Steve Witkoff.

His partner, Scott Alper, and his personal assistant each stopped by the room twice to remind him about various appointments on his schedule, and Mr. Witkoff bounced between conversations about meeting an inspector in the city the next morning, picking up a friend of the family on his way home, heading down to Florida the following Monday to take care of more business before “hitting some golf balls” and the best way to approach potentially sensitive questions.

Mr. Witkoff, 56, has stayed active in the New York and Miami real estate arenas, among others, through their respective ups and downs. Not only as an owner, operator and leaser of high-end properties, including 1745 Broadway, 10 Madison Square West and the landmark Woolworth Building, but also as a developer who continually oversees new construction projects, from legal and safety compliance to financing each development through its various phases.

Several of those construction projects have been notable not only for their scope but also for what they represent: the return of successful financing for high-profile condo construction, at least for the right borrower and the right project.

Condo construction financing in New York City hit a brick wall during the economic downturn and has rebounded only for top-ranking developers, such as Mr. Witkoff and Gary Barnett, whose Extell Development Company is behind One57.

And with relationships key to getting deals inked, the Bronx-born Mr. Witkoff proudly boasts about putting deep relationships with his lenders above all else. Those lenders include M&T Bank’s John Cook, Gino Martocci and Peter D’Arcy, as well as Wells Fargo’s Alan Wiener and Michael Kaczynski, whom Mr. Witkoff calls “dear friends.”

“We do business with other banks too, but we’ve invariably done more of our business with Wells and M&T because we enjoy that relationship,” he told The Mortgage Observer on a cool spring evening on the 15th floor of 130 East 59th Street. “They do what they say they’re going to do and we try to return the favor. In fact, we try to return the favor even more.”

M&T and Wells Fargo provided the bulk of the construction loans for 150 Charles Street in Manhattan’s West Village, which the Witkoff Group originally purchased in 2004 and secured construction financing for at the end of 2012. Mr. Witkoff had gone through a previous round of loan negotiations in 2007 before the project was stalled, he said.

The project hit several road bumps along the way, beginning with the financial crisis and followed by protests and a lawsuit by neighbors who alleged that the Witkoff Group had torn down an on-site building it was supposed to expand rather than destroy.

That lawsuit was later dismissed.

Construction on the luxury condominium is now finally under way and slated for completion in the final quarter of 2014. The 16-story brick-and-glass building is set to include 40,000 square feet of outdoor space with a courtyard garden, valet parking and a 75-foot lap pool lined with mosaic stone. Market prices range from $3 million to $6.5 million for one- and two-bedroom units and between $6.5 million and $9 million for three-bedroom units. A five-bedroom, five-and-a-half-bathroom penthouse is on the market for $35 million.

“The sales office we built down there was as much for the buying public as it was for our bankers,” said Mr. Witkoff. “We wanted to say to them, 'Look, you lent us $230 million in the construction loan. Look at what we’re creating here.'”

M&T and Wells Fargo, along with PNC, are also in the final stages of negotiations to provide a $234 million loan for the former International Toy Center-turned-luxury condominium at 1107 Broadway in the Flatiron District, which the Witkoff Group purchased in 2011. The developer is in the process of expanding the 16-story building, rebranded 10 Madison Square West, adding six additional floors on top as well as a yoga studio, fitness center and 60-foot pool.

The drop-off in financing for such projects is a well-documented chapter in the economic downturn's impact on commercial real estate lending in New York City and elsewhere.

Between 2007 and 2012, there were virtually no construction loans from commercial banks for new condo developments as construction financing “effectively dried up,” said Jonathan Miller, president and chief executive of the real estate appraisal firm Miller Samuel Inc. As the lending market for condo construction in the city shows signs of improvement, nearly all of the latest developments in the works, including 150 Charles Street and 10 Madison Square West, are at the top 10 percent of the market, he said.

“There are a lot more condo developments in the pipeline over the next two years,” Mr. Miller said. “But the types of projects being lent on now are far different than what we saw during the last boom. I like to say 3,000 is the new 1,500, in terms of square footage. The majority of new condo developments in New York are all varying degrees of luxury pricing, which starts at around $3 million a unit. The reason for that, primarily, is because land prices and construction costs right now only make it feasible to go after the upper end of the market.”

This recent trend of luxury condos being in the works doesn’t mean that the banks only want to lend at the upper end of the market, Mr. Miller noted. “That’s just what they’re being presented with,” he said.

Peter D’Arcy, regional president for the New York metropolitan area at M&T Bank, acknowledged that financing for non-luxury condos is still hard to come by, though smaller banks and nonbank lenders are coming in to fill the void. “A greater number of banks are open to financing condo deals today,” Mr. D’Arcy, who played a key role in helping finance 150 Charles Street, told The Mortgage Observer. “The larger, more established banks are still sticking to the name-brand developers, but 2013 has seen smaller banks increase the overall money available to finance condos.”

Mr. Witkoff, who owns about 30 properties in the United States and London, once had a strong financing relationship with Lehman Brothers, among the other big lenders he works with today. But that relationship ended when the financial giant filed for bankruptcy in 2008. The connection with M&T and Wells Fargo proved to be longer-lasting.

“When you’re dealing with familiar faces, you know they’re going to be there at the closing table and if, God forbid, there’s a glitch along the way, you know you can talk to them,” said the developer, whose sociable nature is expressed without the aid of a computer. His office, in fact, doesn’t have one, and he uses a BlackBerry for business and personal calls and emails. An iPad he owns sits somewhere, unused.

Mr. Witkoff’s relationship with M&T goes back to the early 1990s, a few years after he and his partner at the time, Laurence Gluck, left their lawyer jobs at the former New York City firm Dreyer & Traub and dove headfirst into the real estate business. Back when the two took regular trips to Harlem and Washington Heights and Mr. Witkoff wore a licensed handgun on his ankle for protection, M&T helped finance some of their first residential purchases in upper Manhattan.

“In the early days of us operating, every time we went in for a loan, it was another ‘proctology’ report and interview on how we were going to do things,” Mr. Witkoff said with a laugh. “The president of M&T’s New York City division at the time was John Cook, and I remember walking into his office sometime around 1996, when we were buying 1 Broadway for $15 million.”

“Back then we didn’t have the kind of liquidity we have today, and that’s just the way it was,” Mr. Witkoff remembered. “Everything was a question, and at times that was frustrating—but it was fair.”

Mr. Cook, 71, still works at M&T as an executive vice president and chairman of the mortgage committee of the bank’s New York City advisory council, which approves its commercial mortgages for the metropolitan area, including the ongoing stream of deals from the Witkoff Group. The M&T veteran acknowledged that he took an almost paternal role with Mr. Witkoff in the first few years of his real estate career.

“I was always telling him in the early going, ‘You’re pretty leveraged here, you should pull something off the table on every deal and put some real liquidity away so that you can feed a building if it gets underwater,” Mr. Cook remembered. “Now when I see him, he says, ‘Hey John, my liquidity’s over $70 or $80 million.’ He can’t resist reminding me of that.

“When Steve and Larry split apart, Larry took most of the residential stuff, while Steve took most of the office stuff and later diversified into other forms of real estate, including residential construction and rehab.”

In 1999, after Mr. Witkoff had become well accustomed to “putting real liquidity away,” Mr. Wiener of Wells Fargo and the late Bernard Mendik, former chairman of the Real Estate Board of New York, asked him to join the executive committee of REBNY.

“I remember Bernie and Alan coming to me and saying, ‘You know you’re doing good things, and you’ve got to give back. We need young representation on the executive committee, so we’d like you to consider coming on board,’” said Mr. Witkoff. “These guys were icons to me, so my immediate response was, ‘If you’re asking, I’m honored and privileged. How could I say no?’

