Mortgage Observer 0312

Power Profile:

Matt Galligan

On CIT Group’s New Real Estate

Finance Challenge

Q&A: the M.O. chats with Ackman-Ziff’s

Simon Ziff Lending Powerhouse

M&T Bank

Plus: Top Large DealsTop Smaller DealsMonthly Mortgage Charts and more

The Insider’s Monthly Guide

to New York’s Commercial

Mortgage Industry

APRIL 2012

CMO_0412_Cover.indd 1 3/22/12 8:12:13 PM

Columbus SquareNew York, NY500,000 SF Retail Portfolio

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Untitled-8 1 3/22/12 1:11 PMADpage.indd 31 3/22/12 8:05:18 PM

APRIL 2012 the MORtGAGe OBSeRVeR 1

contents

2 Editor’s letter

4 news exchange

12 work force

14 Originations The Mortgage Observer’s picks for 5 deals over and under $30 million

16 m&t bank

The secrets behind M&T’s lending might

20 power profile CIT’s new real estate finance division

24 Q&A The M.O. chats with Simon Ziff

26 The scheme of things

Monthly mortgage charts

28 Stein’s law

29 the basis point

30 in-depth look Michael Stoler on insurance companies

31 the schedule

32 of interest

Cover photo by Hannah Mattix

321 West 44th Street, New York, NY 10036

212.755.2400

Jared Kushner, Publisher

Barbara Ginsburg Shapiro, AssociAte Publisher

Robyn Weiss, Director of reAl estAte

Jotham Sederstrom, eDitoriAl Director

Carl Gaines, eDitor

Dan Geiger, Daniel Edward Rosen,

stAff Writers

Sam Chandan, Joshua Stein,

columnists

Peter Lettre, Photo eDitor

Mark Stinson, Designer

Lisa Medchill, ADvertising ProDuction

Christopher Barnes, PresiDent,

observer meDiA grouP

Barry Lewis,

executive vice PresiDent,

observer meDiA grouP

CMO_0412_TOC & Masthead.indd 1 3/22/12 8:57:38 PM

the MORtGAGe OBSeRVeR APRIL 20122

So welcome to The Mortgage Observer. Stick around and stay a while.We’re dedicated to bringing you all the commercial real estate finance news happening in the

New York tristate area, with a focus on tracking and diving down deep into recent mortgages—that’s our mission.

As we head further into spring, it’s easy to feel optimistic and ready to start something new with vigor. The weather’s warmer, the flowers are blooming, the sun sticks around later… Well, opti-mism regarding the economy and what our collective financial recovery means for commercial real estate seems to be in bloom once again, too. No doubt uncertainties still loom, but several of the stories we’re bringing you this month attest to this.

For instance, my profile of CIT Group’s Matt Galligan, formerly of Bank of Ireland. After helping to set up Bank of Ireland’s U.S. portfolio, Matt found himself having to wind it—and his position—down when Irish regulators called for the bank to deleverage. Matt and much of his team from Bank of Ireland weathered that storm and started something new—the real estate finance division at CIT Group.

The move isn’t without risk. But as Matt told me, everyone has risk—whether they know it or not.

For me, optimism abounds in the story of M&T Bank, as well. With its focus on community lend-ing and a loyalty for its long-time customers, the bank weathered the financial crisis and recently acquired Wilmington Trust, which will allow it to provide new wealth management services to those customers.

As someone helping to start something new myself, I took a lot from all of these stories. And I’m sure that you’ll find them valuable and informative, too.

Also of value, I hope, will be our analysis of commercial mortgage deals in the New York tristate area. We’ve populated this magazine with lists, charts and graphs—all designed to give you an on-going, easy to access snapshot of who the lenders, borrowers and brokers are.

As we continue on, please feel free to get in touch and let me know what’s working for you and what’s not. And, of course, as we continue on into spring and deals bloom for you, reach out and share them with us.

Happy spring.

Editor’s Letter

Spring’s HereMight Optimism Follow?

CMO_0412_EditorLetter.indd 2 3/22/12 8:03:01 PM

Commercial Real Estate Finance

Financing provided by:Drew [email protected]

Alan [email protected]

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THE MORTGAGE OBSERVER APRIL 20124

NEWS EXCHANGE

{ Continued on }

Life insurance companies continue to exceed ex-pectations in the commercial mortgage originations space. Insurer MetLife said recently that its Real Estate Investments department originated over $11 billion in commercial mortgages in 2011, compared to more than $8 billion that the company originated in 2010. And according to a MetLife spokesperson, those 2010 num-bers were twice those seen in 2009.

In Manhattan last year, the company’s volume was bol-stered by several high profile originations, including $350 million for 1540 Broadway and a $374 million loan issued for Boston Properties’ 601 Lexington Avenue, where Pru-dential Mortgage Capital Co. and New York Life’s contri-butions brought the loan total to $735 million.

Robert Merck, senior managing director and head of real estate investments at MetLife, sees the in-surer’s strengths as being tied to its reputation, size, financial strength and the speed at which it can ex-ecute transactions.

