Longtime Player: Criterion’s Chuck Rosenzweig Talks 37 Years in CRE Finance

As founder and managing partner of Criterion Real Estate Capital, Rosenzweig has overseen $6 billion of transaction value over the last 16 years. He sat down with Commercial Observer to discuss his multifaceted real estate career, the rise of CMBS, where he likes to invest, and what he’s thinking about the market as we begin 2025. 

This interview has been edited for length and clarity. 

Commercial Observer: You’ve had a truly varied career: law, CMBS, Wall Street and now CRE investment. How did you get to where you are today? 

Chuck Rosenzweig: It started after I graduated law school in 1988. I wanted to get into the real estate business and thought law was a great path. I started at Kaye Scholer, which is now called Arnold & Porter Kaye Scholer. They largely represented big developments in New York, and, with the tax laws changing in 1986, the real estate market went into a recession by 1990. 

So I was doing workouts and restructurings, and there wasn’t a lot of capital. Instead of being a lawyer for two years, I did it for a bit longer. I switched over when commercial real estate and Wall Street coalesced in the 1993-1994 period, and I moved over to the Wall Street side. 

How did those worlds of Wall Street and CRE coalesce in the mid-1990s?

That was the inception of real estate investment trusts and CMBS. Ethan Penner hired me at Nomura, which at the time became the largest lender in the country during the period I was there, so we were able to provide liquidity to the real estate industry after a long period where there wasn’t liquidity in the industry. It was the inception of the CMBS market early on — it was a really good time to have capital to be a lender and, at the time, Japan/Nomura was the largest investment bank in the world when I started there, so we had a really good balance sheet. 

I ultimately ran the eastern New York region for Nomura and Ethan. In the fall of 1998, when there was the collapse of hedge fund Long-Term Capital Management and the Russian debt crisis, Nomura marked-to-market those positions, there was a lot of turmoil, they shut down the business, and Perry Gershon started a business firm in New York City called CDC Mortgage Capital (now Natixis). 

We were there for a short amount of time, and a bunch of us who used to be senior managers at Nomura reunited at RBS Greenwich Capital working for Mark Finerman. There I ran our Eastern region as well for originations. It was a management team that largely consisted of most of the team at Nomura, including myself, Perry and Mark. And so I was there from 2002 to 2008. 

We all know 2008 was the GFC. Did that play into your decision to leave? 

In 2008, during the GFC, I decided I wanted to start my own investment business, and I wanted to take advantage of the distress and illiquidity that happened after the financial crisis. So I started Criterion Real Estate Capital at that point in time. It was an opportunistic time with a large institutional partner backing me, and we’ve been doing it in that form and successive interactions of that form for the last 15 years. 

How did training and years as an attorney inform your investment and CRE skills?

One observation is if you look at senior people in our industry, a lot are ex-lawyers on the finance side, development side and deal side. 

But the legal training for structured investing does inform how we approach deals through different types of capital structures and legal structures and different ways to invest. And it also informs our approach in terms of mitigating risk, whether it’s bankruptcy issues or labor issues or partnership issues. Or in the distressed world it’s inter-creditor issues and recapitalizing deals that have either bankruptcy risk or potentially contingent liability, or real liabilities you have to address. 

Being a lawyer and addressing those kinds of things, it provides a helpful background for the way we invest. A lot of what we do is problem solving, and some of that involves fixing capital structures and resolving partnership buyouts or going into situations where there’s a lender enforcing something, and we have to think about how to enter into a transaction, either buying a position or recapitalizing a borrower. It all speaks to having a good understanding of the various legal structures and issues that come up with that type of investing. 

You’ve seen a few different CRE crises in your day, beginning with the 1991 recession and savings and loan crisis, which was largely driven by real estate, and then the tech bust, the GFC, and now the post-COVID inflation. Having seen that, how have you stayed in the game?

One of the ways we’ve organized our business is to distance ourselves from the risk of the broader exogenous things that can affect the world and therefore our deals. We very much want to focus on the transaction, our basis in the transaction, so we’re more of a rifle shot. We don’t want to be in a situation where everything going on in the world can have a large impact on our immediate business. We’re not in the capital markets business — we only utilize the capital markets business to finance things. Our business isn’t driven by securities we’re trading all over the world. 

