beech Street Capital, the third largest DUS producer, in 2012 closed deals such as the $70 million refinancing of The Gotham, an apartment building at 255 Warren Street in Jersey City, N.J., and the $42.5 million acquisition loan for Ventura Colony Apartments at 875 Weber Circle in Ventura, Calif.

On the other hand, Sam Chandan, president and chief economist at Chandan Economics, pointed out that there might be some risks. “There is a danger that we will see lending withdraw from smaller secondary markets that are already underserved and not from the markets that are flush with lenders,” he said. This could be avoided, he argued, with a different mandate for the agencies. “Although they are instruments of policy, they land in competition with banks and life companies. They can make an enormous contribution in supporting multifamily outcome if their mandate is narrowed to those segments of the markets that are underserved.”

Mr. Hayward doesn’t seem to see much risk. Fannie Mae’s mission, he pointed out, remains clear. “The charter of the company says that you have to provide liquidity to the market place. In any place where there is liquidity needed you need to be there,” he said. “And so just by carrying out the function that we were intended to carry out we are going to be providing financing in tertiary and secondary markets.”

The reduction of Fannie Mae’s multifamily financing footprint, he said, can be achieved “through how you price and how you set credit standards.”

A passionate fan of every sport, with a special love of baseball—as evidenced by a personalized baseball jersey that hangs on the wall of his office—Mr. Hayward recognizes the importance of team work.

“The biggest thing that I would like to happen in 2013 is that I want to make sure that this is still a great place to work, that we keep our staff excited about the work they do, and they understand that they are vital to the marketplace,” he said. “I want to make sure that I personally do everything I can do to live up to the standard of the company.”

apirolo@observer.com

As previously reported, Deutsche Asset & Wealth Management’s real estate investment business and real estate investor David Werner acquired the leased fee interest from Rockpoint Group and hotel operator Highgate Hotels for $325 million. The sellers will continue to own and operate the hotel.

(Credit: Rockpoint Group)

Rockpoint Group and Highgate Hotels bought the Milford Plaza Hotel for $200 million in 2010, according to public records. They have upgraded the rooms and the common areas. Last month, The Wall Street Journal reported that that the two entities were planning to sell the property in three parts—the ground lease, the 1,300-room hotel and the property’s retail space—for an expected $650 million.

Located at 700 Eighth Avenue between 44th and 45th Streets in the heart of the Theater District, the hotel was built in 1928. At the time, according to the hotel's web site, it was the largest hotel in New York. With 1,300 rooms, it still remains among the largest Manhattan hotels today.

“We are pleased to add this high-quality investment to our client’s portfolio,” said Todd Henderson, Head of Real Estate, Americas at Deutsche Asset & Wealth Management, in a prepared statement. “Acquiring the leased fee interest in a prime New York City location is expected to provide strong and durable long-term returns.”

Meridian Capital Group Managing Director, Abe Hirsch and Managing Director and Head of Equity Capital Markets Peter Steier negotiated the financing along with representatives of Eastdil Secured.

apirolo@observer.com

David Twardock

The Mortgage Observer: You’re retiring this month after over 30 years with Prudential. Have you spent your entire career there?

David Twardock: No, I had a two-year stint with Otis Elevator Company. I was an elevator salesman. The joke is that I went from one up-and-down business to another.

How did you move to real estate?

I was working on my MBA at the University of Chicago, because I wanted to transition into the real estate business. Prudential came in and interviewed [me] on campus in 1982. I was fortunate enough to get hired, thinking that I was going to work my way into the development side of Prudential. Prudential was one of the biggest real estate developers, if not the biggest, in the country in the early 1980s.

But you didn’t end up in development?

I never got that spot. Prudential had been out of the mortgage business, because interest rates were so high from 1979 until 1984. I spent the first couple of years buying buildings, selling buildings and managing assets. Then, in 1984, they decided they wanted to get back in the commercial mortgage business and they drafted me to be in that business. I was not happy with that. I wanted to be building buildings. I didn’t want to be financing them. It turned out to be the best thing that could have ever happened to me. It was a brand-new organization, nobody had had any experience doing this for five years and it gave me an opportunity to really step into a business area with Prudential’s brand and financial backing and do deals, as a really young guy. I was 27 years old and I was doing major deals in Chicago.

How did you move up within Prudential?