“MetLife has built its commercial real estate lending business on key guiding principles, which enabled us to strategically navigate through the economic downturn during the past few years and remain an active lender in the market,” Mr. Merck said in a prepared statement

about the loan origination volumes. “Our commitment to prudent risk management and our long-term invest-ment approach has allowed us to take advantage of attractive opportunities in the U.S. and internationally, and we will continue to focus on top quality properties in major markets in 2012.”

The company, which had a total commercial mort-gage portfolio of $40 billion as of the end of 2011, was “able to originate top quality loans at yields that provided a pick-up of more than 100 basis points over comparable risk corporate bonds,” according to Mark Wilsmann, managing director and head of MetLife’s mortgage lending group.

MetLife’s increase in originations volume is in line with the industry as a whole, based upon data from the American Council of Life Insurers. The group reports total commitment volume of $45.42 billion for 2011, a 48.23 percent increase from the previous year.

For the remainder of 2012, the company says it will focus on expanding its commercial mortgage activity across the globe, but particularly in the United King-dom, where it views market conditions as particularly favorable. It targets office, multifamily, industrial and retail properties in top markets.

$33 Million Williamsburg Trade Shows Hotel Craze Filtering to Boroughs

The trade of a boutique hotel in Brooklyn is the latest indication that the New York City hotel market contin-

ues to be on fire. And the co-developers on the project weren’t even looking for a buyer.

Hotel Williamsburg, a 64-key, full-service hotel that opened its doors just last November, was bought by King & Grove on March 8 for over $33 million. Re-named King & Grove Williamsburg, the hotel, at 160 North 12th Street in Williamsburg, has followers of the

city’s hotel sector abuzz.Daniel Lesser, president

and CEO of LW Hospitality Advisors, told The Mortgage Observer that the deal speaks to the city’s overall health. “It’s a brand new hotel in a really dynamic market—Williams-burg is very much a happening place,” Mr. Lesser said. “It’s very emblematic of the funda-mental health of New York and how all parts of the city have been, and continue to be, gen-trified.” Mr. Lesser also pointed to areas like Long Island City,

where ten to twenty years ago, “there wasn’t a whole lot happening.”

The hotel was co-developed by Minneapolis-based Graves Hospitality Corp. and Williamsburg-based KSK Construction Group—developer of the GEM Hotel Union Square.

According to a statement from Graves Hospitality, the developers hadn’t anticipated selling. Rather, they planned to “indefinitely operate the property,” until “the market’s overwhelmingly enthusiastic response to the high-profile project attracted a non-solicited pur-chase offer that was simply too good to refuse.”

Benjamin Graves, president of Graves Hospitality, said that the sale highlights the company’s “skills at understanding the intricacies of specific locations and submarkets, identifying the right concept and develop-ing relevant, high-quality projects to drive demand and profitability.”

Mr. Lesser, at LW Hospitality, referenced a “New York metropolitan renaissance,” the benefits of which are making their way to the outer boroughs. “That’s what we’re seeing in Brooklyn and that’s why we’re

MetLife’s Commercial Mortgage Volume Hit $11 Billion in 2011

Note sales, investments, mortgage originations, mergers, aquisitions

Hotel Williamsburg.

1540 Broadway.

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The European commercial real es-tate market is being dominated by U.S. and Canadian investors, with several New York-based asset managers pur-suing routes into real estate—like debt portfolios—that others pass by.

According to data from CBRE, North American investors were responsible for 30 percent of invest-ments in European commercial real estate last year. This was up from 21 percent in 2010. Of this capital in 2011, Euro 9 billion was from the U.S. and Euro 2 billion was from Canada.

Michael Haddock, a London-based senior director, EMEA Research and Consulting, at CBRE said that inves-tors tiptoe around the countries hardest hit by the European debt crisis. He said that the general trend is investors looking for core real estate in core markets and avoiding the risk associated with distressed assets. “But there is a small group of investors,” he pointed out, “who do actively seek out risk in the hope of get-ting very good returns.” Part of this is due to a different mindset, Mr. Haddock pointed out.

“With somebody like Blackstone, it’s quite interest-ing that they’re pursuing quite a number of different routes into real estate—so Blackstone [Group] has been quite prominent as buyers of debt portfolios, as well as direct real estate,” he said. “That’s reasonably typical of U.S. investors. That they have the ability to think in

multiple dimensions about ways mar-kets operate.”

Blackstone Real Estate Debt Strate-gies, a division started in 2008, cur-rently has $4 billion of assets under management, according to the compa-ny, whose total real estate assets under management as of December 31, 2011, were $42.9 billion.

The increase in non-European buy-ers of European commercial real estate caused a 7 percent increase in overall investment activity in the market. It rose from Euro 110 billion in 2010 to Euro 118 billion in 2011.

After the UK, the next most popular market for North American investors

was Germany, Mr. Haddock said. “That has certainly been the case for the last couple of years,” he added. “Next largest—pretty much equally for last year—were France and Russia. And then it trails off pretty quickly after that.” To that point, the CBRE data showed only about Euro 350 million in Italy, Euro 170 million in Spain and nothing Mr. Haddock could see in Portugal, Ireland or Greece—among the weakest of the Euro zone markets.

Though the investment activity was spread across markets in countries least impacted by economic tur-moil, the London office market fared the best. Central London took 18 percent of total North American capital invested in Europe in 2011.

