CBRE Debt and Equity Team Talks Trends

For CBRE’s Keith Braddish and Mark Fisher—the two elder statesmen in the firm’s capital markets debt and equity finance division—the more fractured lending environment that has arisen out of the collapse of the CMBS market and the concurrent economic malaise has meant the opportunity to dazzle and shine.

Messrs. Fisher and Braddish.

Messrs. Fisher and Braddish.

The Mortgage Observer caught up with the pair on a blustery winter morning before the new year, to learn how recent shifts in lending have impacted their business, as well as how they expect 2013 to shape up.

The shifts include a more complex structuring of deals and an increasing appetite, or tolerance, for financings that were, until recently, considered taboo and unlikely to happen—like the Larchmont, N.Y., condo deal that Mr. Braddish is currently handling or an advising assignment that Mr. Fisher had for the mezzanine lender at 70 Pine Street.

And gone are the days when deals were all priced at basis points that were within a few points of one another, no matter which lender you went to.

“We used to do a lot of CMBS business, which was right down the middle of the fairway,” Mr. Braddish said. “And now what we’re seeing is more structured finance business.” This includes, he said, preferred equity and mezzanine debt, as well as recapitalizations.

“Structurally, CMBS can’t compete now,” Mr. Fisher added. “Back in the day, the B piece would go for next to nothing. Now, if you have to chop it up and syndicate it, you’re nowhere near pricing of the insurance companies and the agencies.”

So the pair’s opportunity to shine has come from a market they describe as fractured and inefficient.

“When it’s very easy and very efficient, it’s easy for a borrower to call up and go direct, but the displacement in the market—with one guy at 4 percent and another guy at 3 percent—that makes our sell to a borrower a lot easier,” Mr. Braddish pointed out.

Mr. Braddish, an executive vice president, has been with the company for 13 years, always on the debt and equity side. He joined in 2000 from the New York and New Jersey office of HFF, where he worked from 1995 to 2000.

He said “2000 was when the CMBS market really started to kick in” and explained that business essentially hummed along, until 9/11—when it paused for six to 12 months.

Mr. Fisher, a senior vice president, joined about nine years ago. He had also worked for HFF in the mortgage banking firm’s Westport, Conn., office. The two knew each other from their shared time at the firm and currently have existing clients that they share.

“A lot of the business we work on, I would say it’s 60/40 our own individual business,” Mr. Braddish explained. “If I have a major multifamily deal—a rental—in New York City, I’m most likely going to bring Mark in because that’s his area of expertise. And we kind of pick and choose different team members based on their abilities, so there is a fair amount of interaction.”

Some of this interaction is via CBRE’s Deals Help/Capital Access program—a proprietary software program that facilitates up-to-the-minute sharing of information with colleagues. It “allows us to communicate with 100 other guys who do exactly what Mark and I do across the country,” Mr. Braddish explained. Sharing information in this way is an additional way to add value when covering dozens of lending sources.

The usefulness of the Deals Help/Capital Access program speaks to another important point—CBRE’s size. Take the case of Kane Realty’s 420-unit Park and Market residential project in Raleigh, N.C. CBRE, as a group, financed it with mezzanine debt, Mr. Fisher said. Then, since selling the entire structure wasn’t the best execution, it was split in half and each part was financed separately.

“Our guys out of Atlanta sold the multi, we financed the retail and then a group out of Hartford financed the buyer of the multi,” Mr. Fisher recalled. “So we financed the sale and we financed for the seller the ground-floor retail.”

The May 2012 deal combined Mr. Fisher’s expertise on the New York debt and equity finance team with that of a constellation of other CBRE colleagues. These included Phil Brosseau Jr. from the Charlotte investment sales team, Malcomb McComb from the Atlanta investment sales team, Steve Heffner from the Charlotte debt and equity finance team and Michael Riccio from Hartford’s debt and equity finance team.