I ran the New York office from 1986 to 1989. Then they asked me to move to corporate headquarters in Newark and I started running about a third of the country for our lending operations. I had always wanted to get back to Chicago, and they sent me back in 1992. But three years later they said, “We need you back in New Jersey, and you’re going to be running a major business.” That was in the mid-’90s, and the first assignment that I had when I got back to New Jersey was to downsize our real estate operation by about 50 percent. It was really difficult.

Was it the most difficult time in your career?

Yes, that was the most difficult. Just because of the impact on people. It was half of the organization. Hundreds of people. But after that, the business sort of re-established itself and I was given the job of running the real estate equity business for Prudential’s on-book portfolio. We had about $5.5 billion of equities. At the time, John Strangfeld—who is now our chairman—was my boss, and we came up with a strategy to significantly reduce those holdings.

Anything particularly creative that you did?

We were one of the original investors in Strategic Hotels, which is now a major hotel company. We took our assets and, together with Goldman Sachs, we formed that company. We sold to Boston Properties some major assets—the Prudential Center in Boston, the Embarcadero Center in San Francisco, two of the sites at Times Square that they ultimately developed. We took back stock positions in Boston Properties as part of that. We sold our industrial portfolio to Meridian Industrial Trust, for a nice sale. We took back stock. Meridian later was merged into ProLogis and we got another nice return on stock after we sold it.

Can you talk about your role as a head of Prudential Mortgage Capital Company?

They brought me in to run PMCC in 1998. At the time, PMCC was an investment division, like a lot of life companies have. We were investing Prudential’s money, and we had the idea of trying to commercialize the business. And so we got capital; we formed a securitization conduit. We bought a company called WMF in 2000, which gave us a Fannie Mae DUS license and FHA and Ginnie Mae license. We consolidated all that and formed a servicing business in Dallas, which was new for us. The net of all that was, through the 2000s, we had more pockets of capital.

What was the difference between Prudential’s CMBS business pre- and post-2007?

We stopped the CMBS business in 2007. We’ve now formed a venture with Perella Weinberg [Partners] called Liberty Island [Group] that does that business, but in a different way. Before 2007, we did everything on our balance sheet. We originated it and we put it on our balance sheet. We hedged and we contributed to a securitization. It was completely a balance sheet-based business. With Perella Weinberg, they provide most of the capital for that venture, and it’s not on our balance sheet. We make a loan that goes on the venture’s balance sheet. We have a small economic stake in the venture, but much smaller, a fraction than what we had before. Our primary role is to be the operating partner for the venture. So we originate, we have the securitization team, we get paid more on fees and on the success of the venture that we do on any balance sheet business. This takes the risk off the table.

What are your plans after retiring?

At the end of March, it will be my last day in the office. I’m going to take six months and enjoy my sailing and my golfing and my outdoor activities, and then I’m not going to take another job, I’m just going to maybe do some board work and advisory work. But I’m going to own my own time, more than I do now.

apirolo@observer.com

Jamie Woodwell

The Mortgage Observer is among the over 2,600 attendees gathered at the Manchester Grand Hyatt San Diego for the MBA’s convention--a number of attendees that has increased since last year.

After years coping with the financial crisis and credit crunch, this year the general attitude at the convention is to “look forward much more than to look backwards,” Jamie Woodwell, vice president in the Research and Economics group at the MBA, told The Mortgage Observer. Investors, lenders and originators gathered in San Diego are “looking for opportunity for the coming years,” Mr. Woodwell added.

The positive mood was confirmed by the data unveiled on Monday, with originations for hotel properties and CMBS driving the overall increase.

From the fourth quarter of 2011 to the fourth quarter of 2012, the dollar volume of loans was up 331 percent for hotel properties, up 78 percent for office properties, up 49 percent for multifamily properties, up 46 percent for industrial properties, up five percent  for retail properties and down 26 percent for health care properties. Among investor types, over last year’s fourth quarter there was an increase by 228 of dollar volume for CMBS loans, by 68 percent for commercial bank portfolio loans, by 51 percent for government sponsored enterprises loans and by 18 percent for life insurance companies loans.

From the third quarter 2012 to the fourth quarter 2012, originations were up 99 percent for hotel properties, up 86 percent for industrial properties, up 57 percent for health care properties, up 48 percent for multifamily properties, up 44 percent for office properties and up 22 percent for retail properties. Among investor types--between the third and the fourth quarters of 2012--loans for conduits for CMBS increased by 141 percent, loans for government sponsored enterprises increased by 54 percent, loans for life insurance companies increased by 33 percent and loans for commercial bank portfolios increased by 32 percent.

