The Lee Way: Capital One Multifamily Chief Jeff Lee Is an Agency-Lending Powerhouse
Jeff Lee has always had a knack for being in the right place at the right time. And for the head of multifamily lending at Capital One, one of America’s fastest-growing institutions in the space, the right place isn’t New York City or Los Angeles—it’s the unassuming Washington, D.C. suburb of Bethesda, Md.
“There’s probably six DUS [delegated servicing and underwriting] lenders within three blocks of here,” Lee said, referring to a handful of the two-dozen debt institutions that have been approved to make Fannie Mae-securitized loans. On a recent Friday morning, Lee showed off the view from his 10th-floor conference room in the city’s Metro Center, a busy trio of office buildings on a plaza above a stop on D.C.’s Red Line train, just about eight miles northwest of the Capitol Building. It was no coincidence that on his trip in from New York, this reporter shared a train car with a woman running a highlighter across the pages of commercial mortgage-backed securities offering documents, or that on the streets of Bethesda there was a crew of men in Walker & Dunlop polo shirts sharing a smoke break.
That’s because DUS lenders congregate in the Maryland city in thrall to the two giant institutions at the center of the multifamily universe. Fannie Mae, the country’s second-biggest buyer of multifamily mortgages, is headquartered just down Wisconsin Avenue in the D.C. neighborhood of Tenleytown, and Freddie Mac, the biggest, is a hop, a skip and a jump across the Potomac River in McLean, Va. As a result, an office in Bethesda is crucial for being maximally plugged in to the world of apartment-building lending—which is exactly where Lee has thrived throughout his career.
“We spend a lot of time with [Fannie and Freddie insiders],” Lee explained. “That’s the biggest advantage to being here. We take them out on client visits a lot, and a lot of it is also social. We’re a pretty friendly network.”
A network that has served Lee and his team exceptionally well.
Last year, Lee’s group at Capital One churned out just south of $3 billion in Fannie Mae multifamily loans, up nearly 10 percent from 2016. In a boom year for agency lending, that was good for 10th place among DUS lenders as per Fannie’s data—even though Capital One’s lesser total from the year before ranked it No. 6 on the list.
With Freddie Mac, the synergies were even stronger in 2017, totaling $3.7 billion in multifamily loans, the seventh-highest total of any of the agency’s originators, according to Freddie’s figures.
According the Mortgage Bankers Association, Capital One finished 2017 with $8.9 billion total in multifamily originations, a total that included about $2.3 billion in balance-sheet loans.
Lee is proud that that burgeoning fortress of business in the multifamily sector comprises a structure of thoroughly modest bricks. In New York City, one of the bank’s biggest markets, Capital One’s typical multifamily loan is worth less than $5 million, and is probably secured by a building that looks a lot like those Lee grew up in. Born in the early 1970s, his first home was a Chinatown apartment, followed by stints in houses and duplexes in Forest Hills and Bayside, Queens.
When it was time for college, it was nearly impossible for Lee to conceive of leaving the only city he’d ever lived in.
“My parents actually said they wouldn’t let me stay in New York,” Lee recalled. “I got into [New York University], and they wouldn’t let me go there.” Instead, he remained committed to the Mid-Atlantic, weighing enrollment at Pennsylvania State University before settling on the University of Maryland in College Park, 10 miles west of Bethesda. Lee hasn’t strayed far since.
But though the 45-year-old has had roots in the area for decades, you get the sense that college itself didn’t leave a profound impression on Lee—it took the executive a couple of seconds to recall his graduation year or even his major. (It was economics…he’s pretty sure.) Far more indelible was the first taste of entrepreneurship he experienced in those years, when he parlayed his enthusiasm for collectibles and trading cards into a mall kiosk enterprise that did a brisk business during his time out of the classroom.
A dose of serendipity played its role in the young Lee’s career, when, searching for his first “real job” by responding to newspaper ads he got a phone call back from a fledgling real estate firm called Patrician Companies—today known as Berkeley Point Capital, after a series of acquisitions.