“A year or two later, I joked with Alan and told him, ‘Now I figured it out: you got me into this thing, but this was all about getting another checkbook to write charitable and political donations.’ Of course, I couldn’t say no to that either.”

When asked about that jovial conversation, which had taken place at point when New York’s real estate market was in one of its primes, Mr. Wiener laughed at the thought, but said his professional appreciation for Mr. Witkoff went beyond his liquidity.

“Steve is incredibly knowledgeable about the market, he knows when to pull back, and he doesn’t overpay for things,” said Mr. Wiener, group head of Wells Fargo Multifamily Capital. “Wells Fargo is attracted to doing business with both him and Scott Alper because they’re good at what they do and they’re very hands-on, yet they don’t try to do too much at the same time. There are a lot of people in the business that don’t know what they’re doing,”

In Miami, Mr. Witkoff mingles with a different group of lenders than his old pals in the tristate area. The Witkoff Group recently began construction on a Hilton Cabana hotel on the northern end of Miami Beach that it partnered on with Highgate Holdings and real estate private equity firm Rockpoint Group and financed through a $40 million loan from Ladder Capital.

Mr. Witkoff and his team also recently purchased the former Wyndham Garden Hotel in Miami’s South Beach with the Carlyle Group, financed through a $25 million loan from UBS, as well as a large office building in Downtown Miami with Highgate, financed through a $50 million loan from Deutsche Bank.

“The Miami financing market is much more inefficient than New York’s,” Mr. Witkoff noted. “There are significantly less lenders operating down there, even today. Three years ago there were way less, maybe two or three. Also, you can’t get the type of good pricing in Miami that you get here.

“There’s a perception that New York real estate is a lot more secure and that the market is more liquid and trades more easily, and it does. But the Miami marketplace is coming on pretty good, and I think when the banks do come in there and it does get more efficient, it’s only going to lead to further uptick in valuations.”

As the evening wound down and most of the New York office cleared out, Mr. Witkoff received a call from one of his business partners in Florida. He spent several minutes going over various project details to prepare before he flew out to Miami the following Monday. As with many of his day-to-day conversations, the business talk quickly turned to casual banter about golf, the weather and their respective families. The call carried on for about eight minutes, but Mr. Witkoff hadn’t lost his focus on the other conversation at hand when it wrapped up.

“It’s not that M&T and Wells Fargo refused anything I did down there; I just didn’t think to ask them,” he said after putting down his BlackBerry. “I didn’t get the feeling that that was something they had an appetite for. But I recently talked to Alan and Mike Kaczynski and the M&T guys, and each of them has said to me, ‘If you see things down there, we want to see them too.’”

The head of arguably the most embattled U.S. retailer was probably an odd choice all along for the event, which takes place May 19 through 22 in Las Vegas.

Ron Johnson.

But now news that the former Apple retail chief is out at the company after just 17 months has left a hole in the program for May 20, when Mr. Johnson was scheduled to deliver the keynote address.

“Last year they got Joan Lunden because Chuck Todd had a last minute conflict,” one source told The Commercial Observer. “They’ve had stuff like this happen before, where there is a last minute cancellation.”

In this case a solution was closer at hand.

“We moved Randi Zuckerberg into his slot and cancelled the general session that she was scheduled at,” a spokesperson said. Ms. Zuckerberg, big sis to Facebook founder Mark Zuckerberg and a former Facebook marketing director, is founder and creative director of Zuckerberg Media. She had been scheduled to speak at a general session the following day.

Asked about whether Mr. Johnson had been a strange choice all along for the event, which is expected to draw 30,000 attendees, the ICSC spokesperson indicated that adversity can be a selling point.

“It’s still incredibly interesting to hear from retailers about how they’re trying to run their business in this economy,” he said. Indeed.

Sales at JC Penney dropped 25 percent during Mr. Johnson’s tenure and on a February 27, 2013 Q4 2012 earnings conference call he took responsibility for at least some of that.

“Experience is making mistakes and learning from them, and I have learned a lot,” Mr. Johnson said on the call. “We worked really hard and tried many things to help the customer understand that she could shop any time on her terms. But we learned she prefers a sale.”

cgaines@observer.com

A previous CMBS loan on the building had an outstanding balance of $215 million. Originated back in May of 2006, it was set to mature in June 2013, according to data from Trepp.

120 Broadway.

At least one other bank—Bank of America—bid on both a CMBS and a balance sheet loan for the building, which is owned by Silverstein Properties and joint venture partner UBS Realty Investors and is known as the Equitable Building. At 40 stories and 1.8 million square feet, the building was once the world’s largest office building.

Silverstein Properties has owned 120 Broadway since 1981. UBS Realty Investors acquired a partial interest in 2011 from CalSTRS, which sold a 65 percent stake. Current tenants there include the Alliance for Downtown NY, ALM Media, N.Y. Law Institute and New York Life Insurance Co.

This most recent CMBS loan has a term of seven years and was brokered by Eastdil Secured. None of the parties involved returned phone calls seeking comment.

cgaines@observer.com

The Mortgage Observer: How did you get your start in the industry?

Steve Kohn: My first job in real estate was with Reliance Development Group, which was a subsidiary of Reliance Insurance in Philadelphia. The president of Reliance Development Group was a gentleman named Henry Lambert, who still is very active in real estate here in New York City. He hired me, and I actually worked for his other business—he had a food business called Pasta & Cheese. I worked for the summers at Pasta & Cheese, and then when I graduated college, I knew that he had a big job in real estate.

What were you doing for him?

Steve Kohn.

I was working on a development project in Center City, Philadelphia, which was just under construction when I started there.

And Sonnenblick Goldman?

I joined Sonnenblick Goldman in 1996. I was a managing director, and I became president in 2000.

Once Cushman & Wakefield acquired the remaining interest, were you hired into your current position?

Well, I was already with the company, so they bought the company and I came with it. I wasn’t really hired again. I was president at Sonnenblick Goldman and became president of Cushman & Wakefield Sonnenblick Goldman—just kind of a continuation, but with different ownership.

What types of deals are you working on the most now? Are you doing lots of refinancings? I know that you worked on 71 Smith Street and 100 Church Street ...

... and 1 Court Square in Long Island City. Yeah they’re all different, so our group, what we do is actually what our name is. We raise debt and equity financing. And when I say equity financing, that’s really arranging joint ventures between investors and owner-operators and developers who require equity capital. Or it could also be a joint venture between two large investors, and we arrange debt financing, which could be either acquisition loans, construction loans, refinancing permanent loans, mezzanine loans, etc. So it’s arranging all types of financing. And I also work very closely with the investment sales team here in New York on New York investment sales.

When you arranged $230 million for 100 Church Street last summer, you said it was one of the most competitive deals you had worked on recently. And now?

They’re all competitive now. That was a little earlier. Right now the debt market is so liquid and flush with cash and demand for mortgages that right now almost everything that we’re working on is very competitive. Lenders—whether CMBS lenders or life insurance companies or U.S. and offshore banks—it’s a very competitive lending environment right now. And the loan sizes have gotten larger, too.

Is the equity side equal to the debt side in terms of the time you spend working on each?

Yes I would say it’s probably about equal. It varies year to year.

What’s your outlook for the rest of the year? 