CBRE: Investments in European CRE Flowing from North America

seeing hotels like this get built in the first place, and then secondly they end up trading at some very healthy numbers,” Mr. Lesser added. “These are evolving mar-kets on the upswing.”

$325 Million Refi for 100 West 33rd Street

Vornado Realty Trust has refinanced its 100 West 33rd Street building—home of Manhattan Mall—for $325 million. The REIT realized $87 million of net pro-ceeds in the process.

The new loan, at an interest rate of LIBOR plus 2.5 percent, matures in March of 2015 and has two one-year extension options built in. Net proceeds were real-ized upon paying off the existing loan and closing costs for the current refinancing.

The 12-story building sits on the entire eastern block of Sixth Avenue between 32nd and 33rd Streets. It is 1.1 million square feet and includes the mall, at 243,000 square feet, and 847,000 square feet of office space.

Retail tenants at the Penn Plaza district building in-clude JC Penney, Victoria’s Secret and Gamestop. Office tenants include Draftfcb and Polo Ralph Lauren.

Deutsche Bank Berkshire Mortgage Acquired

Real estate financial services company Ranieri Real Estate Partners and private equity funds affiliated with New York’s WL Ross & Co. have completed their acqui-sition of Deutsche Bank Berkshire Mortgage.

Jeffrey Day, DBBM’s CEO, will continue in that role at the company, which has been dubbed Berkeley Point Capital. It originates multifamily loans for Fannie Mae, Freddie Mac and the Federal Housing Administration. Berkeley Point services a $29 billion portfolio of mul-tifamily loans and, according to a release, is the second largest originator of Fannie Mae loans.

Jon Vaccaro, founder of Ranieri Real Estate Partners and head of real estate at Ranieri Partners, lauded the value of the acquisition. “A high-quality acquisition of this scale within the multi-family sector is unique and rare,” Mr. Vaccaro said in a prepared statement about the deal. “The new Berkeley Point provides us with an excellent in-place team, that we know well and is ca-pable of much more. With the benefit of the strong WL Ross and Ranieri partnership, we believe Berkeley Point is poised for growth.”

Mr. Vaccaro was previously global head of commer-cial real estate at Deutsche Bank, a position he held from 1997 to 2010. DBBM was a subsidiary of Deutsche Bank.

According to James B. Lockhart III, vice chairman of WL Ross and former director of the Federal Housing Finance Agency, “Berkeley Point did over $3 billion in

multifamily originations last year.” He added that WL Ross looked forward to working with Mr. Day and his team “to help them grow in this critical part of our na-tion’s housing market.”

Enterprise, Bellwether form JV and Eye $1.5 Billion in Mortgages

Enterprise Community Investment’s mortgage fi-nance business is merging with Bellwether Real Estate Capital, The Mortgage Observer has learned. The new company, Bellwether Enterprise Real Estate Capital, is aiming for $1.5 billion in mortgage production volume this year, some of that based here in the tristate region.

The merger is expected to be completed by the end of May or June, Lamar Seats, senior vice president of

Enterprise’s Multifamily Mortgage Finance business, told The Mortgage Observer. Mr. Seats will head up the newly formed entity as its CEO. Bellwether Real Estate Capital’s Ned Huffman will serve as its president.

Mr. Seats said that the two companies have very little overlap and will bring different strengths to the table.

“They bring a very strong commercial lending plat-form through over 25 life companies to the new orga-

nization, and that’s everything from office, retail, hospitality and industrial, and they also bring a very robust multifam-ily platform,” he said of Bell-wether. “As for Enterprise, we are solely multifamily focused and our core focus is really low income and affordable hous-ing, which we execute through

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Fannie Mae, Freddie Mac and FHA. So we’ll be merg-ing two companies—one with a focus on multifamily rental housing and the low income to moderate income side with Bellwether, which has a very strong commer-cial and then market-rate multifamily business.”

Bellwether Enterprise will be based in Cleveland, Ohio, but will retain a presence in the New York tristate area, where Mr. Seats said that it will target low income and affordable housing.

“We cover the entire New York City metro area and all five boroughs, so we want to do business in all of them,” he explained. As for its deal pipeline—there are targeted loans moving through, he said, both in New York City and New Jersey.

Overall, Mr. Seats said, the company expects to hit $1.5 billion in mortgage production from the time the merger takes effect, through the end of 2012, a figure he conceded was both aggressive and “very solid volume.”

In a prepared statement about the merger, Charles Werhane, president and CEO of Enterprise Community Investment, said that $1.5 billion was, in fact, only a start. “Through this merger and with planned strategic growth initiatives,” Mr. Werhane said, “we expect to build Bellwether Enterprise’s annual production vol-ume to over $3 billion.”

Helios Capital Retained to Advise on Two Loan Sales Totaling $9.3 Million

Helios Capital Advisors has been retained to provide advisory services on the sale of two non-performing first mortgages. The loans are secured by a develop-ment sites in Hell’s Kitchen and Harlem.

The firm, which opened its New York City office in January, will use a controlled bid process for the two loans. The first mortgage on the Hell’s Kitchen develop-ment site—80,000 square feet—has an unpaid principal balance of roughly $7.5 million. Meanwhile, the first mortgage on the Harlem property has an unpaid princi-pal balance of $1.8 million. That site is located on Fred-erick Douglas Boulevard.