“It was four disciplines, in four states,” Mr. Fisher said. “It was an amazing closing but we all cooperated. The conference calls were enormous, but it worked extremely well because we were all on the same team.”

In another recent financing, the group arranged a $120 million Freddie Mac loan in October 2012 for Glenwood Management’s the Grand Tier—a 229-unit apartment building at 1930 Broadway. According to public records, it’s a 10-year loan at a rate of 3.04 percent. It’s interest-only for two years and has a 30-year amortization.

The loan replaces $101.9 million in debt that was provided seven years ago by the New York State Teachers’ Retirement System.

Mr. Fisher wouldn’t comment on the terms of the loan, but said that it was “probably one of the most competitive Freddie Mac loans that anyone has done so far.”

“Mark is very diligent and he kept on following up with me and I didn’t really have much interest until he found us a very low, long-term interest rate where it made some sense to refinance,” said Gary Jacob, executive vice president at Glenwood Management Corp. “If I had to describe Mark, I would say that he has great perseverance, he’s diligent and has great creativity.”

Mr. Jacob also declined to comment on the terms of the financing, saying that it was against company policy to do so.

For his part, Mr. Braddish facilitated a $36.7 million first mortgage that West Coast debt shop Mesa West Capital provided to refinance Garden City Square—a 334,187-square-foot office complex at 711 Stewart Avenue in Garden City, N.Y. The loan, made in late 2011 to a joint venture of Angelo Gordon & Co. and Metropolitan Realty Associates, was short-term debt for the conversion of a mixed-use property into retail and office.

Joe Farkas, president of Jericho-based Metropolitan Realty Associates, remembered Mr. Braddish, who also worked on a deal in the Riverdale section of the Bronx for the company, as being professional, with a high degree of attention to detail.

“He was clearly able to bring his relationships to bear in getting us really the greatest deals that were out there in both of those instances,” Mr. Farkas told The Mortgage Observer.

Mr. Braddish has also been busy with the aforementioned Larchmont condo deal, which illustrates how far the market has come. “That is about a $70 million job,” he said, adding that the sponsor—a large international firm—is looking for a 50 percent loan and can sign a recourse agreement. The condos are being presold, with empty-nesters who are looking to downsize and avoid the area’s massive property taxes in mind.

As 2013 kicks off, the Larchmont deal, as condo construction, represents one obvious trend Messrs. Braddish and Fisher noted. Others include construction financing and the strength of the sponsor—which has to include a measurable amount of liquidity.

“If someone’s going to lend you money to build, you have to really be very conversive in that market and in that discipline—so it’s very important who the sponsor is,” Mr. Braddish said, when asked about requirements and expectations for construction loans.

“And have a strong statement,” Mr. Fisher was quick to add. “If you’re experienced but don’t have a strong statement and can’t get them out of trouble, it’s a problem. So they’re looking for not only net worth, but liquidity, and they will check every property our clients own, because so many properties are underwater.”

The prevalence of mezzanine financing is another trend the pair has noticed.

“Keith and I are doing a lot of mezz debt,” Mr. Fisher said. “So what you’re seeing is combinations of up to 85 percent financing through mezzanine debt on top of first mortgage.”

This isn’t unlike the 70 Pine Street deal, in which CBRE advised the mezzanine lender, AG Real Estate, on the acquisition, and later on its $200 million further investment in the Eastbridge Group portfolio. That initial mezzanine investment was concurrent with a $181 first mortgage provided by UBS Real Estate Securities, according to data from Real Capital Analytics.

With 2013 underway, Messrs. Braddish and Fisher said that they’re hopeful that the commercial real estate market will continue to improve.

“If I had to comment on ’13, I would think that we anticipate a year similar to ’12,” Mr. Braddish said. “Might it be a little bit more challenging than ’12? It could be. I know that leasing volume and velocity is off a little bit in the city. But I think CBRE—we have a lot of different platforms, a lot of different drivers of revenue, so where one group might be off a little bit, the other group picks up the slack. I think that we’re going to see some good momentum.”

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