Full year originations increased by 61 percent for hotel properties, by 36 percent for multifamily properties, by 19 percent for retail propertied, by 10 percent for industrial properties, by nine percent for office properties and by six percent for health care properties. From 2011 to 2012 loan originations for commercial bank portfolios increased by 51 percent, for CMBS by 45 percent and for government sponsored enterprises by 43 percent. Loans for life insurance companies were unchanged.

The MBA projects originations of commercial and multifamily mortgages will grow by 11 percent in 2013, up to $254 billion, and that these will continue to rise up to $289 billion in 2015.

“Low interest rates are prompting borrowers to finance, and improving markets are helping more deals underwrite successfully,” said Mr. Woodwell. “The relative strength of commercial and multifamily mortgages as investments continues to fuel lenders’ appetites.”

apirolo@observer.com

The bank is followed by PNC Real Estate/Midland Loan Services with $337.6 billion, Berkadia Commercial Mortgage LLC with $197.3 billion, Bank of America Merrill Lynch with $112.5 billion, and KeyBank Real Estate Capital with $101.2 billion. In 2012, PNC/Midland closed 36,848 loans with an average size of $9.2 million, while Wells Fargo closed 35,215 loans with an average size of $12.2 million.

The largest master and primary servicers of commercial/multifamily loans in U.S. CMBS, CDO and other ABS issues are Wells Fargo with $349.4 billion in servicing PNC/Midland with $122.7 billion, Berkadia with $86.8 billion, Bank of America Merrill Lynch with $77.2 billion and KeyBank with $63.4 billion.

The largest servicers for life companies are PNC/Midland with $35 billion in servicing, MetLife with $34.9 billion, Prudential Asset Resources with $34.4 billion, GEMSA Loan Services L.P. with $32.7 billion, and Northwestern Mutual with $23.7 billion.

The largest Fannie Mae/Freddie Mac servicers are PNC/Midland with $62.8 billion in servicing, Wells Fargo with $44.1 billion, Walker & Dunlop LLC with $27.9 billion, Berkeley Point Capital LLC with $24.7 billion, and Berkadia with $23.2 billion.

PNC/Midland ranks as the top master and primary servicer of commercial bank and savings institution loans; GEMSA as the top credit company, pension funds, REITs, and investment funds servicer; PNC/Midland as the top FHA and Ginnie Mae servicer; Wells Fargo as the top for loans held in warehouse facilities; and Berkadia as the top for other investor type loans.

apirolo@observer.com

Michael Stoler

With changes in estate taxes and the transferring of interests, coupled with the increase in capital gains and higher taxes set to begin this month, many of the local lenders had to postpone their holiday vacations to meet the year-end rush of financing.
In December, at holiday parties and other events, conversation often included mention of business having returned—almost as if we’re back in 2007.

Though the volume of financing definitely rose in 2012, it didn’t reach the CMBS levels of 2007. Wall Street investment bankers did not expect CMBS financing to rise by nearly 50 percent from 2011, reaching nearly $50 billion of new issuance. Investment sales—especially sales of retail assets—aided CMBS lenders in reaching this level of financing. The sale of Kings Plaza Mall in Brooklyn for $751 million, for example, was the largest commercial real estate sale of the year, as well as the biggest single trade sale in Brooklyn. Vornado Realty Trust’s 32.4 percent affiliate Alexander’s sold the property to the Macerich Co., which also entered into an agreement with Vornado to purchase the Green Acres Mall in Valley Stream, Long Island, for $500 million.

One of the largest financing transactions of the year took place in November, when a partnership that included Vornado Realty Trust completed the $950 million refinancing of the 2.1-million-square-foot office building at 1290 Avenue of the Americas. The 10-year interest-only loan bears interest at a rate of 3.34 percent.

REITs and other publicly traded real estate financing companies were instrumental in providing financing last year. In October, Starwood Property Trust and Starwood Capital Group announced the co-origination of a $475 million first mortgage and mezzanine financing for the acquisition and redevelopment of a retail building in Times Square at 701 Seventh Avenue—the Times Square Gateway Center. Later in the month, the entity sold a 25 percent participation in the financing to Vornado Realty Trust.