“Helios will use our established, controlled bid pro-cess to complete both of these sales,” Steven Schultz, chief executive officer for Helios Capital Advisors, said in a prepared statement about the assignment. “These diverse properties provide tremendous potential and we are sure they will attract much interest from knowl-edgeable investors.”

Based in Woodbridge, NJ, Helios opened a Madison Avenue location in response to over $300 million in transactions in 2011, the firm said at the time. Managing director Josh Malka and associate director Ben Shul-man both work out of that office.

Mr. Malka said that, since opening, “Helios has sourced many exclusive assignments in the borough of Manhattan and the outer boroughs from noted banks such as Northfield, BNB as well as two private lenders.”

Madison Realty Capital Gets $28.7 Million Portfolio

Real estate investment firm Madison Realty Capital has grabbed a portfolio of New York City loans from a regional savings bank. The portfolio, secured by 11 Manhattan properties and 14 Brooklyn properties, is valued at $28.7 million and consists of 15 notes.

The loans in the portfolio were originated between 2006 and 2009.

Joshua Zegen, co-founder and managing principal of MRC, told The Mortgage Observer that the Manhattan properties were located in Hamilton Heights and west Harlem. “A number of the properties we got deeds and

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debt—we bought the debt but it came along with the deeds to the property as well at closing,” he said in ref-erence to the upper Manhattan portion of the portfolio. These number 125 apartment units and will be man-aged by Silverstone Property Group, the property and asset management arm of MCR. He said that they were working at the moment to maximize value on those properties.

The 14 Brooklyn properties are in Park Slope, Carroll Gardens and Bed-Stuy.

In many cases, MRC restructures the deal back to the borrower, but Mr. Zegen said that his firm was uniquely positioned should this not be the case. In cases where it takes ownership, Silverstone is ready to take over management and reposition the buildings. “In many of these deals we won’t own,” he said, “and obviously we’re very happy to be paid off.”

Since 2010 MRC has closed over $150 million in dis-tressed debt transactions with more than 10 banks. Mr. Zegen said that he sees more distress on the horizon as well.

“In the recent 12 months a lot of the deals have this kind of a restructuring or recapitalization component,” he said. “I see that happening more and more because some of the smaller banks—finally their balance sheets

have strengthened—and so they have the ability to write down assets and sell loans at some sort of a discount.”

Mixed Bag of Notes on Offer from Ariel

Ariel Property Advisors is marketing a note portfolio that is made up nine investment properties throughout the New York City area. Its principal balance is a little under $9 million, according to Ariel.

Most notably, however, the portfolio includes proper-ties that are both performing and non-performing, a fact that Ariel Property Advisors vice president Victor Sozio says makes them unique.

“Some note sale packages are just purely distressed, where they include notes that are in the midst of the legal process,” Mr. Sozio told The Mortgage Observer. “Here we have a mix of both performing and non-performing notes. Five out of the nine are performing—and these notes offer up good returns.” Those returns are being achieved, he added, as a result of the fact that most are at an interest rate above 6 percent, collateral-ized by strong assets.

Those assets include three properties in Manhat-

tan, two in Brooklyn, three in the Bronx and one on the South Shore of Long Island. Mr. Sozio declined to provide specific addresses or the name of the financial institution on whose behalf Ariel is marketing the port-folio.

Once signed confidentiality agreements are in place, however, he said that interested parties will have access to the data room, “where they will be able to go through all the mortgage files, see where they stand in the legal process, if there is one, and they’ll see all the internal appraisals the institution has performed.”

“It’s a good mix,” Mr. Sozio said of where the per-forming portion of the portfolio is located. “Both that we have in Manhattan are performing. Of the two in Brooklyn—one is performing and one is in the legal process—and in the Bronx one out of the three is per-

forming.”Despite the tremendous amount

of commercial real estate loans coming due this year, Mr. Sozio doesn’t anticipate a huge wave of distress hitting the market this year. He said that “banks have done well in strategically unloading these distressed notes,” which has kept a Victor Sozio.



NEWS EXCHANGE

large wave of them from coming along at once, a fact he said has kept values up.

Ariel Property Advisors is marketing two other notes from a different financial institution for Brooklyn prop-erties—one on Van Brunt Street in Red Hook and one on Sutter Avenue in East New York.

$1.7 Billion in Mortgage Capital Hit NYC in Feb.

According to data from Off-Market RADAR, Febru-ary saw $1.7 billion in commercial real estate mortgage capital flow into New York City, as investors continue to target the city’s plum asset types.

The month’s largest loan came in the form of $254 million in financing from Citibank, which was used to fund the buyout of the tenant-in-common interests in a condo conversion at 870 Seventh Avenue, home of the Park Central Hotel. LaSalle Hotel Properties bought the hotel last year for $405.5 million.

Next on the list of top financings was a $160 million loan secured by the leasehold interest on 992 and 1000 Madison Avenue. Alexico Management Group took that loan out from German American Capital Corp.

All in all, the data shows, multifamily in the five bor-oughs took the lion’s share—over half, at $800 million. Hotels were second, at $360 million, and office received less than half of that, at $150 million.