Clearly I’m very optimistic about New York. I think there are still parts of the country that are lagging—some of the secondary and tertiary markets. But most of the major markets, which would be Boston, New York, D.C.—well, D.C.’s a little flat right now, for obvious reasons—San Francisco and L.A. and Seattle—which kind of goes in and out of that top five markets—I’m very optimistic [about]. We see corporate earnings have been pretty strong; it looks like we’ll have low interest rates for at least another year or two based on everything you read. There hasn’t been much new construction to create supply problems, so I’m fairly positive. We obviously would like to see more jobs created beyond New York.

What do the secondary and tertiary markets need? A robust CMBS market?

Well that certainly helps, but at the end of the day, you still need job growth, job retention. Some of those markets will have it, for example like Austin, Texas, which is performing very well. Other markets may not have the type of industry that’s growing right now, and it’s going to be a little slow for a while. What happens is that they start to attract capital, as the primary markets get so expensive. Sometimes those markets have to wait until that happens.

What makes the services that you provide on the debt side different?

I’m not sure that it’s different. There are many good firms out there. We’re certainly one of the top firms, in my belief. I think what makes us different than some is that having the ability to draw on some of the other groups within Cushman & Wakefield gives us tremendous advantage.

You work with all different lenders?

Life insurance companies, banks—both domestic and offshore—conduits, finance companies, mortgage REITs. We’re kind of indifferent as to where the debt gets placed. We just want to get the best terms we can get for our clients. There are some firms that represent lenders, but we don’t do that, because we feel that’s a bit of a conflict.

Any of those lenders pulling ahead?

CMBS is definitely growing more rapidly than the others. Banks seem to be in more of a 50 percent range of the market, and then the balance seems to be split between CMBS and the life companies. That’s where you see some movement.

cgaines@observer.com

People in the commercial real estate finance world are left scratching their heads, intrigued as to why lenders are offering such amazing loan rates for financing.

Ronnie Levine, a managing director at Meridian Capital Group, told The Mortgage Observer that doing the math helps make the low rates make sense for lenders.

“Even though the rates for financing are low, the banks are earning considerably higher returns based upon the cost of funds,” Mr. Levine said.

Mr. Levine’s assertion was echoed by the executive vice president of a commercial bank, who, preferring to remain anonymous, pointed out that spreads to comparable Treasuries are above 200 basis points. “Several years ago, lenders were lending at spreads to Treasuries of less than 100 basis points,” the person said. “They are making considerably higher returns in 2013.”

While rates are at record lows, industry leaders are worried that banks might be under pressure to meet budgets for loan production, while reducing the level of due diligence and underwriting. This was the concern of a chief lending officer for a local financial institution who also requested anonymity.

“Way back in 2007—first interest rates went to record lows,” this executive told  The Mortgage Observer. “Now borrowers are trying to gain on the structure of the loan, which includes interest-only, lack of covenants and underwriting at lower criteria.”

Nevertheless, lenders are being offered the opportunity to finance high-quality multifamily residential real estate with very low loan-to-value and, in certain instances, debt service coverage of nearly two to one. For example, an owner of a prominent residential rental property near the Metropolitan Museum on Fifth Avenue secured a 10-year fixed-rate financing, interest-only, at a rate of 2.95 percent.

Banks are fiercely competing for business, lowering rates for prime properties. Many of the leading lenders in the arena are offering five-year fixed-rate financing ranging as low as 2.75 to 3 percent. Some regional banks that are interested in gaining market exposure are offering interest-only loans for one to two years and capping legal and appraisal fees.

Fannie Mae and Freddie Mac are competing with the local banks, offering attractive rates and terms. Fannie Mae is actively marketing a 12-year loan with a current rate of about 4.5 percent. Insurance companies are offering long-term rates and are in competition with CMBS and conduit lenders.

No one wants to lose market share, especially the established leading multifamily lenders, which include New York Community Bank, Capital One, Signature Bank, Investors Bank, Sovereign Bank, Chase Commercial Term Lending, M&T Bank and TD Bank.

Accordingly, regional savings and commercial banks that have been active in this arena for a number of years are also lowering rates to meet the competition. These include Astoria Federal, Dime Savings Bank of Williamsburgh, Ridgewood Savings Bank, Flushing Bank, Oritani Bank, Intervest National Bank and Amalgamated Bank.

Adding to the competitive landscape are the new players, or lenders that have become active in the market. These include Apple Bank for Savings, People’s United Bank, Bank Leumi, Popular Community Bank, Mercantil Commercebank, First Republic Bank, BankUnited (formerly Herald National Bank), Provident Bank of New York, Provident Bank of New Jersey, 1st Constitution Bank and Customers Bank of Pennsylvania.

Because rates are so low and the market is so packed with lenders offering unbelievable rates, borrowers are busily negotiating prepayment rates with their existing lenders to refinance at lower rates. And this is causing banks to accept lower prepayment rates in order to keep loans on their balance sheets.

It is definitely a borrower’s market today, with borrowers clamoring to seize the opportunity to lock in long-term financing ranging from five to 10 years.

Urban American CEO Philip Eisenberg perhaps summed it up best, adding his own words of advice on the trend.

“In the two generations that my family has been in business, we have never [seen], nor do [we] expect to see, rates at these record lows,” Mr. Eisenberg said. “Therefore, take advantage and refinance your properties.”

Sam Chandan.

Higher CMBS volume is welcome news for underserved segments of the market. But an abrupt resurgence in activity, however long in coming, carries dangers of its own. Feeding an increasingly esurient deal pipeline will require that conduit lenders cede ground on the relative conservatism of their underwriting. Rising expectations for issuance implies a larger number of qualified borrowers. But it also implies that the scope of conduit activity will broaden to capture a wider range of lending opportunities. In some segments of the market, that process is well under way. Even with more information at their disposal, investors are only marginally better equipped to gauge the attendant risks.

While life companies have garnered attention for the rapid growth in their market share and the visibility of their largest loans, national, regional and community banks are still the mainstays of property finance. Bank lenders account for the majority of commercial real estate mortgage lending, but they cannot serve the market by themselves. Where the viability of CMBS as a competitive alternative depends largely on the bond market, banks’ capacity for growth is tempered by the size of their capital base and an uncertain regulatory outlook.

Notwithstanding their constraints, improvements in bank lending have been increasingly widespread. As default rates on legacy balance sheets have fallen, reflecting dilution as well as troubled debt restructurings, more banks have re-engaged. Banks’ net exposure jumped more than $20 billion in the fourth quarter of 2013, indicating that a majority of institutions with significant exposure to commercial real estate increased and expanded their balance sheets.

The bisection of old and new is not as clean on the balance sheet as it has been for securitization. Across the board, default rates on legacy loans are significantly lower for banks that increased their net lending in the fourth quarter. That correlation reflects a more navigable supervisory relationship for less encumbered banks. It also captures the fact that investment conditions are very likely stronger in markets where distress levels are declining.

More stable bond markets have been crucial to the improving CMBS outlook. If exogenous shocks from sovereigns or corporate bonds force spreads wider, CMBS activity could falter again. But with a positive baseline projection, a more diverse group of potential B-piece buyers has emerged at the bottom of the stack. With that bulwark strengthened, why believe that credit quality might deteriorate?

Market participants have focused their attention on regulatory initiatives such as risk retention, but meaningful self-regulation and offsets to incentive conflicts remain works in progress. The industry’s advocates have emphasized the conservatism of underwriting in post-crisis issuance. While laudable, this cyclical focus on risk is not a substitute for structural measures that will ensure the long-term health and sustainability of CMBS.

Many of the structural weaknesses of the CMBS market—including conflicts in the incentives of the various parties facilitating each issue—have yet to be fully addressed. In the interim, the absence of structural corrections of weaknesses that range from rating agency compensation to the potential for special-servicer conflicts of interest means that the current bias in favor of conservative underwriting is giving way to inefficient risk-taking as the level of activity normalizes.