One of the most sought-out real estate investments in 2012 was residential real estate. Lenders from every avenue of the industry provided financing at record low rates, in many instances as low as 3 percent. Perhaps the largest residential financing took place in November, when New York State Gov. Andrew Cuomo, New York City Mayor Michael Bloomberg and U.S. Housing and Urban Development Secretary Shaun Donovan announced the closing of a $621.5 million loan to refinance Co-op City in the Bronx. The federal, state and city governments announced that their respective agencies had collaborated to jointly insure the mortgage loan made by Wells Fargo Bank, which will refinance the complex’s existing debt at historically low interest rates. Under the terms of the loan, Co-op City, which first opened to the public in 1968 and is the largest Mitchell-Lama co-op, will remain affordable to residents for 35 more years.

The Wells Fargo loan to RiverBay Corp., which controls Co-op City, is the largest ever insured under HUD’s 223(f) program. The program protects lenders against losses on mortgage defaults at multifamily rental properties. The Co-op City loan marks the first time the program has been applied to a co-operative development. The Mortgage Insurance Fund of the State of New York Mortgage Agency and New York City’s Housing Development Corp. will provide credit support, with $55 million and $15 million coverage of the loan, respectively.

Meanwhile, regional savings and commercial banks were very active in providing financing for multifamily rental properties in the region. Lenders—including New York Community Bank, Investors Bank, Capital One, Signature, Dime Savings Bank of Williamsburgh, Oritani Financial, M&T and Sovereign—helped to provide in excess of $20 billion in financing.
Joining the ranks of lenders in the multifamily financing market in 2012 were People’s United Bank and First Republic Bank. During their first full year of providing financing for commercial real estate, People’s United Bank provided nearly $300 million in financing. John Costa, executive vice president, who joined the bank in July, expects the bank to provide more than $1 billion in financing in 2013.

M&T Bank, one of the most active lenders in the market, reached its financing goals in 2012. “We were, and continue to be, active in providing financing to seasoned, established real estate investors,” Peter D’Arcy, regional president for New York City, told The Mortgage Observer. “And we provided both construction financing for rental and low-leverage condominium developments.”

Syndications of lenders—which included Bank of America Merrill Lynch, M&T Bank, Wells Fargo, Capital One, Sovereign/Santander and JPMorgan Chase—were active in club deals for major transactions that included residential rental and condominium developments in Manhattan, the outer boroughs and the Gold Coast of New Jersey.

And on the international front, foreign lenders like Westdeutsche ImmobilienBank, Eurohypo and ING Real Estate Finance (USA) reduced their exposure to financing (see Alessia Pirolo’s article on this subject on page 22). As The Mortgage Observer mentioned earlier this fall, taking over for the lenders that have left the market are new players on Wall Street and international banks from areas outside Europe, as well as insurance companies and real estate finance companies.
With the new year under way, all signs point to a continued increase in commercial real estate financings, and potentially even more cause for celebration when it comes time to close out this current year.

Peter D’Arcy.

The Mortgage Observer: How did you get started in the real estate business?

Peter D’Arcy: My start in real estate goes back to me joining M&T Bank right out of school. This is the only company I’ve worked for in my professional career. I graduated from Vassar College in 1995 and came to M&T in a management development program. Coming into the bank, I didn’t have a business background at all. At Vassar, I received a classic liberal arts education, and at the time M&T had a strong focus, though not exclusively, on recruiting liberal arts students—people who were good communicators and writers and who could synthesize thoughts.
I started out in our retail banking business, which I did for a year, and then joined a newly created business banking group, lending to small businesses. That was exciting and gave me my first real experience on the lending side. I also worked in our foundation and community reinvestment group here in the city in my first few years with the bank.
In 1999, I came over to work in our real estate private banking lending business. That’s where I really got involved in real estate financing. About four years later, I became a manager of our New York City commercial real estate department.
I grew up in the city in a Mitchell-Lama building and went to high school at Loyola here in Manhattan, and that has actually been really important to my working with real estate financing. I have a very good understanding of New York, from the infrastructure to the cultures of different neighborhoods. Knowing how the city has evolved and how blocks have changed helps me pretty much every day with most deals.

What was your biggest accomplishment in your first few years working in commercial real estate?

The biggest accomplishment was establishing myself in the role. As somebody who was newer to the clients and the business, I had to hustle a lot. I was young, so part of that meant overcoming youthful appearance and proving myself as someone who good operators in the city could count on to help them accomplish what they wanted to with the bank. When you’re dealing with credit, especially, it’s a very experiential job where you need to know what happens when things don’t work out as well as when they do, and you need to know people.