Brian McCarthy, vice president and co-founder of Off-Market RADAR, said in a prepared statement about the findings that the firm expects debt capital in the New York marketplace to increase as the economy im-proves.

“Judging by the $1.7 billion in debt capital in the market in February alone, there will be many mort-gages and deeds for banks, lenders and owners to work through,” Mr. McCarthy said. “Based on the data we have collected since the beginning of 2012, there are ample opportunities for investors and lenders to ac-quire all types of commercial real estate assets through-out New York City.”

One surprise in the findings was the popularity of land sites, which Mr. McCarthy said are gaining favor among both local and out-of-state developers. “This trend indicates that speculative development may be on its way back to the strongest submarkets of Manhattan, meaning a full-blown economic expansion isn’t too far

behind.”

Staten Island Shopping Center Gets $18M Loan

A joint venture between Kimco Realty Corp. and a group of institutional investors has secured an $18 mil-lion non-recourse first mortgage loan for Staten Island’s Forest Avenue Shopping Center.

Kimco Income Operating Partnership, the joint venture, owns 59 community shopping centers in 18 states around the U.S. This particular shop-ping center is 190,000 square feet and includes TJ Maxx, Michael’s and CVS among its long-term tenants.

“This is a relatively low-leverage financing, but the loan has flexible pre-payment terms that were very at-tractive to Kimco and its partners,” Mark Ehlinger, a Cushman & Wakefield Sonnenblick Goldman managing director, said in a prepared statement about the deal. C&WSG was the borrower’s exclusive advisor and ar-ranged the loan.

The lender was not disclosed, but was described as “the U.S. banking subsidiary of an international finan-cial company.”

Shopping Centers Head to Equity One Portfolio

According to sources, Heyman Properties is in the process of selling three Connecticut shopping centers to Miami’s Equity One for a total of $79 million. They include the Darinor Plaza, at 500 Connecticut Avenue in Norwalk; Compo Acres, at 374 Post Road East in Westport; and Post Road Plaza, at 430 Boston Post Road in Darien.

Darinor Plaza consists of 145,637 square feet of leas-able space and is 100 percent occupied by tenants such as Kohl’s, Old Navy and Payless Shoes. It’s currently under contract for $56 million, sources say.

Compo Acres is 43,107 square feet and leased to ten-ants like Trader Joe’s and Jos. A. Bank. There is 4,024 square feet of vacant space there. Post Road Plaza, home of Trader Joe’s, Orvis and other stores, has 20,005 square feet and is 100 percent occupied, according to the Equity One Web site.

Heyman Properties and Equity One didn’t return phone calls in time for publication.

USAA Real Estate Buys Interest in Square Mile

USAA Real Estate Co., based in San Antonio, Texas has bought an interest in New York–based investment firm Square Mile Capital.

According to a statement, founders Jeffrey Citrin and Craig Solomon will continue to oversee day-to-day operations, retaining a majority interest. A spokesperson for USAA declined to specify the amount of the investment, though sources told The Mortgage Observer that it amounts to a 49.9 percent piece of the firm.

Pat Duncan, chairman and CEO of USAA Real Estate Co., said in a prepared statement that the investment was meant to “broaden the investment opportunities we can offer our clients.” He added that “Mr. Citrin and Mr. Solomon offer extensive investment expertise in the North American real estate and financial markets, and we look forward to working with them to expand the platform they have built.”

Square Mile was launched in 2006 and has since de-ployed almost $2 billion of equity. Mr. Citrin, managing principal, said that the firm had made great strides and that the alliance would be complementary.

“Our platform’s alliance with USAA Real Estate Company will help us to open new doors and provide us with even more firepower in the marketplace, while enabling Square Mile to remain nimble and decisive in our decision-making,” Mr. Citrin said. “Both organiza-tions have strong real estate platforms that now can complement each other, and we look forward to jointly taking full advantage of investment opportunities that will emerge in the coming years, on behalf of our inves-tors.”

Square Mile has three discretionary real estate funds. The $2 billion of equity it has deployed is across over 80 investments. Last year, it invested, along with equity partner Mountain Development Corp., $18.1 million in an empty suburban office building in northern New Jersey—in Roseland.

It also teamed with Invesco Advisors, WL Ross & Co. and the Canyon-Johnson Urban Funds in 2011 to ac-quire a $880 million portfolio of real estate loans from Bank of America.


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work force

Madison Capital has hired Jonathan Ratner as a director of asset management. He was previously a VP at Emmes As-set Management. Mr. Ratner works on capitalization, financ-ing, leasing, capital program-ming and strategic planning at the firm, which invests in retail and mixed-use properties in New York and other urban markets.

At Emmes, Mr. Ratner managed the firm’s $500 mil-lion New York City portfolio, which included 40 assets and two million square feet. Other responsibilities at Emmes included the development and execution of value-enhancing strategies for the firm’s retail, office, multifamily and industrial assets. He also previously worked as a project manager for Richter+Ratner Con-tracting Corp.

u

John Monaghan, formerly a director in the Bank of Ireland’s U.S. Property Finance division, has moved to CIT Group as a director at CIT Real Estate Finance. He rejoins a group of former Bank of Ireland employees who moved to CIT when the bank spun off its U.S. real es-tate holdings.

