MF1’s Scott Waynebern and Eric Draeger on Carving a Multifamily Lending Niche

Scott Waynebern’s Midtown South Manhattan office serves as an homage to his commercial real estate finance journey — up to and including the launch eight years ago of multifamily lender MF1 as a joint venture between Limekiln Real Estate and Berkshire Residential Investments.

Waynebern has a series of must-read books on the shelves of his open office setup for anyone pursuing a career in lending, such as The Big Short by Michael Lewis and Larry Silverstein’s The Rising, that spotlight some of the market cycles and crashes that have transpired over the course of his more than 30-year CRE career, starting as a senior analyst at Salomon Brothers. 

“The office is meant to share, and I believe strongly in transparency, communication and mentorship,” Waynebern said. “These books about the purchase and financing of the GM Building or about Peter Cooper Village or the World Trade Center or long-term capital management can show the younger generation that these stories they hear about, that seem too fantastic to be true, really did happen, so it serves as a bit of a lending library.” 

After five years at Salomon Brothers, Waynebern joined Deutsche Bank in 1996 and spent 14 years with the investment banking giant heading up real estate capital markets and its CRE special situations group. It was at Deutsche Bank that Waynebern met Eric Draeger, chief investment officer at Berkshire, setting the stage for the eventual creation of MF1. 

Following a two-year stint as president of Limekiln, Waynebern became head of CRE at Benefit Street Partners. It was there while lending within multiple property sectors that he decided a strictly multifamily route was the best path forward. He rejoined Limekiln and linked up with Draeger to form MF1. The duo have been thriving while focusing exclusively on residential rental assets, closing $4 billion of multifamily loans for the year ending March 1, 2025, a 48 percent yearly bump.

Waynebern and Draeger, who is based in Boston, met with Commercial Observer on April 8 at MF1’s Manhattan office at 41 Madison Avenue to discuss the origins of the alternative lender, the experience of navigating challenging markets like 2008’s Global Financial Crisis (GFC), and the decision to lean all in on multifamily lending. 

The interview has been edited for length and clarity. 

Commercial Observer: What was your initial path into working in commercial real estate finance?

Scott Waynebern: I did a year of business school at Kellogg in Chicago, and the CEO of Freddie Mac at the time [Leland C. Brendsel] sponsored a securitization symposium one night a week. He had an incredible group of people like Larry Fink [CEO of BlackRock] come out to Chicago and present to us. This was in 1996 at the beginning of this big wave of securitization, and that helped inspire me a little bit. I was familiar with it from my time at Salomon Brothers, but that really clued me into it. 

I then started at Deutsche Bank after business school, and because it was an open playing field — just as Deutsche Bank was starting their fixed-
income business — I was able to say to them  “I’ve got very good qualitative skills but I’m not good enough at math to compete on Treasurys or mortgages. But there’s this new product, CMBS, which looks like a great mix of them where you need to be pretty good at both.” Being somebody who lived in New York and was fascinated by New York real estate, it seemed really tangible and exciting. And, because it was the early days of Deutsche Bank in that training program, I was able to say I wanted to work on that desk.

So, you knew you wanted to work in finance but weren’t sure about commercial real estate finance until later?

Waynebern: That’s right. And what was incredible is, if you go back, there was such a deep crash in real estate from the changing of the tax rules and the savings and loan crisis in the late `80s, early `90s. On the rebound from that crisis there was a magnet of talent with a lot of people I went to college with or grew up with in the early `90s being pulled into commercial real estate, and that’s actually helped create a pretty amazing network.

Eric Draeger: I did not intend to do real estate. At Northwestern I took a class in real estate and didn’t like it. I went to work for a law firm and I was the only one who could do real math, so I ended up working on financing real estate with the partners. 

My wife was living in London at the same time Scott was working there, coincidentally, and I was going to see her and then stopped in Chicago to meet the originator who did the loans for us and had dinner with him. When I came back, he asked if I could have dinner again and offered me a job and I took it. My first year was at Berkshire Mortgage in Chicago. I moved to Boston about a year later and have been in multifamily finance ever since. 

How did you two begin working together?

Waynebern: In 2004, the team I was a part of at Deutsche Bank bought Berkshire Mortgage from founding owners Richard and Michael Krupp, and Eric and I worked very closely together in terms of integrating that business into this broad global commercial real estate finance business. At the first post-merger integration meeting, I stood up in front of all of Berkshire Mortgage and said, “You’re part of a trillion-dollar bank balance sheet now, so what do you want?” And every originator’s hand shot up and said, “We want bridge loans to compete with the banks that have Fannie Mae and Freddie Mac licenses that can also provide this other product.” 

Eric and I and his partner Jon Pfeil and a couple other folks put together a program to originate multifamily bridge loans in support of a Fannie and Freddie agency which is now owned by Deutsche Bank. We didn’t start lending until the absolute peak of the market in 2006 to 2007. We did have the foresight to stop lending relatively early in 2007 after a really legendary meeting with one of the chief credit guys at Freddie Mac, who told us this market doesn’t look good anymore. We came home and cut off the lending but we didn’t lose any money, despite lending at the absolute top of the market and going into the epic GFC crash. 

When the opportunity presented itself in 2017 to put the band back together again and do the same program, that was the idea behind MF1. In 2018, Berkshire Mortgage had no balance sheet, and today we have more bridge loans on our book than any publicly traded commercial mortgage REIT. It’s because we’ve scaled businesses before, and we learned what to do and, probably more importantly, what not to do.