Last week you became regional president for M&T Bank’s New York City market. How did that opportunity come about?

When M&T decided to acquire Hudson City Bancorp earlier this year, that allowed us to fill a big hole in our footprint, since we don’t have much of an existing branch network in New Jersey. Hudson City’s branch network fits like a glove into our footprint. Now our exercise is to build out a larger commercial bank in that region over the next few years. Part of that upcoming challenge involves Gino Martocci, who has been working as a regional president in New York. He’s been promoted to area manager in charge of New Jersey, New York, Long Island and Westchester. I will report to him as regional president of New York City. That’s the genesis of this opportunity.

What’s the scope of your new role and how will your day-to-day responsibilities differ?

We have a portfolio of about $8 billion in the New York area, and that includes commercial real estate, middle-market lending, not-for-profit lending, health care lending and small-business lending among other specialty business lines. The largest component of that is commercial real estate lending. My new role is overseeing those businesses and our overall activities in the New York City market, including integrating them with our recently acquired Wilmington Trust activities.
I’ll still be involved in commercial real estate lending, because it’s such a large component of our business in this market. But I’ll step back from having a day-to-day focus and now have a broader focus on all of our businesses in the marketplace. With those other responsibilities, I won’t be in as many initial deal meetings in a supervisor capacity the way I was before.

How does the market for commercial real estate lending look now compared with two years ago?

There is more liquidity in commercial real estate now, and with more investors coming into the marketplace, there seems to be a corresponding increase in the number of banks willing to lend. There are also more projects in the pipeline at the end of 2012. A year or two ago, our competition was very thin. Now there are a greater number of banks actively participating in the market, but there still is not an overwhelming amount of capital available for anything other than stabilized deals. It’s nowhere near where it was in 2006 and the beginning of 2007.

What’s on the horizon with the recent acquisitions at M&T and the new roles for you and your colleagues?

In a nutshell, we have a really strong business in New York. Going forward, we want to focus on continuing to build our middle-market and specialty business lines like health care and private banking lending, so that’s something that’s in the works.
Middle-market and health care lending are core competencies of the bank in general, but have traditionally not made up a majority of our outstandings in the New York City market. But this is quickly changing as these businesses continue to grow and expand. We have a lot of existing traction in building these commercial businesses and tremendous upside, given the size of the regional market and the bank’s strong reputation in these business lines.

Ultimately, the borrower tapped Singapore-based United Overseas Bank, which in the last two years has been behind several large office loans in New York and hotel loans on the West Coast, but which was essentially a newcomer to the city’s hotel lending scene. UOB inked the deal during the same late November week when Bank of China closed a $465.9 million loan on the iconic Plaza Hotel, after having refinanced the Mandarin Oriental Hotel for $170 million earlier in 2012.

In the first half of 2012, international banks have become the leading hotel lenders in the United States’ major metropolitan areas—New York, Los Angeles, Chicago, Boston, D.C. and San Francisco. In fact, they accounted for 36 percent of hotel lending in the Northeast, according to data from Real Capital Analytics, a provider of commercial property information.

Trophy hotels have traditionally been appealing for international lenders, which take pride in showing off the beautiful, and oftentimes famous, assets. Once upon a time, though, those lenders were European. Today the makeup of international lenders has shifted, and Asian banks seem to be the ones leading the charge—not just for hotels, but for several other high-quality asset types as well.

“In general, what we’ve seen is that European banks have not been as active this year as they have been historically,” Mathew Comfort, executive vice president and co-head of the Hotel Investment Banking group at Jones Lang LaSalle told The Mortgage Observer. Mr. Comfort led the team representing Lehman Brothers in the On The Ave transaction.

First burned by the U.S. mortgage crisis and then pressured by increasing banking regulations and euro zone woes, European banks have been reducing their investment in the U.S. for several years now. To some extent, Asian lenders are filling the gap. But while this might be true for properties such as iconic hotels and office towers in New York, in other markets the story is less clear-cut, several analysts and commercial real estate players said.

“International banks are focused on trophy assets,” said Dan Fasulo, managing director at Real Capital Analytics, adding that Asian banks are particularly careful about their investments. Asked who will fill the gap left by German or Irish banks, Mr. Fasulo mentioned insurance companies and U.S. banks. He also noted that “CMBS lenders are back again, and even the regional banks.”