“I started my career there [tracking] rent rolls, not really knowing much about real estate or multifamily,” Lee said. “That was it: that was the beginning.”
He may have landed in the industry without much forethought, but the relationships he forged with mentors persuaded him to stay for the long haul—and helped him rocket through the ranks at every organization he’s worked for. After a few years at Patrician and a short-term move to another firm that whet his appetite for finance entrepreneurship (Bankers Mutual, which recruited Lee to help build out its first East Coast office), Lee settled into a job in Fannie Mae’s large-loan structured-finance group in 2000, where he found himself under the tutelage of an industry vet who would shape the rest of his career.
High up in Fannie Mae’s multifamily command at the time happened to be Grace Huebscher, a senior lending executive who took to Lee right away.
“He is very practical—very level-headed,” Huebscher said. “He’s very smart, and he knows what he’s doing.”
After getting a rapid-fire tour of a wide variety of the agency’s sectors—his roles there included stints in underwriting, production and capital markets—Lee was at the top of Huebscher’s list when she poached him to start her own lending platform, Beech Street Capital, in his ninth year at Fannie Mae.
It was a prophetic moment for Lee—and unlike his college graduation, he didn’t have to pause for a moment to bring the date to mind when telling the story.
“Sept. 20, 2009—it was a few of us working on Fannie Mae’s trading floor” who left to lay the foundations for the new DUS-lending startup, Lee recounted.
At the time, little about the U.S. multifamily market seemed a sure bet—least of all how the agency business would shake out. A year earlier, Fannie and Freddie had been placed in government conservatorship coinciding with a federal capital injection in the hundreds of billions, and no one expected the conservatorship to remain in place for 10 years, as it has.
“It was a lot of fun, but it was a little scary,” Lee said, remembering how the nascent firm—just three people, at the time—embarked on a manic sprint to open for business by the time the calendar turned to 2010. “We were at Grace’s dining room table, [and] I was doing branding, computer networks, office space and office furniture. I’d never done any of that before.”
Lee’s pragmatic, laser-focused demeanor was instrumental to balancing out the team, Huebscher said.
“I tend to have a softer side, and sometimes, there would be challenges we’d have,” Huebscher remembered. “I’d say, ‘Don’t worry about it, it’ll be all right.’ And he’d say, ‘How do you know?’ ”
Lee could be a demanding colleague, but ultimately, he kept the startup on the rails.
“There were situations where early on when we were growing so fast and we had limited warehouse facility: we always had to come up with some really out-of-the-box solutions,” Huebscher continued. “I’d say, ‘Let’s just sit on it.’ And he’d just go crazy! But then we’d get together the next morning and the team would come up with the right solutions.”
Despite the seemingly insurmountable headwinds, Beech Street grew at a blistering pace. Lee leased enough office space for Beech Street to employ 79 workers when it had only hired eight. If that choice seemed ambitious at the time, the company’s trajectory exceeded even Lee’s expectations: within four years, Beech counted 135 on its payroll.
Attribute a big portion of that success to Huebscher’s relationship with Ralph Herzka of Meridian Capital, who cheerfully funneled loans to a firm that was breaking the mold.
“I first met Jeff when he was working on the credit side at Fannie Mae about 15 years ago,” Herzka said. “Since that time I have come to know Jeff personally and professionally and he played a key role as one of the first three hires…at Beech Street.”
Lee had impressed Herzka from the start.
“With Jeff you always get levelheaded and reliable risk-adjusted decision making which is critical to the certainty of execution that our brokers and clients rely on,” Herzka said.
The Meridian connection gave Beech Street a much-needed early spark of deal volume.
“From day one, it was like hooking ourselves up to a firehose,” Lee explained. “Whhi en you create these kinds of partnerships, there are different agendas, but [with Meridian], there was complete alignment for us.”
But as rapidly as Beech expanded, its business remained limited to agency loans. Soon, Lee found himself daydreaming about the additional flexibility of a balance sheet to work off of, too.