What was the process like of starting MF1 in 2017?

Waynebern: It came together shockingly fast. For a variety of reasons it was time to move on from Benefit Street Partners. As I was thinking about what to do next, I was thinking if I wanted to do something like that again — doing every asset class and multiple types of lending — and somebody asked me a question. They said, “What if you only had $250 million of equity — what would be your best idea or two?” I said, “That’s easy, it would be a multifamily bridge loan business.” 

The second question was asking ourselves “Who do we want to partner with?” and that’s when we said, “Let’s run it back.” We had a choice at the time of basically “I’ll write you essentially a half-a-billion-dollar equity check to beta test the business and then go out and run a fund” or we could do it with Berkshire without a big check up front — but with trust because it’s so core to what they do. Also, we worked together in good times and in a crisis, and I wanted to do it again. I think most people’s advice is to take the money, but I wanted to make sure it really worked.

Draeger: The other thing to add to that is we both understand the other side. Theoretically, I’m real estate and he’s capital markets, but we both can do each other’s jobs. When you speak the same language it makes it a lot easier to understand what the other person is saying.

What led to your strict focus on multifamily?

Waynebern: I made a top-down credit call in 2017 for the Limekiln business to short office, retail and hotel. And the reason was that I felt like I no longer knew how to underwrite office. I didn’t think it was necessarily going down, but I just knew I didn’t understand it anymore. Layered on top of that was unknowns about the uses of office and whether it was server rooms disappearing in favor of the cloud, or people sitting closer together and knowing there’s going to be less space per employee. I also knew how difficult it was for my team to underwrite retail with all the questions I had about space becoming available. 

When it came to the multifamily sector, we had a lot of connectivity and a connection with Fannie Mae and Freddie Mac, because at Deutsche Bank we were the only big bank with a really active Fannie-Freddie business. Freddie Mac hired Eric and I to be the bankers to shepherd them into the CMBS world. We helped them create the K-series [Freddie Mac’s CMBS business] and, as part of that, we ended up purchasing the first Freddie Mac B-piece in the summer 2009 — the absolute bottom of the GFC. Fifty percent went into a vehicle I controlled at Deutsche Bank, and the other 50 percent went into the Krupp family real estate investment trust. So that was kind of a landmark transaction not only for each of our careers and each of our organizations, but, frankly, for the multifamily sector and commercial real estate sector as that Freddie Mac program became the single biggest thing in the CMBS market. 

If you believed in multifamily credit enough to buy subordinate, securitized risk in August of 2009, that shows a lot of conviction. When we came together, we said we’re going to work together on all things housing, but agreed to separately compete in the Freddie Mac B-piece space. We have been active buyers of subordinate multifamily risk in that market consistently since 2009.

Which geographic markets are drawing the most focus in multifamily now?

Draeger: We tend to close more loans in areas we’ve been to, so we’re going to be in the top 30 markets more than not because that’s where the assets are. But we are relatively agnostic and will do multifamily housing in all of the U.S. 

What is your outlook on the Sun Belt multifamily market with some of the oversupply issues that have popped up over the last couple of years?

Draeger: Our outlook is positive. Supply was definitely an issue for the last couple of years, but demand was amazingly strong as well, so nobody talks about that side of the equation. We’re seeing, generally speaking, recovery to almost normalization, so you aren’t seeing widespread issues on the supply-demand side even though there are some pockets in markets. There are definitely some markets that are softer, and we think those will improve as construction is slowing down pretty dramatically. We’ve been lending in the South, and are generally very positive about our performance. 

What’s your expectations for the demand for private credit as banks come back into the fold with lending?

Draeger: There’s a need for all capital sources, from the safest to the most aggressive, so there is a wide range. I think everyone’s got their niche. The banks are going to play and we have seen more competition, but they’re going to play probably more to their footprints in areas they know, and follow some of the customers. With private credit we can do something a little bit different and it can be a little more creative. 

Waynebern: The banks are undergoing multiple changes, and one of the big ones is the capital rules. I think my experience at Salomon Brothers and working on their balance sheet and Deutsche Bank saying, “Let’s use the balance sheet really efficiently,” gave me a real insight into capital usage and return on equity within the bank. 

So, when you look at it now with the way the capital rules have changed, there’s a massive advantage to a bank being a lender to us and getting their exposure to commercial real estate via loan on loan, or a warehouse line versus direct lending. If you do the math, a lower spread being lent to us but using less equity will generate a higher return on equity for the bank than them making that same loan directly at a higher spread. That has changed over the seven years we’ve been doing this, and we’ve been a real beneficiary of that. 

What are your near-term or long-term goals for MF1?

Waynebern: Our goal is to be the pre-eminent private lender to multifamily. To date, we have been almost exclusively originating floating-rate loans. We’ve closed our first few fixed-rate loans this year. We anticipated this year a shape of the curve where people would want fixed rate, and that hasn’t been the case. At some point, rates in the curve will move to where people want fixed rate, and we want to be prepared for that. Our goal is to keep adding new products to meet the demands of our customers. 

What do you enjoy outside of work?

Waynebern: We enjoy golfing together and golf in general. Also playing sports with our kids. We are also both big basketball fans.

Andrew Coen can be reached at acoen@commercialobserver.com.