Rising competition from the conduit can ultimately undermine loan quality among its competitors, including the regulated banks. CMBS may be underwritten more carefully now than a few years ago, but this cyclical focus on risk is not a substitute for measures that will ensure the long-term health and sustainability of the industry. The structural assessment of CMBS that addresses the range of incentive conflicts with practical and implementable remedies is incomplete. In the best case, industry-led efforts will intensify, limiting or precluding inflexible regulatory regimes and encouraging rather than impeding robust securitization activity. In the worst case, inattentiveness to incentive conflicts will allow the current bias toward conservative underwriting to cede to undue risk-taking later in the cycle. In the immediate future, demand for new issuance will then be taken as evidence of sufficient lessons learned and the cycle will threaten to repeat itself again.

Sam Chandan, Ph.D., is president and chief economist of Chandan Economics and an adjunct professor at the Wharton School. The views expressed here are his own. He can be reached at dsc@chandan.com.

Competition among lenders is quickly growing as more people look to rent in New Jersey, the most urbanized state in the country, 94.7 percent of whose population is centered in urban areas, according to 2010 figures from the U.S. Census Bureau. That abundance of multifamily properties just west of the Hudson River coincides with university expansions, new retail and office properties and other large real estate projects throughout the state.

Brian Whitmer, a senior director in investment sales for the New York tristate area at Cushman & Wakefield, works out of northern New Jersey and went through the pipeline of multifamily developments he sees in the works there. Of the 22,968 units he found in the pipeline in northern New Jersey, 59 percent, or 13,538 units, are in the Gold Coast—areas along the Hudson River like Jersey City, Hoboken and Weehawken.

NJ Multifamily Harvest

“Over the last two years there has been an unprecedented number,” Mr. Whitmer said of development of multifamily properties in the area. He added that several factors are driving it, chief among them improving employment conditions that have driven up occupancy, but also people looking for an alternative to Manhattan and Brooklyn rents.

“Right now multifamily in New Jersey is an extremely hot property,” said Russell Murawski, first senior vice president at Valley National Bank, which has been lending for multifamily and other commercial real estate projects in New Jersey for over 20 years.

“Younger couples in the state look at their ability to buy a house, particularly in central to northern New Jersey where prices remain steep, and very often they realize that No. 1, they may not be able to afford it, and No. 2, owning real estate now isn’t the same as it was 15 to 20 years ago, when there was a guaranteed appreciation,” Mr. Murawski told The Mortgage Observer.

“All of the bankers know that this is a very strong market, and they’re all sharpening their pencils,” said Mr. Murawski. “We compete with the smaller community banks, and we also compete with the big banks—the M&Ts, the Chases and the Investors—on a consistent basis.”

Valley National’s commercial real estate department oversaw about $1.5 billion in assets for New Jersey as of December 31, 2012, roughly half of its total volume for New York and New Jersey combined. About one-third of the bank’s New Jersey portfolio is made up of multifamily loans.

“There are a lot of prime areas throughout the state,” Mr. Murawski said. “We’re starting to see growth in Newark, Jersey City, Carteret and other places near the port. Our major footprint has always been northern New Jersey, and we’re continuing to see strength in that region, especially in Essex and Morris Counties.”

The Wayne, N.J.-based bank closed on a large mall acquisition in western New Jersey and a townhouse project in Morris County in January 2013, among other transactions. Valley National declined to give the names of those properties, due to client confidentiality. Mr. Murawski said the bank plans to increase its lending for multifamily developments in the state by at least 10 percent this year.

“We brought in a couple of new people that have contacts outside of the contacts we’ve been working with historically,” he said. “In addition to that, we will continue to ramp up an aggressive sales culture, understanding that we’ve got competition and we need to be there first.”

Mr. Murawski said the bank would remain competitive on interest rates while focusing on the need to build lasting relationships with its present and future clients. “We’ve grown from a small local community bank into a fairly large institution, but we try to keep the principles of a community bank, where we know our customers, know their accountants and lawyers and everyone that’s involved,” he said. “We try to stay with the more local developers, owners, operators and managers, and we try not to get out of our own market.”

Thomas Didio, a senior managing director at mortgage brokerage HFF, said that as the growth in the number of lenders focusing on multifamily outpaces the rate at which new developments get completed, banks and mortgage brokers are being forced to compete for those deals by offering the best incentives to borrowers.

“It all comes down to price and terms,” said Mr. Didio, who co-heads the firm’s New Jersey office in Florham Park. “You’re seeing a lot of lenders compressing rates for loan terms of five to 10 years, offering open periods for prepayment and reappraising properties to lend more proceeds. The majority are structuring loans to give borrowers maximum flexibility in order to win business.”

Last year, HFF arranged financing for 67 deals in New Jersey worth $2 billion—with $800 million of that in multifamily. In December 2012, Mr. Didio and his team closed a $72 million refinancing deal for The Vanguard at The Shipyard, a 196-unit multifamily property on the corner of Hudson and 14th Streets in Hoboken. They also closed a $53 million refinancing deal for The Sheffield at Englewood South, a luxury apartment complex on both the north and south sides of Route 4 in Englewood.

“It was a new project with full amenities—structured parking, pool, workout facility, concierge—and 97 percent leased,” Mr. Didio said. “That deal was a horse race between three life insurance companies and Freddie Mac. One of the life insurance companies won the business, because they were able to give a 12-year deal with four years of interest-only.”

Two additional lenders vying for a stake of New Jersey’s multifamily market—M&T Bank and Investors Bank—said they plan to compete by providing the best client relationship services, as opposed to lowering interest rates to attract new borrowers. For Investors, that approach is relatively new, said Kevin Cummings, the bank’s president and chief executive officer.

“We’ve been working very hard to become a bank that serves its customers on a relationship basis first and foremost,” Mr. Cummings told The Mortgage Observer. “That’s the kind of reputation we want to build going forward. We hired a chief culture officer in April 2012 to help us in that transition.”

Investors, which entered the New Jersey commercial real estate market in 2005, has since established lending relationships with some of the largest developers buying and refinancing properties in the state, Mr. Cummings said. The bank’s roster of clients with multifamily and other commercial real estate holdings in New Jersey include The Woodmont Company, Roseland Property, Hartz Mountain Industries, Jack Morris and SJP Properties.

“In 2008 and 2009, when we started to really ratchet up our real estate lending in New Jersey, a lot of the national and local players were pulling back on the market,” said Mr. Cummings, who also highlighted the growing potential of New Jersey’s urban centers on the Gold Coast. “It was like the Red Sea was parting, and it was a great opening for us.”

Investors closed a $42 million multifamily deal in Hasbrouck Heights, N.J., and two $20 million deals in Newark last year. In January 2013, the bank’s real estate team provided a $44 million student-housing loan for Rutgers University’s 12-story New Brunswick campus at 290 George Street.

“Those are the type of loans a bank our size can do,” Mr. Cummings pointed out. “Yet we’re small enough that our clients can have conversations with our chief lending officer, our chief operating officer and myself.”

The Short Hills, N.J.-based bank oversaw a commercial real estate portfolio valued at $5.4 billion as of December 31, 2012, with $1.8 billion of that for commercial real estate in the Garden State. Drilling down even further, about $900 million of the bank’s New Jersey book is made up of multifamily loans.

Mr. Cummings said he would like to see the bank grow its New Jersey multifamily real estate portfolio by 8 to 10 percent in 2013.