Mr. Monaghan had previ-ously worked as a manager in the Property and Tax Unit at Specialist Business Bank-ing in Dublin and also as a business manager at College Green Branch, also in Dublin, where he helped to manage a portfolio of over 200 small to medium-sized businesses.

u

GTIS Partners has hired Thomas Feldstein as general counsel and managing director. He’ll be based in New York, at the company’s headquarters, and will report to Tom Shapiro, the company’s president.

“I’ve known Tom personally for almost 25 years,” said Mr. Shapiro. “Having him fill the role of general

counsel is a natural extension of the work Tom is already performing for us and an im-portant addition to GTIS as we continue our growth.”

Before joining GTIS Part-ners, Mr. Feldstein was an attorney in private practice representing a number of cli-ents, including GTIS, providing them with transactional legal services. For several years, from 2002 to 2009, he was a managing director at Tish-man Speyer, where he was responsible for overseeing legal activities in the Midwest and western U.S. He then served as CEO of Tishman Speyer Office Fund, which is listed on the Australian Stock Exchange.

u

Terry Baydala, a former senior vice president at An-glo Irish Bank, has joined Meridian Capital Group as an executive vice president. He heads the structured fi-nance division at Meridian. At Anglo Irish Bank, where he worked for nearly five years, Mr. Baydala helped to lead the team that originated and syndicated U.S. com-mercial property loans.

Once Anglo Irish Bank sold off its portfolio of U.S. commercial property loans, Mr. Baydala was one of several employees whose positions were phased out.

u

Fitch Ratings has rearranged Adam Fox within the organization. Mr. Fox—who joined Fitch in 2003 from Rockville, Md.–based REIT Criimi Mae—had been work-ing as a CMBS surveillance analyst.

Now, however, he’s heading a three-person team on the rating agency’s Operational Risk Group. The group is charged with CMBS primary, master and special servicer ratings. No word yet on who will replace him in the posi-tion he vacated at Fitch Ratings.

Standard & Poor’s recently moved its managing director and lead analytical manager for Structured Finance Ratings in

Asia-Pacific, Peter Eastham, to its U.S. Commercial Mortgage-Backed Securities team as head of CMBS Ratings.

Mr. Eastham joined the team at S&P in 2000. His work spans all structured finance asset classes with a specialization in commercial real estate and asset-backed securitizations in Asia and Australia. Prior to S&P, Mr. Eastham worked in the treasury department in the Australian government. He holds a bachelor’s in commerce and a graduate diploma in finance and in-vestment from Australian institutes.

u

Natixis, the global asset manager, has hired Chris Reilly in it’s New York office, where he’ll serve as a managing director on the real estate finance team. His past employers include Fitch Ratings and Morgan Stanley, though for the past five years he had been over-seeing the large-loan operation at UBS. Last year, Mr. Reilly also served as interim group head in the commer-cial mortgage backed securities group at the bank.

u

KBS Realty Advisors, the private equity real estate company and Securities Ex-change Commission-registered investment advisor, has ap-pointed Randi Kaufman as senior vice president and asset manager in the California-based firm’s New York offices.

Ms. Kaufman, who previously served four years at Blackrock, where she was a vice president and asset manager, will oversee all asset management functions associated with KBS properties in New York, New Jersey, Massachusetts, Ohio and Pennsylvania.

“Randi has an impressive track record with an eye towards reaching property performance goals,” said Chuck Lindwall, KBS regional president, in a prepared statement. “Her wealth of experience—both from an as-set management and geographic standpoint—will bode well for KBS in adding value to its portfolio.”

Send news and tips to Carl Gaines at [email protected] Fox.

Jonathan Ratner.

John Monaghan.

Tom Feldstein.

Randi Kaufman.

Hirings, promotions, defections, firings

CMO_0412_TheCrew.indd 12 3/22/12 6:29:26 PM

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2121 State Route 27$11 Million

Morgan Stanley Mort-gage Capital Holdings provided a $11 million loan for a research and development facility in Edison, NJ. The financing was via a 10-year, fixed-rate securitized loan.

The facility, at 2121 State Route 27, is fully leased by Revlon Consumer Prod-ucts Corp. and is being used as its worldwide research and development center for all the company’s brands.

HFF arranged the financ-ing for an affiliate of Angelo, Gordon & Co., AG Net Lease Fund II. The property is part of the 247,245-square-foot Edison Towne Center.

HFF managing director Evan Pariser and director Michael Klein worked to represent the borrower in the deal. Angelo, Gordon & Co. is an investment advisor dedi-cated to alternative invest-ing. Currently, it has roughly $22 billion of assets under management.—Carl Gaines

211 E. 43rd St.$27 Million

Mayrose Holdings LLC obtained a $27 million mortgage for an office build-ing at 211 East 43rd Street in midtown Manhattan. The building is home to the Bo-livian Consulate in New York and the offices of City Councilmember Daniel Ga-rodnick and State Senator Liz Krueger.

The property, which fea-tures office and retail space, is located two blocks from Grand Central Terminal and has 177,000 square feet and over 24 stories. The mortgage price per square foot is $136. The building has office rentals available ranging in size from 600 to 3,000 square feet, ac-cording to office listing Web sites.