In the last two years, between the third quarter of 2010 and the third quarter of 2012, German banks’ outstanding loans held in U.S. branches dropped by 37 percent, to a total of $7.2 billion, according to CMBS and mortgage data provider Trepp. Eurohypo, the real-estate lending unit of Commerzbank, and Westdeutsche Landesbank are among the banks that completely left the market. Irish banks including Anglo Irish Bank, Allied Irish and Bank of Ireland soon followed suit.

“Commerzbank has in place a run-down strategy for its commercial real estate assets,” according to a written statement from Nils Happich, a spokesperson for the bank. The lender’s global portfolio was reduced by 33 percent, from 84 billion euros as of December 31, 2009, to 56 billion euros as of June 30, 2012, and it aims to reduce it by an additional 40 percent by 2016. Just last May, Eurohypo sold loans for $740 million on 14 properties across the United States—including the retail component of the ultra-luxurious condo 15 Central Park West—to Wells Fargo, Blackstone and U.S. Bancorp.

“In the United States, our CRE portfolio has already been decreased from 5 billion euros as of December 31, 2009 to 2 billion euros as of June 30, 2012,” Mr. Happich continued in the statement. “We will continue our run-down strategy in the next years.”

Increasing regulations from national governments, the Basel III rules—which will require banks to hold more capital against loans secured on commercial property—and a still precarious euro zone situation have collided to create an uncertain future for European lenders. Four years after Lehman, the U.S. sees “the end of lending crisis,” asserted Mr. Fasulo, “while Europeans still have many innings to go.”

However, there are some exceptions. The most obvious is German giant Deutsche Bank, which has a significant CMBS program and, according to Real Capital Analytics, was involved in sales and refinancings totaling $11.6 billion in 2012, up from about $5.4 billion in 2011. The $300 million refinancing of Extell Development’s International Gem Tower and a $250 million acquisition loan on the office building Bank of America Plaza at 540 West Madison in Chicago are just a couple of the bank’s latest deals.

Some much smaller players such as Germany’s Helaba, Aareal Bank and DekaBank have been active as well.
DekaBank, “in Frankfurt, is primarily a fund manager,” explained David McNeill, the head of Deka’s New York branch. He added that its lending portfolio of about 7 billion euros overall and $3 billion in North America is relatively small.  “We cover New York, Boston, D.C., L.A., San Francisco and Seattle,” Mr. McNeill said. “Because we are small, we are very focused and targeted, using typically the highest-quality sponsors. Our product types are offices, primarily, and retail and hospitality.”

Last fall, Deka jointly funded a $364 million loan with HSBC on 1411 Broadway for Ivanhoe Cambridge. “We try to do between $500 million and $1 billion in gross origination, before syndication,” Mr. McNeill said. “We are not looking to materially grow our real estate portfolio. We are looking to maintain it and grow slightly.”

Asian lenders share a strategy that’s focused on specific assets. “German and Irish banks were all over the place—they financed a lot of different properties,” said Andrew Jagoda, co-chair of the New York real estate department at law firm Katten Muchin Rosenman, who works with many international clients. Not so Asian lenders. “They are very, very carefully making selective loans.”

Even though the activity of Asian lenders in the U.S. has been increasing, it's still not at the level of the Europeans. Between the third quarter of 2010 and the third quarter of 2012, banks from China and Hong Kong increased their outstanding loans held in U.S. branches by 92.7 percent, while banks from Singapore increased them by 90.4 percent, according to Trepp. In two years, there has been a $3 billion increase for China and Hong Kong banks and a $700 million increase for Singaporean banks. But when totaled, these increases don’t reach even half of the $7.2 billion decrease in outstanding loans for German banks over that same time frame. At the end of the third quarter of 2012, German banks’ outstanding loans in the U.S. were $12.2 billion. At that time, the outstanding loans by Chinese banks in the U.S. totaled $6.1 billion.

Riaz Cassum, a senior managing director of HFF who is responsible for the group’s Global Capital Initiative, is among those who forecasts greater activity for Asian banks down the road. “We expect them to be more active,” he said, though he was quick to point out that, for now, “Bank of China is particularly focused on Manhattan high-quality office towers with long-term loans, not across the U.S.”