What we try to do is very much invest in a way where we can box our risk as much as we can to the real estate deal. And when you’re in a capital markets business, which was what I was working in before on Wall Street, there are things that can affect your business you have no control over. In 1998, working at a Wall Street firm like I did, you had something that happened in another part of the world that changed the value of your portfolio overnight. We don’t want to have investments that are tethered to broader events of the world. 

You can’t get away from that, but we’ve learned from that on how we organize our business. We’re not a flow or distribution business. We’re an investment business that focuses on protecting our basis and capturing as much alpha or upside for our position as we can deal by deal. 

Walk me through Criterion Capital’s business today. Which asset classes do you invest in, and what’s your bread and butter?

We’re squarely in special situations. We invest across the capital structure. We utilize both credit structures, targeting high yield, and sometimes we commit a full position to get to higher yield, or we’re investing in structured equity or recapitalized capital to get to equity-like returns. We’re definitely investors in the risk space. I’d like to say our business is debt-equity — we’re not typically first-loss common equity, we’re not a senior lender. We take more risk than a typical debt fund, but we are targeting a higher return profile for our investors. 

So we invest in all property types, but we tend to invest in really solid, all-day-long real estate. Sometimes that’s an asset class other people might not be as interested in — we might have an office investment now that it’s an out-of-favor property type, but if you can find the exceptions to the rule, then you do it — and when people paint a broad brush about a category and make an extra yield for doing it, that’s the way we like to do things. 

We invest in value-creation types of situations more than cash flow. That involves pre-development, redevelopment and development deals, where we back a business plan that involves value creation. We’re investors in land loans — it might be one of the best pieces of land in New York City or infill Brooklyn, it’s not some random part of the country. We tend to focus on assets where there’s low-loss severity, assets people care about. We tend to invest in assets of a certain scale and size because our deals are pretty complicated, so we tend not to be in the volume business. We do a small number of larger deals to get to our returns and to make sure our work is paid off with the right amount of dollar profit. 

Can you give some examples of deals you’ve worked on this past year?

One of the last deals we closed, we invested in a property that is going to be converted to student housing proximate to a university. It’s a redevelopment deal, and we’re the participating preferred equity in that deal. We just finished up a condo deal in Tysons Corner, Va., that sold out over the past year where we did similar structured equity on the development. We bought a note on a distressed asset office building that may become a leased office building again or a residential building, but we’re looking at the optionality of those kinds of things, buying something at what we think is a good price. 

Which asset classes do you get excited about?

We pivot around based on where we see opportunity, but most of what we’re going to do is either in the residential space, including multifamily and condo, mixed-use that includes retail, hospitality, and very selective office. We have not done a lot of industrial. It’s not because we don’t like it, but it’s something that’s been very efficiently priced and something that’s more difficult to make the returns we want to make. 

That was generally more true for multifamily until the inflationary environment. We saw an opportunity to make investments into the multifamily space when rates started going up and people veered more to existing cash-flowing assets. 

You’ve been known to be a mentor of many people in the industry. How would you describe your mentoring skills?

I’ve been doing this since 1994, and people I hired in the 1990s and 2000s are now very senior people. The alumni have moved onto some really good leadership positions at investment banks and debt funds and the like. You can ask them that question about leadership more than me, but when you’ve done $35 billion of transactions over the years, when you go through that many deals with transaction teams, every time you’re doing something you’re both learning and people around you are also learning. When you have a good team rowing in the same direction, you accomplish a lot and you all learn from each other. In each deal, the best thing you can do is be a sponge and learn from that experience and apply it to the next set of transactions. 

That’s the way I’ve been in my career. And the people who have worked with me and been the most successful, I think that’s how they approach things as well. 

What’s your best piece of CRE investment advice?

I think real estate starts and ends with a good cost basis. With a good cost basis you can make mistakes and still make money, but with a bad cost basis you can do all the right things and still lose money. 

Brian Pascus can be reached at bpascus@commercialobserver.com