Mayrose Holdings LLC is the owner/borrower, while Eastgate Realty manages the building. Mayrose Hold-ings’ mortgage on the building was provided by HSBC.—Matt Draper

537 W. 27th St.$26.3 Million

A $26.3 million mortgage for a property at 537 West 27th Street in Manhat-tan was finalized by W. 27th Street Rental LLC recently. Germany-based Landesbank is the lender. Landesbank’s U.S. headquarters is located at 280 Park Avenue in midtown Manhattan.

W. 27th Street Rental LLC is the borrower on re-cord, but the owner is West-side Congregation of Jehovah’s Witnesses Inc. The mortgage that Landes-mark provided had a price per unit of $295,557, and the mort-gage price per square foot is $205. The loan-to-value ratio on the deal was 63 percent.

The property is a multifam-ily building featuring 128,000 square feet across 89 units and 13 floors. It includes Chelsea Muse, a contemporary 28-unit apartment building that start-ed leasing units in the middle of last year. Those units range from 485 to nearly 1,300 square feet. The site the prop-erty was built on was acquired for development in 2007 for approximately $42 million.

Of the 535 total mortgages originated in February 2012, more than 50 percent, or 277, were for multifamily proper-ties, according to data from Actovia.—MD

72 Madison Ave.$22 Million

The Moinian Group completed a $22 million mortgage deal for a loft build-ing it owns at 72 Madison Avenue.

The building features 12 stories of loft offices at a to-tal of 52,965 square feet; the mortgage price per square foot is $415. It is located between 27th and 28th streets near Madison Square Park. Tenants include corporate firms such as Wind-Up Entertain-ment and spiritual center Suhkyo Mahikari, accord-ing to the Moinian Group’s Web site.

In 2009, the Moinian Group completed a capital improve-ment campaign on the build-ing, including upgrading the lobby and modernizing the elevator system.

Sharim, which is listed as the borrower, has an office at 530 Fifth Avenue.

Minneapolis-based U.S. Bank was the lender. U.S. Bank has an office at 100 Wall Street in Lower Man-hattan as well as branches throughout the city.

Eleven finance deals were completed within the prop-erty’s 10016 ZIP code in Feb-ruary 2012, ranking it in the top five most-active ZIP codes in New York City in terms of financing during that month. The 10016 ZIP code includes the neighborhoods of Kips Bay and Murray Hill.—MD

2100 Round Pointe Drive$22.5 Million

Marcus & Millichap Capital Corp. arranged a $22.5 million loan for the refi-nancing of Parkside Apart-ments, at 2100 Round Pointe Drive in Haverstraw. The loan is adjustable for five years and has a loan to value ratio of 65 percent.

The apartments refinanced through this deal are part of the larger Harbors at Hav-erstraw. According to Ste-ven Rock, a senior director in MMCC’s Manhattan office, the apartments are part of “a breathtaking master-planned development on the Hudson River that was completed in the spring of 2011.” He added, in a statement about the fi-nancing, that the 110 units at the property are 70 percent leased.

The lender was Chase Bank.—CG

originations 5 deals under $30M

These are compiled and searched using Actovia, city records and published reports.

CMO_0412_Under30M.indd 14 3/22/12 8:27:10 PM


123 W. 44th St.$57 Million

Metropolitan Times Square Associates LLC, a New York-based lessor of real estate, finalized a $57 million mortgage for a multifamily property at 123 W. 44th Street in Manhattan. The deal is list-ed as having been originated Feb. 15, 2012.

The property, known as AKA Times Square, is located in the heart of the Theater District and includes 115,355 square feet across 122 units on 13 floors. Metropolitan Times Square, which is both the borrower and owner, paid $467,213 per unit and $494 per square foot in the mortgage deal. Residences range from 650 to 1,500 square feet, ac-cording to real estate listings. The loan to value ratio of the financing was 70 percent.

Canada-based bank CIBC is the lender. CIBC, which has New York offices at 300 Madi-son Avenue and 425 Lexington Avenue, recently announced 2012 first quarter net income of $835 million, up from $763 million for the same period last year.

Multifamily/coop properties accounted for more than half of all mortgage deals in New York City between Feb. 15 and March 15, 2012, according to Actovia data. There were 277 multifamily/coop mortgage deals, about 53 percent of all deals, during the month-long period. —MD

130 Cedar St.$70 Million

Bank of China provided a $70 million mortgage to borrower Cedar & Wash-ington Associates for its building at 130 Cedar Street in lower Manhattan. The prop-erty features 181,297 square feet and is 21 stories tall. The mortgage price per square foot is $386.

130 Cedar Street is located across the street from the World Trade Center site and has gone through renovations and conversions since being damaged in the Sep. 11 attacks. A former office building, it was closed for eight years after the attacks before being converted into twin hotels, with retail space and restaurants.

The owner of the prop-erty, according to data from Actovia, is Brack Capital Real Estate, whose other New York City investments have included 15 Union Square West, the James Hotel and the Greystone Hotel.

Last year, in a joint venture with InterContinental Hotels Group, it also ac-quired 180 Orchard Street for roughly $46 million.—CG

1515 Broadway$770 Million

In another recent Bank of China transaction, SL Green Realty Corp.’s 1515 Broadway is being refinanced with a $770 million first mort-gage. Home to Viacom, whose lease there expires in 2015, the building is 56 stories and over 2 million square feet.