“Multifamily is a hot asset class right now, and it’s one where, even though the margins are narrowing due to competitive pressures on the interest rates for these loans, it can be a very profitable business if you properly manage that interest rate risk,” he said.

One of the fastest-growing lenders in the New Jersey commercial real estate market is M&T Bank. In August 2012, M&T announced its plans to acquire New Jersey-based Hudson City Savings Bank and its 135 branches, 97 of them in New Jersey, for $3.7 billion. The acquisition is expected to close in the second quarter of 2013 and will more than triple M&T’s New York-area market share.

“With that acquisition, we’re going to build out an entire commercial bank on top of Hudson City’s thrift platform,” said Gino Martocci, M&T’s metro area executive.

M&T’s real estate team oversaw a $7 billion portfolio of loans in the tristate area as of December 2012, with “low- to mid-nine-figure commitments in New Jersey over the last three years,” Mr. Martocci said. “We’d like to double or triple that number in the next few years,” he added. “We plan to have a multibillion-dollar loan portfolio in New Jersey between commercial real estate, business banking and commercial and industrial lending. We’d also like to grow our client base from 40 or so to more than 400.”

Last year, the bank closed a $39 million deal with Hillier Properties for the 153-unit senior multifamily apartment building Copperwood at 300 Bunn Drive in Princeton. The property is under construction with an expected completion date in mid-2014.

“Right now we’re putting many of the bank’s resources into the New Jersey market in order to develop our business out there,” said Mr. Martocci. “We’ve been operating out of a relatively small commercial real estate office in New Jersey for about five years. We’re about to go from that office in Saddle Brook and our commercial and industrial lending office in Princeton to 97 branches and offices in the state by the second quarter of this year.”

Due to M&T’s strong focus on relationship banking, Mr. Martocci said he and his team are ready to “finance anything our clients do that makes sense for them and for us,” whether it’s multifamily, retail, industrial or office space. Multifamily will be a focal point for the bank’s New Jersey team, he said, though it will likely constitute a quarter to a third of its business.

M&T’s competitors in the state include Wells Fargo, Valley National, Investors Bank and PNC Financial Services Group, said Mr. Martocci. PNC, which oversaw $305 billion in total assets and $186 billion in total loans as of December 2012, declined to speak about its commercial real estate operations in New Jersey.

Outside of the banking arena, the commercial mortgage brokerage firms are locked in competition as well.

“We’ve been very successful in the multifamily business,” said Israel Schubert, a managing director who heads Meridian Capital Group’s New Jersey office in Iselin. Last year the firm relocated its 35-member mortgage team there to a newly built-out 10,500-square-foot office space due to a rapidly growing volume of transactions.

Meridian, one of New York’s leading commercial mortgage firms, arranged financing for 331 deals in New Jersey last year valued at $1.6 billion, up from 181 deals valued at $600 million in 2010. Over those two years, Meridian’s multifamily origination volume for the state nearly tripled, rising from $450 million to $1.2 billion.

Last year, the firm arranged $50 million in permanent financing for the recently constructed Harrison Station luxury multifamily building located at 300 Somerset Street in Harrison, N.J., as well as a $32.9 million loan for the 93-unit Berkshire at The Shipyard multifamily property located at 1401 Hudson Street in Hoboken.

“We’re always looking to grow our lending, and we’re geared up for it,” said Mr. Schubert. “We have a keen understanding of this market. We know who the players are, we know what they need, and we know how to get it.”

The rise in competition among banks and mortgage firms vying for the lion’s share of New Jersey’s multifamily market has led to more losses for many of the players involved, said Mr. Cummings of Investors Bank, who added that the bank had lost out on deals in recent years due to increased competition.

“We are currently renegotiating with one of our largest multifamily borrowers, who is looking to refinance an existing $30 million loan,” Mr. Cummings said. “The thing that is holding him up is the contractual prepayment fee. He has an offer from a conduit with Freddie Mac at a reduced 10-year rate.”

Freddie Mac is the “the 800-pound gorilla” in the room, said Mr. Didio of HFF. “They are a challenge for everybody. They can do the biggest loans, they are very competitive, and all they do is multifamily, so they know how to underwrite and they know operating expenses. They probably know operating expenses better than some of the owners do.”

Mr. Murawski of Valley National noted the breadth of competition in New Jersey among lenders—including Freddie Mac—without seeing a need to get too specific. “Every transaction we look at,” he said, “has more than one bank involved.”

If you’re a mezzanine lender, you look for three things. First, have non-real-estate players such as hedge funds started to come into the mezzanine debt market? Second, has the deluge of new players caused a substantial drop in pricing? And third, are other funding sources offering to finance mezzanine lenders on very favorable terms?

Joshua Stein.

In mid-2007, Terra Capital Partners, led by Bruce Batkin, noticed all three red flags waving in gale-force winds, and Terra sold its entire portfolio of nearly 100 mezzanine loans. Then Terra sat on the sidelines for two years.

Terra decided that the market had hit bottom in 2009 and started lending again. Today, first mortgage lenders want to lend again, but it’s very much not like 2007 all over again. Proceeds are down, conservatism is up, and many borrowers find themselves with a gap between the equity they’re willing to risk in a deal and the first mortgage financing they’re able to find, even with traditional mortgage lenders—both portfolio and securitized—all looking for solid places to put money.

That’s the gap that mezzanine lenders like Terra fill. Terra does it with its own equity capital, raised through a series of funds. Over the course of several conversations, Mr. Batkin told me that leverage isn’t readily available for mezzanine lenders, but his deals already have enough inherent leverage in them based on their subordinate positions.

Each mezzanine loan is different, often involving real estate with a “story”—a turnaround, a portfolio assemblage, a new hotel in a pioneering location, a busted condo complex or, increasingly, financing the discounted payoff of a senior mortgage loan. A deal could involve an earn-out or other types of additional advances, potentially giving a borrower a technique to monetize short-term project success without needing to refinance conservative, simple, low-cost senior financing.

Because Terra’s loans are typically complicated, requiring bespoke deal terms, Mr. Batkin said that Terra doesn’t engage outside servicers. The firm also never sells its loans, the one huge exception being that single transaction in 2007 when it sold its entire portfolio.

From a senior lender’s perspective, the existence of a mezzanine lender like Terra adds complexity to the capital stack, but it also produces significant benefits, not at all limited to the possibility of future mezzanine loan advances and the immediate obvious benefit of helping a borrower close a deal that otherwise might not have happened. If the property gets into trouble and the borrower doesn’t want to or can’t reinvest in it the mezzanine lender might. The mezzanine lender focuses an extra pair of eyes on the borrower, a strong dose of real estate expertise that may well help if the going gets rough.

A mezzanine loan carries a much higher risk than a mortgage loan, because it’s structurally subordinate to the mortgage loan. The mezzanine lender must, at least in theory, stand ready to pay off the mortgage loan if the project gets into trouble and the mezzanine lender thinks there’s still enough value in the underlying asset to support the mezzanine credit. In practice, it never works out that way, Mr. Batkin told me. Instead of facing a foreclosure on the senior loan, the mezzanine lender will always figure out how to negotiate with the senior lender, avoid acceleration or maturity of the senior loan, and live to fight another day—often minus the borrower.

According to Mr. Batkin, in underwriting a mezzanine loan, Terra will essentially reappraise the underlying property based on its own underwriting criteria. Terra then typically asks whether it would be comfortable owning the property based on a purchase price equal to the mezzanine loan plus the underlying mortgage loan. How does the total amount of those two loans compare with the conservative valuation of the property at the time? And, looking ahead to maturity of the mortgage loan, how much will the scheduled amortization on that loan reduce Terra’s exposure and implied potential purchase price for the property?

