CBRE’s Patrick Arangio Talks Loan Portfolio Sales
Danielle Balbi Feb. 12, 2016, 1 p.m.
Patrick Arangio’s loyalties to CBRE date back to 2003, when he started at the firm as a vice president. He has come a long way in the last 13 years, now leading CBRE’s national loan and portfolio sale advisory group. Mr. Arangio has been especially busy as of late given his division’s growing focus on large portfolio sales. When he isn’t working on big deals—such as the September 2015 sale of GE Capital Corporation’s $2.3 billion loan portfolio, which he talked to Commercial Observer about—he, his wife and three kids are visiting his much-loved hometown of Allentown, Pa.
Commercial Observer: How did you get into the real estate industry?
Mr. Arangio: Before my senior year at Cornell University, I worked as an intern at Cushman & Wakefield in Washington, D.C. After graduation, I drove straight from campus to the office. I started working the following morning and was hooked from day one.
What does your role entail?
I am fortunate to lead CBRE’s national loan and portfolio sale advisory group. Since joining CBRE in 2003, our team has specialized in the sale of commercial and multifamily mortgage loans and loan portfolios in the secondary market. Over the past four years, we have expanded this practice into dispositions of large national portfolios of commercial real estate assets, as well.
How have you seen the business change?
From a loan-sale perspective, we’ve watched the pendulum swing from a mix of both performing and nonperforming loan [NPL] sales in the early 2000s, to predominantly performing sales with mortgages trading at significant premiums during the peak in 2004 to 2007. With the onset of the financial crisis in 2008, our business quickly moved to a heavy dose of nonperforming and subperforming mortgages. Most recently, we have seen performing loans come back strongly with pricing on both NPLs and performers steadily increasing since 2010.
As for national real estate portfolios, interestingly enough it was our clients that pushed us to expand from loan sales to CRE. We were continually asked to apply the proven process that we were successfully implementing on our loan portfolio sales into the traditional real estate sale arena. Up to that point, there wasn’t really a tried and true way to move disparate portfolios of CRE across product types and multiple markets in an efficient manner without sacrificing price and timing. We have been able to leverage CBRE’s vast resources to do just that. The accretive debt markets and abundance of capital—both foreign and domestic—have also assisted us in that process.
How is your team structured?
Our team is headquartered in New York City, with offices in San Francisco and D.C. as well. We enjoy unfettered access to the full depth and breadth of CBRE’s platform—over 200 offices across the U.S. This includes daily interaction with many of the industry’s most talented capital markets and leasing professionals in every market, for all types of real estate.
Jack Howard, a senior partner on the team, is involved in every aspect of what we do, but he has taken the art of navigating CBRE’s platform to the next level. He has an encyclopedic knowledge of who specializes in what product type, in any office in the country.
What are some of the more interesting deals you’ve worked on in the last year?
I very much enjoy working for the special servicers. We have represented a few of them on multiple large portfolios over the past 12 months (in excess of $1.5 billion in aggregate), and we really get to roll up our sleeves to dig into the real estate.
Our most recent fee portfolio—nearly $600 million in value—included one of the largest remaining specially serviced assets from CMBS 1.0 [Bank of America Plaza in Atlanta]. We leveraged our local expertise with our network of institutional buyers to successfully match the right buyer to this iconic asset. It was a really exciting partnership with our investment sales team in Atlanta. I’m continually impressed by just how good our people are.
Regarding more traditional loan sales, the $2.3 billion GE portfolio was fascinating for many reasons. My favorite aspect was the daily interaction with the firms that participated. We had some of the largest foreign and domestic banking institutions in the world, multiple mortgage [real estate investment trust] and global private equity firms, all competing fiercely with one another. Identifying their goals and matching them with the needs of the seller was challenging, yet very rewarding…like solving a puzzle.
What was one of the most challenging aspects of working on the GE Capital sale?
In light of the goals of the parent company at that time, it was imperative that the process moved efficiently along a predetermined timeframe. There was little margin for error in that regard. That said, GE had extremely high expectations for their pricing. With over 300 loans, managing the execution while maximizing proceeds was a delicate balancing act, but one that made the result all the sweeter.
Are you noticing any interesting trends in the market?
I don’t recall a time where there have been so many investors playing in both the debt and equity arenas. As the quest for what the market deems appropriate risk-adjusted returns moves outside of core competencies, we are seeing many groups expanding their skill sets in hopes of manufacturing yields.
Whether it is a traditional senior lender expanding their product lines across the capital stack to provide one-stop shopping for borrowers, alternative lending sources taking advantages of the growing regulatory restrictions being placed on their more traditional competitors or local owner and operators acquiring defaulted mortgages to access the real estate, the lines are blurring.
Where are your clients seeing the most opportunity right now?
If I had to pick a few, secondary markets have not yet seen as much of the cap rate compression as the majors, so there can be outsized yields found there, however, all of these markets are not created equally. Those with strong infrastructure and public transportation networks, favorable demographic trends and positive absorption in consecutive quarters top our list. Multifamily in the southeast continues to outperform as well. Finally, foreign capital sources with longer time horizons continue to invest aggressively in the major global markets, and we expect that their patience will continue to be rewarded.