Last spring, Bank of China obtained the Federal Reserve’s approval to set up a branch in Chicago, which could theoretically lead to an expansion of its focus, said Jones Lang LaSalle’s Mr. Comfort. There is also room for other players. “Some government-owned Chinese banks have started to look around,” he said. Mr. Cassum foresees Asian insurance companies being future newcomers in the lending market. “Korean insurance companies are looking to do more lending,” he said. “The regulations in China don’t allow insurance companies to make real estate loans outside the country,” but, he said, this is likely to change in the next two to four years.

“You’ll see Asian banks becoming bigger, especially Chinese,” said RCA’s Mr. Fasulo. However, he warned against overestimating the impact of small German banks leaving. “We don’t feel the impact,” he said. “CMBS will continue to grow, as well as a crowd of other lenders, like debt funds.”

While on a visit to the offices of a German bank in Hamburg, Mr. Fasulo was struck by how the lobby’s walls were covered with postcards of the famous U.S. buildings for which the lender had provided loans. So now he thinks of the trophy hotels and office towers chased by international banks as “postcard assets.”

“European banks can’t go away for ever,” Mr. Fasulo asserted.  With a U.S. market that remains the world’s strongest for commercial real estate, Mr. Fasulo thinks that the appetite for these “postcard assets” will keep European lenders in the mix—to keep their literal and figurative lobby walls covered in these postcards.

apirolo@observer.com

Gawker Logo.

Sources confirmed that the New Rochelle-based S.W. Management, which is run by Stanley Wasserman and sons Alan and Mark, acquired the four buildings from Ozi Management for $45.2 million. The buildings are located at 198-200, 202, 204-206 and 208-210 Elizabeth Street. The acquisition was financed by Deutsche Bank.

For almost five years now, Gawker has had its home on the top floor of the four-story 208-210 Elizabeth Street. The building has 15,000 square feet of office space and 5,000 square feet of retail.

Among the other properties included in the portfolio, 204-206 Elizabeth Street boasts a four-story, 15,000-square-foot office building, where the seller, Ozi Management, occupies an office space. The other two properties, which are both six stories and total approximately 15,000 square feet each, are mainly residential buildings.

apirolo@observer.com

32-36 Bleecker Street.

The family-run storage company Globe Storage & Moving sold the 61,000-square-foot property at 32-36 Bleecker Street for $45 million to a joint venture that includes Stillman, said Globe president Richard Cibrano. Last July, the city Landmark Preservation Commission approved Morris Adjmi Architects’ proposal to turn the property into a 19-apartment building. The plan includes the construction of two rooftop additions and the removal of modern alterations to the building.

Deutsche Bank provided an $84.6 million loan to finance the purchase and conversion. The bank and the buyer declined to comment on the deal.

The Romanesque revival-style factory was designed by architect Edward Raht and built in the 1880s for Schumacher & Ettlinger’s lithography business. For most of the 20th century, the building was used as a warehouse, mainly by paper-supply companies. Globe Storage and Moving moved in as a tenant in 1975 and bought the building in 1984.

Mr. Cibrano recalled that at the time, the area was not a very pleasant place to be. “Now it has become a sort of upscale residential area, one of the hottest areas in New York,” he said. Mr. Cibrano added that the conversion is due to bring the façade of the building back to its original appearance. “It will look like it looked 100 years ago.”

Iris Rossano, a broker with Besen & Associates, and Casey Cutler, CEO of Cutler Cos., represented the buyer in the transaction. Nancy Cibrano represented the seller.

“It’s a truly architectural gem, for which a conversion into a luxury condominium is unequivocally the highest and the best use,” said Ron Cohen, chief marketing officer at Besen & Associates. “Our firm has previously sold this developer two other sites which resulted in world-class condo projects. We are truly excited to see what he does with this latest project.” In Manhattan, Stillman Development built Philip Johnson’s Metropolitan Condominium and I.M. Pei’s The Centurion. It is expected to tap another renowned architect for 32-36 Bleecker Street.

According to data from Street Easy, the current median asking price per square foot for condos in Noho is $1,473, higher than the median asking price in all of Downtown, which is $1,311.

apirolo@observer.com

450 West 15th Street.

The eight-story, 325,000-square-foot office building bordering the High Line is commonly known as the Milk Studios building, from the photography studios that are based there. Other tenants are global healthcare communications agency Chandler Chicco and fashion companies Mulberry and Tod's. Giorgio Armani will move into the space which is currently occupied by auction house Phillips de Pury & Co.