Mr. Batkin said that Terra tries to focus on sub-debt loans between $3 million and $15 million. In today’s market, he sees senior loans generally at anywhere from 60 percent to 75 percent of value. Terra’s mezzanine financing will bring the debt stack to between 65 percent and 85 percent of value, with an average of 75 percent across the portfolio. In 2007, he said, the equivalent figure for mezzanine lending in the market as a whole was about 85 percent.

Mr. Batkin and I will continue our conversation about mezzanine financing, with an emphasis on how Terra structured a half-dozen specific mezzanine loans for six wildly different projects, at a luncheon program sponsored by the Mortgage Bankers Association of New York, on Thursday April 18, 2013.

Joshua Stein is the sole principal of Joshua Stein PLLC. The views expressed here are his own. He can be reached at joshua@joshuastein.com.

od I hate these lists,” said one investment shop pro when asked to weigh in on what constituted “important” and who, exactly, might qualify for a list of the 50 Most Important People in Commercial Real Estate Finance.

In compiling the list—which is subjective and represents our view—we talked to many different people in the industry, consulted lists of top producers and paid close attention to our own monthly charts of banks that are most active. We kept our focus on the New York tristate region, though not everyone on the list has his or her base here.

Geography was only one of several logistical challenges. For instance, who’s more important—brokers or lenders? And with CMBS on the rebound and expected to hit somewhere around the $70 billion mark for 2013, how do conduits stack up?

“Brokers control the deals and the bankers control the money—and the money makes the deal happen,” one executive, himself a broker, told us. But then: “I feel like the brokers have the upper hand in the moment.”

For the most part, we came out on the side of the lenders who ultimately control the purse strings and pull the trigger to make a deal happen. The bulk of the names in the top 10 slots, in fact, are lenders—with only Ralph Herzka from Meridian Capital Group representing the brokers in this tier.

Among the groups absent are developers and attorneys, both of whom factor into our sister publication The Commercial Observer’s annual Power 100 list. But there is some overlap. Of the dozens of names on this, our inaugural list, many have a level of influence that, at least for now, places them on both lists.

Hopefully readers will agree with one top banker, who told us that lists like this one “are interesting and important” to the industry and that people like them in general. But of course, he’s on it.

cgaines@observer.com

A rendering of the South Tower at Hudson Yards.

Last year, there was buzz that Bank of America was included in a group of lenders about to issue a $400 million construction loan for this first phase of the Hudson Yards project. A source at the bank confirmed that it had taken a look but that the loan never happened.

A Related spokesperson said that construction on the project’s Tower C had begun in early December 2012, but declined to comment on specifics, saying only that we “have our financial commitments for the tower in place.”

Tower C, also known as the South Tower, is going up at 10th Avenue and West 30th Street. It will be anchored by leather-goods company Coach and is slated to be 47 stories tall, with 1.7 million feet of office space. Occupancy is planned for the second quarter of 2015.

If the loan indeed closes, it will continue what has been a frenzy of lending activity by Starwood Property Trust. In October 2012, along with a fund controlled by Starwood Capital Group, the REIT completed its largest transaction to date—$475 million in acquisition and construction financing for the redevelopment of the Times Square Gateway Center at 701 Seventh Avenue.

It also recently closed a $86 million first mortgage to refinance the Charles development site at 1355 First Avenue, a previously stalled residential project on Manhattan’s Upper East Side.

Josh Barber, an analyst at St. Louis-based Stifel, Nicolaus & Company, told Mortgage Observer Weekly that Starwood steadily growing its balance sheet has afforded it these opportunities.

“There’s a very limited amount of people in the commercial real estate world today that can cut a $300 million, $400 million check,” Mr. Barber said. “Starwood, given that they have a $4 billion-plus balance sheet, is actually in the position of being able to do that. So frankly, I think it’s an advantage for them, and they’re actually just exploiting that. The larger loans are really where it’s tougher to find a lot of people who could do that, and Starwood is probably one of a very small handful of commercial real estate players that could do a big, large loan like that.”

The pending loan was first reported in this morning's Mortgage Observer Weekly. You can sign up here to receive this weekly newsletter.

cgaines@observer.com

Rosemary Vrablic.

The firm places Deutsche Bank’s global assets under management in this area at $348.6 billion at the end of 2011—no small achievement for a German-based bank at the height of the European debt crisis and during a year that saw the United States riled by its own debt ceiling debacle.

“In 2008 and 2009, I saw real concern—even from our wealthiest clients. They were in the most defensive position I have seen in all of my career,” Ms. Vrablic told The Mortgage Observer one recent winter morning at the bank’s Park Avenue offices. “What we’ve seen in the last two years is less defense from an ’08, ’09 standpoint. And I do believe that they feel that valuations have either stabilized or increased, particularly in real estate.”

For the commercial real estate finance market, growing optimism is significant, due to private banking’s historical role as the go-to source for financing during troubled times. When other sources dry up, qualified customers with the right banking relationship can turn to it. And real estate, Ms. Vrablic said, is her “deep dive” as well as the area in which, she estimated, 40 percent of her some 50 clients have earned their wealth.

Though she declined to reveal names from that roster of clients and relationships, citing confidentiality, over the course of reporting, a few became known and were willing to discuss some of the qualities that make Ms. Vrablic their go-to private banker. One, Indiana Pacers owner Herbert Simon, confirmed that private banking has been a source of financing that he has used during this most recent economic downturn.

“It’s probably four years,” Mr. Simon estimated when asked how long he’s been a client of Ms. Vrablic and Deutsche Bank. “When she came into the picture, it was a tough time to get money, and she was able to be very creative and get us what we needed. In the toughest times, she was very creative, which made me very impressed with her.”

He said that most bankers hide when the tide is turning against the client, while “Rosemary went right up there and batted for us and got us the kind of loans that we needed to continue operations.” The Indiana Pacers owner and part-owner of the Reno Aces—who ranked No. 218 on the most recent Forbes 400, with a net worth of $2.2 billion—said Ms. Vrablic has handled sports investments.

Ms. Vrablic, who started her career in private banking in 1989, has been at Deutsche Bank since September of 2006 and runs a team of nine bankers there. “Rosemary is widely recognized as one of the top private bankers to the U.S. ultra-high-net-worth community,” Thomas Bowers, then head of U.S. private wealth management, said upon her arrival from Bank of America.

Though Mr. Bowers left abruptly at the end of the year, Deutsche Bank has steadily grown this arm of its business in the U.S., with the addition of several additional private bankers. The bank has also acknowledged that it is committed to strategically growing its private wealth management footprint in the U.S.

Ms. Vrablic has traveled a long road to her current perch in the industry, though one gets the impression that the journey was undertaken with a positive and upbeat attitude.

A native New Yorker, Ms. Vrablic graduated from Fordham University, where she studied economics and political science. When she graduated, the financial industry was in crisis—with savings and loan institutions losing money and the country in recession. Jobs in the financial sector, and elsewhere, were hard to come by.

But, she remembered, “Sometimes out of failure, good things come.” A chance encounter on a stalled Metro-North train and a conspicuously capable nature turned out to be serendipitous allies. En route to Scarsdale, where she lived with her parents at the time, she found herself talking with a fellow passenger. “We were just talking, and two hours later I get off the train, and he said, ‘You just gave the best interview of your life,’” she remembered. At the time, she was working as a bank teller. The man, Howard Ross, was then the chief credit officer at Bank Leumi.

For his part, Mr. Ross said that he remembers seeing light bulbs going off as they chatted. He went on to introduce Ms. Vrablic to the Bank Leumi team, where she was hired and became an analyst. He said that he’s not at all surprised by how far she’s gone or what direction her career has taken.

