Michael Riccio on Life Companies, Construction Lending and CBRE’s Record Year
CBRE brokered more than $39 billion in loan originations in 2016, and at the forefront of that effort was Michael Riccio, the co-head of national production at the advisory firm’s capital markets division. The 58-year-old chatted with Commercial Observer last week about how he made the transition from lender to broker, what drove the market in 2016 and why life companies are poised to pick up a greater share of the commercial real estate lending business.
Commercial Observer: Where did you grow up?
Riccio: I grew up in Rocky Hills, Conn., and went to school at [Southern Connecticut State] in New Haven and then to the University of Connecticut for my MBA. I started in the actuary program for about a year, which was rather dull. I met some people in the real estate department and went back to school for my master’s in real estate finance. Then, in the mid-1980s, I got into the real estate department at Cigna, which was then the Connecticut General Life Insurance Company. At the time, we were one of the largest life insurance company lenders in the country. We financed a lot of regional malls and did big deals. I was there for 23 years. I also did some portfolio and asset management.
I had a lot of relationships with clients where I used to be their lender [at Cigna]. They decided they would transfer their relationship to me [at CBRE] as their mortgage banking adviser. To this day, I still have many of those same clients and work with them on a regular basis. One of the things I love about this business is you get to form long-term relationships, and many people are very loyal.
In 2004, I joined CBRE Melody [formerly mortgage originator and servicer LJ Melody & Co.] It was one of the premier mortgage banking firms started by Larry Melody. And in 2011, Brian Stoffers asked me if I would help him lead the organization because he was being stretched to do more global things and needed help running the company from a domestic standpoint. My partner Mitchell Kiffe, who is based in Washington, D.C., and I came on as co-head of the mortgage origination group for debt and structured finance.
What made you want to transition out of lending?
I did the lender part for a very long time, and I was at a crossroads: Was I going to do that for the rest of my career, or do something a little more risky and entrepreneurial with a higher risk-return profile? I was encouraged by a lot of my peers, and I like the flexibility and kind of “run your own business” part of being an adviser, so I took the chance—when my kids just started college. Luckily, I had great support from my wife and family.
How many kids do you have?
I have three grown kids, and we just had our first grandkid, Logan, three-and-a-half months ago.
Why was the timing right for the CBRE opportunity?
When Cigna sold their pension business to Prudential Financial in 2003 and 2004, they were going to be a different kind of lender, a smaller lender, so it was an opportunity to go and try [something different]. I was encouraged by people who thought I could [be a broker] and by a big client who I still do business with. When I was at Cigna, I worked very closely with many of the top mortgage bankers at CBRE at the time. The transition was pretty easy because I knew so many people at the firm.
What’s a typical day at work like for you?
It ebbs and flows depending on the time of year. I would say I spend half of my time working on leadership initiatives and working with our teams. I love to work with our young people and help them develop, so I mentor a number of them. I have great relationships with all of our team members because I have a [a more national] perspective than they do. I give them different perspective than what they’re used to.
I spend the other half of my time doing deals for clients across all property types and geographic locations.
How many people do you oversee?
Mitchell and I are co-heads of debt and structured finance. He is the expert in multifamily and agency financing, while I focus more on commercial and non-apartment deals. We have [more than 200] offices around the country and have about 175 originators. By the nature of our business, it’s very entrepreneurial, so none of the of the people need day-to-day management. It’s more of a leadership job than a management job. We call it servant leadership. We work to get them all tools to be successful.
What’s an example of that?
Over the last 18 months, we’ve been working on something called reciprocal advantage, which is an effort to collaborate with our investment sales professionals. I’m a very big advocate of it, so I spent a lot time with other members of the team in leadership to implement it. We’re starting to see results.
What are some recent deals you’ve worked on?
We financed a very large retail center for one of my big clients in Northern Virginia. It involved six different parcels that were all adjacent to each other but bought separately. It was very difficult to sign, but we were able to put [$172 million across] a senior loan and a mezzanine loan on it to give the borrower the proceeds they needed.
Are you seeing more structured deals like that, especially when it comes to construction lending?
We have seen a huge increase in the number of private options that are available to the market this year. A lot of lenders are also setting up departments or strategies within their group to do core loans [and] bridge- or mezz-type financing. So they take a barbell approach where they do a low-rate deal but take on a little more risk and get a higher return. What we’ve seen is a surge in bridge and mezz capital, and I think that’s good. There’s a need to refinance a whole wave of maturities hitting as we speak and over next couple of quarters. I think we need that private capital to bridge that gap.
What are your thoughts on life companies’ role in the market?
I do think they have a bit of an advantage. There are additional regulations being put on commercial mortgage-backed securities originators and bank lenders. The life companies are not subject to those same regulations and are taking advantage of the opportunity in the market to increase their market share and allocations for 2017. I see them being a really good source of capital, and I think they will probably pick up some market share for the first half of 2017 at least.
What do you think of CBRE’s total loan origination volume in 2016?
It was our strongest year. We’re really happy with that. If we can do that again this year, we’ll be very happy. It was especially strong on the multifamily side, and for the eighth year in a row, we were the No. 1 Freddie Mac lender and agency lender in the country.