[VIDEO] Madison Realty Capital Hasn’t Lost Sight of Its Entrepreneurial Approach

When Josh Zegen co-founded Madison Realty Capital in 2004, he sought to build a firm that could provide capital to large commercial real estate enterprises while retaining a nimble, entrepreneurial spirit.

Fifteen years and $11 billion in transactions later — $9 billion in debt investment, $2 billion in equity — Zegen and Madison Realty Capital (MRC) have done just that, growing exponentially while retaining the traits that keep a firm hungry.

“Madison has the same entrepreneurial culture that we did when we were a fraction of the size,” Zegen said of his company, which now has over 60 employees. “We are a large organization that can address complicated issues, provide the certainty, flexibility, and customization that’s really needed in the market, and be a single source of capital to many different real estate finance needs across the country.”

Zegen notes that MRC’s latest investment vehicle, a $1.13 billion real estate debt fund (its fourth discretionary debt fund), gives the firm the influence, power and flexibility to serve the needs of organizations large and small without the bureaucratic and regulatory roadblocks that many large lenders encounter.

“Having a billion-dollar-plus fund with a flat organization is very rare in the real estate debt business,” he said. “We don’t syndicate our loans, we don’t syndicate our investments, and we have the ability to make quick decisions and close quickly because of that discretionary capital under management.”

Given the turn-on-a-dime nature of deal making and the constantly changing real estate lending landscape, MRC’s ability to nimbly handle complex situations as they develop quickly in real-time makes the firm a valuable partner across asset classes and markets, and anywhere in the capital stack.

“When a borrower executes a business plan, very rarely does it go exactly as planned. Every development deal will have twists and turns,” he said. “So having an organization like ourselves that can tackle complex moving pieces, and the fact that we can customize financing to a business plan and execute a business plan, is really the value we create as a lender.”

The firm has handled projects as diverse as a $225 million construction loan for The Residences at Mandarin Oriental, a luxury condominium tower in Boca Raton, Fla., an $80 million senior loan on multifamily and mixed-use complexes in Los Angeles, $35 million in construction mezzanine financing for a residential condominium in the Hudson West neighborhood of Manhattan, and a $314 million loan for Raffles Boston Back Bay Hotel & Residences, a hotel and residential development in Boston. That variety is seen throughout the firm’s portfolio, but all the deals share one constant: an unparalleled success rate that has led many clients to rely on the firm across multiple deals.

“Seventy to 80 percent of our business is with repeat borrowers or intermediaries,” Zegen said. “There’s nothing that makes us happier than seeing someone who came to us seven, eight years ago and borrowed $20 million, and now is borrowing $300 million from us.”

In addition to its market-leading debt business, MRC has also invested $2 billion in equity across property types. The firm often employs a value-add strategy that involves assessing a property’s best use and implementing capital improvements prior to completing strategic lease-up campaigns.

The success of MRC’s equity business not only diversifies the firm’s portfolio; the extensive experience as a sponsor gives the firm firsthand insight into its borrower’s needs.

“We’ve been building, owning, and developing for a number of years,” Zegen said. “Being a good owner and developer makes us a better lender, and being a better lender makes us a better owner and developer. It’s a symbiotic relationship.”

While diversity of experience is one reason MRC is an essential partner on both the debt and equity sides, length of experience is another. With 15 years under their belt, Zegen and MRC have seen significant shifts in the commercial real estate industry, giving them the institutional knowledge to gracefully handle the inevitable market fluctuations that impact every deal.

“We are one of the few players that was here pre-crisis and we’ve been through multiple cycles,” he said. “That in itself should say a lot to the borrower community.”

Zegen believes the firm’s longstanding pledge to retain an entrepreneurial spirit and its vast experience through market cycles have served as the key ingredients to the firm’s success.

“A lot of our success I can attribute to the passion, spirit, and energy we’ve been able to cultivate that makes us still an entrepreneurial organization within a very institutional platform,” he said. “While Madison has grown over 15 years to the firm it is today, not a transaction, not a situation, not a deal goes by without us having a very hands-on approach. That entrepreneurial spirit is something that exists in our organization, our personnel, and the way we do business every day.”