“We did $1 billion in business in our first year, $2 billion in our second, $3 billion our third and $4 billion our fourth,” Lee said. “But if we didn’t partner with someone who had more tools for us to use, like a balance sheet, we were eventually going to become [just] another DUS lender.”
That’s why Lee and Huebscher were all ears when Capital One, led by Rick Lyon—who retired from the bank last month—came knocking with talk of an acquisition.
John Maurer, a veteran Capital One CRE executive, recalls the bank’s excitement about incorporating Beech Street.
“Beech Street was in its infancy, but they definitely were exceeding expectations,” Maurer said. “Our balance sheet was more regional, and we did not have that kind of [agency] distribution platform.”
When the acquisition closed in 2013, the integration was far from a culture shock, by all accounts. From its jokey, celebrity-spangled TV commercials for its consumer banking and credit business to its epically relaxed dress code for a major bank—on the Friday Lee met with CO, he sported jeans and a button-down—Capital One has never taken itself too seriously, and Lee likes to keep things loose as well.
Lou Rosado, a senior vice president at the bank whose work often overlaps with Lee’s, says the multifamily chief has an enduring penchant for keeping things improvisatory.
“I just recently sat in on a meeting, and [Lee] purposely scheduled it to keep it loose,” Rosado explained. “He didn’t want people preparing for it—[it was as if] the teacher had a quiz and didn’t tell you about it. Jeff wanted to get what was fresh off the top of your head.”
That’s not to say the lending team is anything close to rudderless. After all, it takes plenty of planning and administrative handiwork to roll hundreds of small-balance loans into a respectable multi-billion-dollar platform.
Typical of the bank’s piecemeal approach to building impressive annual volumes—and of its focus on California as one of the major markets in which it supports sponsors, along with New York City and the Mid-Atlantic states—one of Lee’s team’s most recent deals was a $23 million Fannie Mae loan on Terraza Del Sol, a development of 168 apartments in sun-drenched Rancho Cucamonga, Calif., about 40 miles east of Los Angeles.
But at the right moments, Lee’s team has the firepower to make splashy loans, too, like a recent $150 million Freddie Mac deal, brokered by Meridian Capital, to refinance a portfolio of 10 multifamily properties in Capital One’s meat-and-potatoes markets of Delaware, Pennsylvania and New Jersey.
And though agency deals like those represent the bank’s lending wheelhouse, Lee’s operation doesn’t shy away from the more venturesome climes of balance-sheet construction debt—at least when his team can get comfortable with a borrower whose credit it knows inside and out.
“We don’t do one-off construction finance for anyone: we only do it for [sponsors with] existing relationships or those we know will become long term,” Lee said. “Our construction-lending strategy is around…existing relationships we want to grow, and also to capture new relationships.”
A prime example would be the bank’s $66 million loan in early March to San Diego-based Fairfield Residential to support construction of an apartment-building project in the Seattle suburb of Redmond, Wash.
The three-year loan worked out precisely because Lee’s team knew Fairfield’s work inside and out.
“We have chosen to work many times with Capital One because they thoroughly know their business and have taken the time to understand ours,” Fairfield executive Douglas Ness said in a statement describing the mortgage.
Despite the decades of nitty-gritty deal work it has taken Lee to achieve that reputation for his business, long threads of continuity span the miles and the decades that transformed Jeff Lee, the kid from Queens, into Jeff Lee, the multifamily hotshot. At heart a New Yorker, he still spends about 20 percent of his time at Capital One’s Big Apple-area office in Melville, N.Y., on Long Island. He’s still a comic-book nut, and keeps a thriving collection in the Bethesda home he shares with his wife and two kids, ages 12 and 15. Along the way, he’s also picked up a penchant for auto racing—a hobby that he said is as easy as buying a speedy car and taking it to a track.
“It’s just recreational—not competitive,” Lee explained.
Sounds like life at the office is plenty fast enough.