Q&A: Jerry Swartz, HKS Capital Partners

The Mortgage Observer recently spoke to Jerry Swartz, who last year struck out on his own to found HKS Capital Partners after almost 40 years at Pergolis Swartz Associates. He shared what motivated him to wind something up, at an age when most might be focused on winding down.

The Mortgage Observer: You were a founding partner at Pergolis Swartz. How did you get your start in the business before that?

mg 0745 Q&A: Jerry Swartz, HKS Capital Partners

Jerry Swartz.

Jerry Swartz: I was in the manufacturing business and in 1970, I think it was, there was a credit crunch and the entire industry did not do well and we closed that business up and I was looking for something. At the time I was in contract on a house. I had my first wife and two young kids and when I closed that business up, I had no means of closing on the house, I had no means of income and I needed something that was going to generate income for me quickly. And a friend of mine was in the real estate business and I spoke to him about it and he told me that I should get into brokerage, because once you learn the business, you’re generating fee income and as soon as you can close it’s faster. I was naive enough to go with that and I went to Sonnenblick Goldman and I got a job there on straight commission and it was very enlightening because I really didn’t know—other than the mortgage I was going to get on the house I was in contract on—I didn’t know what a mortgage was. But it was a great shop. I listened. I learned. I remember in the beginning when I would make a cold phone call and someone would ask me a question, I remember specifically someone asking me what the current pre-payment penalty is on a mortgage. And I said, “You know what, I’ve got another call coming in. Let me call you right back.” And I went and asked one of the other brokers what a pre-payment penalty was. That’s how basic. I really did not know anything. But anyhow I learned and within six months I had some closings and made some nice money, and the next year I doubled that income and so on and so on and so on and it was great. I was there for four or five years and then I met Richard Pergolis there. In ’74 or ’75 we formed Pergolis Swartz and forty years later, or whatever it was, in 2011, we started this company, on April 1 of 2011.

What was it about the market that made you think it was a good time to start something new in 2011, and how long had you been thinking about doing that?

The market was beginning to get a little better. I wouldn’t say it was good enough to launch a new business. However, what happened at the other firm was a philosophical different between my partner and me—just in the way that the business was done and in the approach that each of us took. Even geographically within the office. We had 5,000 square feet of space; I was literally in the back, he was all the way in the front. And a lot of the young brokers that we had—we didn’t have a lot of brokers, but the ones that we had, Ayush [Kapahi], for example, and John [Harrington], the two that came with me—were in the back. And I kind of morphed into deals with them because they were there and they were in my office a lot and we talked about deals.

How competitive is the environment now? Has it gotten more competitive over the years?

It has. What happens is that the direction of the market dictates the competitiveness. When the market heats up and more and more transactions are getting done, like any other business, excess profits breed ruinous competition. I don’t know. I didn’t make up the statement. I don’t know whether it was Baruch or somebody, but that’s what happens. And as the market heats up and more and more deals get done, well, attorneys that may not be too busy in their legal business say, “Hey, I’m a broker. I can do deals.” So in that respect, yeah, it does get busier and we’ll all of a sudden be competing against somebody who I say, “Geez, I’ve been in business a long time and I’ve never heard of them.” It might be a startup business or not even a brokerage business per se. But someone like Massey Knakal—I know that they have opened up a finance business. And Eastern Consolidated, I believe that they have their own. It’s obviously an additional source of income, a new profit center, so yes as the market gets better I think the competition heats up. Of course.

Are you seeing more construction deals? Are they picking up?

A lot. The construction loans, not as many ground-up construction loans. A number of conversions, renovations, a number of bridge loans obviously where there may be a value-added scenario or a structured finance scenario to the transaction. You know, someone might be adding a new tenant or renovating existing apartments or enlarging certain apartments. A lot of those. We have not seen as many note sales as we did two years ago, which doesn’t necessarily mean that that particular segment of the market has evaporated. I’m sure that there are still plenty of toxic loans that need to be worked out. Certainly CMBS is going to have a lot of loans coming up very soon, but in terms of the number of loans that we saw to finance acquisition of loans, we haven’t seen that many of those lately.

Do you see doing this for the immediate future? Any plans to slow down?

I see doing it until I fall down on the desk and they carry me out, feet first. As I said before, it’s something that I can do from anywhere with emails and the computer and the iPad.

You just need to stay busy?

I do. I get bored quickly. I guess I’m a Type-A. Interestingly enough, pretty much all the brokers are the same way. You kind of have to be in this business—have that kind of personality. Well, it works if you do have. That’s what it is. At times I will sit on the deck overlooking the ocean and it’s just incredible. But I can’t do it for a long time—I’ll get bored. Or I’ll be planning in my mind what I’m going to do next.

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