“In order to be a very good private banker, you have to be a very good credit banker, and she wears both hats well,” Mr. Ross, now the executive vice president and chief credit officer for the United States at Bank Hapoalim, remembered. “She was asking me questions about credit, and she was picking up very quickly on what I was reading. It was clear to others when she came in for the interview, and we hired her on the spot.”

By the late 1980s, she was a junior banker and a trainee at Republic National Bank. The roles and ranks of women in the U.S. workplace were shifting. According to the Bureau of Labor Statistics, the number of women in the labor force increased at an annual growth rate of 2.6 percent between 1950 and 2000—rising to 66 million workers. But asked if there were other women in positions that she could aspire to, especially in those early days, Ms. Vrablic said that there were precious few.

“The only woman boss I had was the branch manager at the bank where I was a teller,” she said. “She was the only senior woman I had ever dealt with for many, many years—until, quite frankly, I got to Citibank in 1989.” From 1982 to 1989, she estimated that 98 percent of the bosses and senior people she interfaced with were men—with a few women in areas like human resources. Still, colleagues like the branch manager taught lasting lessons.

“She was an older woman, who had been through 33 years of a career at that point, so she was a great role model for me,” Ms. Vrablic remembered. The perspective was that, for her, that was the ceiling. She knew she was never going to get past that, “but she ran a great branch, took great pride in that, and she was very Margaret Thatcher-like. That was the era.”

At Republic National Bank, she said, she met another important mentor—the head of the middle-market-lending group. “‘You’re going to make mistakes, and I’m going to be here to help you,’” she said she was told. “‘But there is nothing that I’m going to put you in a position to do that will hurt you or hurt the bank.’” The message had an impact, and mentoring became something that Ms. Vrablic herself loves to do. “It all attributes back to him, because I believe that, since I got that gift, I should be passing that gift on.”

Private banking came calling—literally—when a recruiter contacted her and asked her to interview at Citibank. It was a jump that she was reluctant to make. “I visited the head of the private bank at Citibank and it was, at a minimum, six interviews. They were convinced that I was good for the position, that I could do it,” she recalled. “I wasn’t convinced, because I had never done selling on my own. I had been a junior, attached at the hip to my mentor.”

Asked what was most daunting about making the move, she referenced the heightened profile—being the face of the process—as well as the delicate balance of skills that it would require.
“I knew I had the skills. I knew I understood clients,” she said. “But doing that and being a good salesperson is a huge gap. There are a lot of people who are good bankers but not necessarily good salespeople, and I think you have to be both.”

A colleague at Deutsche Bank echoed this, and added that strong relationship management skills are a vital part of Ms. Vrablic’s toolkit as well. “She’s a really good client advocate, but also someone who can balance the interests of the institution,” the person said. “She combines that with a very strong and deep skill set—across products.”

In the course of making phone calls and conducting research, in fact, the mere mention of her name yielded descriptors you’d probably want in someone handling your money. One source said she was “tickled pink” to meet Ms. Vrablic and spoke of her in glowing terms, emphasizing her down-to-earth nature. “It was like talking to a friend,” she said.

Anyway, after some convincing, she headed off to Citibank in 1989, where she had a front-row seat, in the early 1990s, to the value that private banking could bring to commercial real estate transactions during tough times. “Many banks, including Citibank in the real estate department, had shut down and reduced the financing,” she said. “Private banking became the only place to get real estate loans, and so from 1990 to 1993, I had tremendous growth in my portfolio.”

It was a period of growth for her business at Citibank, despite the difficult economic times. She stayed until 1995, when NationsBank recruited her away. “Then in 1997, NationsBank came to me and said, ‘We just bought Montgomery Securities in California—it’s a brokerage group, and we’d like you to go out and set up a loan production office there for us,’” she said. “I moved out there for 18 months, from 1997 to 1999, which was great. I was there for a tremendous amount of wealth being created for the IPO guys.”

Still, New York had exerted its familiar pull, so when Bank of America merged with NationsBank on Sept. 30, 1998, she took the opportunity to move back East and return to New York to run Bank of America’s private wealth management office in New York.

Related Companies’ chairman and founder Stephen Ross said that it was around this time that he first met Ms. Vrablic and became a client.

“She brings knowledge—and the fact is that if she tells you something, you know it’s going to get done,” Mr. Ross said, when reached by phone. “We’ve really grown as a company, and me as a person, in terms of my business career. She’s been there and seen it grow.” He added that the majority of the real estate transactions Ms. Vrablic has secured for him have been for him personally, as opposed to Related Companies, which he founded in 1972. These included acquisition financing for land and properties and short-term cash.

Deutsche Bank called in 2006, and she left Bank of America.

With growth being a stated mission of the division, Ms. Vrablic said that she’d like to “add new names, new relationships every year”—ideally two new relationships, though each relationship can include several different clients. This was enough, she reasoned, to grow the portfolio of names while giving each the feeling she calls a “high touch.”

“You want them to believe that they’re the only client when they call up, and I think if you get too big, you can’t do that,” she said.

Asked what it is she likes about private banking, Ms. Vrablic didn’t hesitate. “I think I have the best job in the whole world,” she said. “I love my job, and if you love your job, you’re probably really good at it.” She most values the client relationships, she explained—the direct access to the decision-maker.

“We deal in relationships, so it’s sitting across from someone and saying, ‘So what’s important to you? Tell me why you’re doing this,’” she said. “That’s what’s interesting about my job. I take what the bank wants, because the bank has its requirements and their products, and the client has what they want and what they need. And I’m sort of the filter trying to make that happen. That’s kind of fun, because I get the best and the brightest ideas from the bank, and I have the best and the brightest people that I deal with. And that’s my job.”

Ms. Vrablic's past clients include Observer Media Group publisher Jared Kushner.

cgaines@observer.com

CREFC's Alex Ong and Andrea Rouse.

On Tuesday January 15 in the middle of the Commercial Real Estate Finance Council’s January 2013 conference, The Mortgage Observer was joined by conference attendees for our event celebrating the conference at Miami’s STK. The Collins Avenue bar and steakhouse played host to industry insiders and Observer Media Group staff, who spent an evening talking shop as well as enjoying a selection of hors d’oeuvres and custom cocktails.

This year's conference was once again held at the Loews Miami Beach Hotel and was full of vital information for those involved in commercial real estate debt. Registrations were up from the past several years, as attendees--one after the other--shared a sunny outlook for the year ahead.

[11:25 a.m.] Large servicers have done a great job of driving technology. Leads to efficiency. Smaller companies that focus on value add side, focus can be on making sure that more customized servicer, other than just driving cost, are provided.

[11:20 a.m.] Send your questions for this panel to questions@crefc.org

[11:17 a.m.] Regarding transparency--there has been an uptick in the effective, easy delivery of data to clients. Taking servicing to another level, panelist says.

[11:15 a.m.] Operating advisors under Dodd Frank will be much more aggressive, involved from Day One.

[11:10 a.m.] Dodd Frank doesn't directly affect servicing, but some of its provisions have a roundabout effect. Like the Volcker rule.

[11:05 a.m.] Bullish on servicing space going in to 2013, one panelist says. Swinging more to a growth environment, short of macro issues that could come to bear. Moving to regulatory issues: If the rules apply to every bank then they'll figure out a way to compete.

[11:00 a.m.] Servicers have had to take strategic looks at how they manage their portfolios. One panelist says that they've taken a hard look at the value of their commercial real estate expertise in order to better utilize resources.