The fashion house is moving out of 114 Fifth Avenue after 22 years. The Commercial Observer previously reported that Armani Exchange is leaving its offices at 111 Eighth Avenue, a property that Google owns and largely occupies.
By then, the building's landlord could be different. The current owners, Rockpoint and Stellar Management, are said to be close to selling the property to Jamestown Properties, the owner of the Chelsea Market, for $300 million.

Cushman & Wakefield, which represented Giorgio Armani in this deal, declined to comment on the transaction. Giorgio Armani’s media representatives and the landlord’s broker, Newmark Grubb Knight Frank, did not return calls requesting  comment and the amount of the rent has not been disclosed.
apirolo@observer.com

49 West 27th Street.

Founded in 2011 by then-Columbia University students Zach Sims and Ryan Bubinski, the company offers an online interactive platform teaching subscribers programming classes like Python and Javascript and markup languages including HTML and CSS.

About 200,000 users subscribed to the website within the first three days of its launch. The company raised $2.5 million in November 2011 and another $10 million this past June. In January, a major boost arrived from Mayor Bloomberg who tweeted that he had become a Codecademy student, as a new year’s resolution.

Before leasing the new space, the startup was based in AOL’s office at 670 Broadway, where Mr. Sims used to be an intern. “Now they are expanding, they are going to hire a lot of people,” said Bernard Weitzman, senior managing director of Newmark Grubb Knight Frank who represented the tenant.

“We looked at a lot of places, we even considered Downtown,” Mr. Weitzman said.

The choice of 49 West 27th Street was partially motivated by financial considerations. In a location “just slightly north of the epicenter of Midtown South,” the office is “less expensive” than others located farther south and overall an “economic deal,” said the broker.

Among the most interesting features of the new spaces are exposed bricks, wooden floors and archways.

apirolo@observer.com

The company has inked a four-year lease on a 5,449-square-foot, pre-built suite with landlord W&H Properties. Asking rent was $48 per square foot.

501 Seventh Avenue.

Created about eight years ago and headquartered in Glendale, Calif., nuvoTV currently reaches more than 30 million homes. It was the first cable network to air an English-language sitcom with an all-Latino cast and creative team, Nickelodeon’s The Brothers García. Recently it partnered up with Jennifer Lopez who will appear in the shows of the networks and manage marketing and program production with her production company, Nuyorican Productions.

The New York office of nuvoTV is moving just a few blocks south, from its current space at 450 Seventh Avenue between 34th and 35th Streets to 501 Seventh Avenue, which is located between 37th and 38th streets.

“You wouldn’t have seen media firms such as nuvoTV moving to the area surrounding the Broadway Office Corridor even a few years ago,” said Anthony Malkin, president of Malkin Holdings, which supervises W&H Properties.  “But the neighborhood has been transformed into a vibrant 24/7 office destination, recognized for its exceptional convenience.  Those factors, combined with the multi-million-dollar upgrades W&H has carried out at 501 Seventh Avenue and the other four buildings in our Broadway Office Portfolio, are attracting a wide range of media and other creative firms to our tenant rosters.”

Jamie Katcher of Cushman & Wakefield represented nuvoTV in the lease negotiations.  Harry Blair, Sean Kearns, and Kelli Mekles of Cushman & Wakefield represented the landlord.

apirolo@observer.com

Empire State Building.

Originally, in 2011, LinkedIn leased 32,000 square feet of the Empire State Building, comprising the entire 25th floor of the building. This past July, it announced the intention to add 10,000 square feet on the 24th floor. Since then, though, LinkedIn reevaluated its needs, a spokeswoman with Malkin Holdings, which supervises the Empire State Building, told The Commercial Observer. Instead of adding just 10,000 square feet, LinkedIn chose to take another full floor, where it is scheduled to open new offices in late 2013.

Founded in 2002, as of September 30, 2012, LinkedIn has 3,177 full-time employees located across the globe.

“Clearly our location helps attract and retain key employees,” said Anthony Malkin, president of Malkin Holdings.  “Our amenities, convenient location, leadership in energy efficiency, state-of-the-art building systems, and attentive, proactive management make the building a great solution for leading businesses.”

Sacha Zarba, a broker at CBRE, represented LinkedIn, William Cohen and Ryan Kass, brokers at Newmark GrubbKnight Frank, represented the building in this deal.

apirolo@observer.com