[10:55 a.m.] It has been important to reduce the cost of servicing and move resources as appropriate.

[10:45 a.m.] This panel is being moderated by Marty O'Connor, EVP at KeyBank Real Estate Capital. Panelists include Jose Becquer (EVP and head of commercial mortgage servicing at Wells Fargo), Stacey Berger (EVP at PNC Real Estate/Midland Loan Services), John D'Amico (director, special asset management at TriMont Real Estate Advisors), Tim Mazzetti (EVP/partner at Cohen Financial) and Jan Sternin (senior VP and managing director at Berkadia Commercial Mortgage).

[10:40 a.m.] People are filtering in slowly now for the Reconstructing Servicing to the New World Order panel--perhaps due to the abundance of parties that were held last night.

[4:26 p.m.] Question: How likely is it that rates will stay low not just through 2014, but for the next 5 years? Answer: Possible, he says. We could be patterning Japan. He thinks that there is a 20 percent probability.

[4:17 p.m.] Question: Situation with Spanish banks worse than originally thought? Answer: Clearly what's happening in Spain is that everyone has agreed to not close down the weak banks, Mr. Malpass says. He thinks that the IMF is doing this wrong. There's not a way to get them to say how bad off individual banks are because it drags them into an IMF program that they don't want to be a part of.

[4:15 p.m.] If the Euro begins breaking up, the per capita income of the periphery goes way down.

[4:13 p.m.] Question: Demise of Euro? Answer: Not today, not right now. His views have evolved. He was more bullish in 2010, 2011. Unfortunately the markets let Greece and Spain borrow too much money but the overall concept of the Euro is strong. The problem now is that they've lost so much money that it's hard to see how Germany will plow enough money into Greece to keep it afloat. More challenges to the Euro are ahead, though.

[4:12 p.m.] Question: Next sector to need a bailout. Answer: Life companies but some of the municipalities more likely. States will be made to bailout municipalities.

[4:10 p.m.] Question: If profits are going to start falling, how will corporations react? Answer: He thinks it's a stagflation environment. Since we just went through a restructuring of corporate structuring in 2008, he doesn't anticipate many layoffs. We have a pretty stable environment.

[4:00 p.m.] Taking questions now.

[3:58 p.m.] Is outlook is that Germany is recession now, turning to Europe. Not the end of the world, but just a negative growth, or growth slowdown.

[3:53 p.m.] Household debt falling, government debt rising--owes more than the entire household sector. This is all based upon Sept. 30, 2012 snapshot.

[3:50 p.m.] No default, not much risk to Treasuries. Watch for vote in House on who's for more debt and how many Republicans vote for it versus how many Democrats.

[3:48 p.m.] Sequester real issue, not debt limit. Will financial markets use it as an opportunity to downgrade their growth outlooks? He thinks they will.

[3:47 p.m.] How the bank regulators loosen the strings on banking an important, key issue. Turning to fiscal policy.

[3:45 p.m.] Working capital loans, which are job creative, have been weak in the current environment. Weakening GDP growth environment and employment environment, so Fed likely to continue buying assets. Quantitative Easing, as seen in Japan, doesn't work.

[3:40 p.m.] He thinks that the Fed's policies have been contractionary. Private sector credit constrained by regulatory policy.

[3:39 p.m.] As people are looking for a recovery out of the U.S. based on housing, it's "just not there," Mr. Malpass says. Labor market still a drag.

[3:37 p.m.] Corporate tax reform in D.C. would be positive, but he doesn't see that in the cards, especially with Loo's appointment to Treasury.

[3:34 p.m.] We're in an artificial environment. Mr. Malpass' view is that we're not at a tipping point. Slow growth likely, with pressure building in Europe and weak links around the world.

[3:33 p.m.] Mr. Malpass is at the podium. He's going to speak about the "wild macro economic environment." We'll try to keep up!

[3:33 p.m.] David Malpass, president of Encima Global, is currently being introduced...

[3:28 p.m.] CREFC is successfully growing revenue. 2012 second year in a row that the group booked a profit. On the "fun" front, Mr. Renna says, there's an added after hours reception.

[3:23 p.m.] CREFC is working to communicate what's going on in Washington to its members, Mr. Renna says. This conference has already exceeded 1,300 attendees, and still counting. June conference is the 10th - 12th in New York City.

[3:17 p.m.] Mr. Renna says that the group has been attempting to broaden the CREFC membership. See my earlier post. 30 new members were added to CREFC rolls in 2012, he said. Thirty more added already in 2013.

[3:15 p.m.] Stephen Renna, CREFC CEO, has taken the podium. Says that conference has the best selection of topics and speakers, including David Malpass, president of Encima Global, who is up next.

[3:15 p.m.] Another potential negative: at some point rates have to go up. Rates have been held artificially low by some of the Fed action. Higher rates generally not good for CMBS.

[3:10 p.m.] Floating rate CMBS market is back as well. There are six active B piece buyers right now, with one or two others looking to get into the market, Mr. Vanderslice says. On negative side: the two-thirds of Dodd-Frank that haven't been implemented, like risk retention, etc.

[3:10 p.m.] Mr. Vanderslice says that deals have been aggressive but not egregious. Investors are back.

[3:00 p.m.] So we're here at the CRE Finance Council's Opening General Session. CREFC President Paul Vanderslice says that standing at the podium this year is better than it was last year. Things have improved.

It was a phenomenon that we, in fact, witnessed for ourselves, while waiting to chat with CRE Finance Council CEO Stephen Renna. Apparently, the group's efforts to grow the conference--and expand the relevance of the organization--have paid off and made it one hot ticket.

Stephen Renna

"Attendance is definitely going up," Mr. Renna said when we did catch up with him. He pointed to 2013 conference registrations that were already above 1,300, not counting walk up registrations and said that a greater percentage of investors have been coming, in fact making up the second largest block of attendees by group.

The variety of conference sponsors, alone, is another indicator that CREFC's membership, and services to that membership, has grown. Sustaining sponsors, for example, include CWCapital Asset Management, Dechert and the law firm Cadwalader, Wickersham & Taft.

Mr. Renna, who has been at the helm of the organization for about a year and a half now, said that the mood among membership heading into 2013 is generally optimistic, a sentiment echoed by other attendees.

"They know that these loans are attached to something that you can touch and feel," he said of the landscape for commercial real estate financing. "It not some sort of exotic investment structure but you're actually investing in something. And I think investors feel largely comfortable with that, because it's a knowable investment." This has all led to healthy amount of capital flowing to the industry, whether from CMBS or sources like mezzanine debt.

Mr. Renna said that one of the new aspects to this year's program will be a real focus on hot topics. "We always change the program, but one of the things that we were really challenging our conference co-chairs with was to really determine what the hot topic issues in the industry," he said. "What are the top of the mind issues that people want to hear experts in the industry speak to?"

Asked if there were any types of lenders lagging in the organization's makeup that might be further brought into the fold, Mr. Renna said banks that only lend for balance sheet purposes.

"The major banks that have CMBS platforms know about us," he said. "What we're trying to do with them is incorporate more of their balance sheet people into the organization, because they have a lot of their CMBS people already in the organization, attuned to what we do, they know what our benefits are they participate."

He said that CREFC has made progress bringing these other sides of banks into the group by making sure that they know that relevant platforms are available. Still, though, he said that there was more to do where broadening the organization is concerned.

"We have certainly made strides," he said. "I was brought on to execute the strategic plan to make CREFC the organization that it is today--one for the voice of commercial real estate finance broadly."

Following the January conference the group will make a few key hires, though no exponential growth is planned.

cgaines@observer.com