The loan was arranged by HFF. SL Green bought the building in 2002 in a joint venture with Canadian pen-sion fund SITQ whose inter-est there it bought out in 2011. The joint venture paid $483.5 million for the building when it was purchased from Equi-table Life.

Recent leases include 7,213 square feet taken by enter-tainment software company Electronic Arts. The Redwood City, Ca.-based company signed a five year lease for part of the 36th floor. —MD

200 E. 79th St.$112 Million

Skyline Developers closed on a $112 million con-struction loan for a condo building on Manhattan’s Up-per East Side. The develop-ment site is located at 200 East 79th Street. Once completed, the site will be the location of a 19-story, 45-unit Cetra Rud-dy-designed condo, a spokes-person for the firm confirmed to The Mortgage Observer.

The loan was provided by Wells Fargo. Skyline’s other New York City-based condos include 170 East End Avenue, while its rental properties include 37 Wall Street, Post Towers at 75 West Street and 194 East Second Street.—MD

1 W. 39th St.$210 Million

452 Fifth Owners LLC finalized another large Man-hattan-based mortgage deal on March 8, 2012, securing $210 million for property at 1 West 39th Street.

The property, which fea-tures lofts and offices, includes 123,000 square feet over 12 stories. It is located on the corner of 39th street and Fifth Avenue, just south of Bryant Park. The loan-to-value ratio is 64 percent and the mortgage price per square foot is $1,706.

Israeli lender Bank Leumi provided the financing for owner, the real estate arm of IDB Group, Property and Building Corp. The interna-tional investment arm of IDB, Koor Industries, purchased the building with PBC in April 2010, according to the IDB Group Web site.

There were a total of 29 loft-office mortgages in New York City, or about 5 percent of the total mortgages, originated in February 2012, according to data from Actovia. —CG

originations5 deals over $30M

CMO_0412_Under30M.indd 15 3/22/12 7:43:59 PM


F leet of foot, with a concentration on maintaining its focus on community banking and an ownership mentality, M&T Bank’s performance during the fi nancial crisis might give competitors pause. Now, with May 2011’s acquisition of Wilmington Trust, the bank is branching out, providing high-wealth owners of real estate in New York and elsewhere with

wealth management and services.

The Secrets BehindM&T’s Lending MightBY CARL GAINES

PHOTOS BY HANNAH MATTIX

CMO_0412_M+T.indd 16 3/22/12 7:49:22 PM


CMO_0412_M+T.indd 17 3/22/12 7:46:17 PM


Power Profile

In New York, M&T Bank’s real estate portfolio has grown significantly over the past few years. Executives cited, between 2009 and 2011, an increase of $1.1 billion—up to $5.6 billion.

To get some insight into the bank’s success, The Commercial Mortgager met with some of its top executives who gave an unfettered glimpse into the approach that has helped keep the bank a lending powerhouse.

“We really started out here as a multifamily lender but it’s really evolved into a much broader set of commercial real estate products and it’s really across the board,” Gino Mar-tocci, the bank’s regional president for New York City and Long Island, said in his office recently. “In fact our largest concentration is in urban retail.” He added that after retail comes office, multifamily, “other” and hotel.

“As a subset of ‘other’ we’ll do construction and transition real estate as well—transition defined as it needs to be repositioned somehow.”

Mr. Martocci described the bank’s approach as “pretty conservative,” but was quick to add that it doesn’t shy away from deals that contain “an appropriate level of risk.” Asked what that might include, he pointed back to the transitional real estate deals that it put together several years ago, as the financial crisis gripped many lending institutions.

“We were one of the few lenders out there willing to do an asset that required res-positioning during 2010, even 2011,” he said. “It’s changing to some degree now, but we made a good many loans. Or construction loans in 2011—we were one of the more active construction lenders for the right sponsors, for the right people that we’ve done business with for a very long time.”

Recurrent themes in its lending strategy seem to include the familiarity that Mr. Mar-tocci mentioned, as well as the maintenance of a healthy balance sheet. In some ways both have helped it to maintain calm in the midst of chaos. Peter D’Arcy, a group vice president at the bank and a senior group manager in the Commercial Real Estate division, pointed out that top players rely on it for both.

“The last four or five years—we were so clean because the competition was so broken,” Mr. D’Arcy said. “The top names in the marketplace needed flexibility but they also need-ed a company with a balance sheet and we made so many client acquisitions that—we sort of came into our own from a size standpoint, where our capabilities of what we could do for the top tier of New York City as a bank really wasn’t different from a hold standpoint

or an underwriting ability than many of the big money center banks.”The company is smaller, yet less bureaucratic—conservative, yet opportunistic. “I think the point is that we’ve always been conservative and the consistency is what

some of these bigger clients like,” added Jason Lipiec, a group vice president in Com-mercial and Private Banking at M&T. “In good times we’re not the most aggressive but they know if we give them the deal, the deal’s going to close. And in bad times no one else is out there and because of the safety of our balance sheet and the fact that we didn’t get ahead of ourselves, we were able to be there for them.”

D’Arcy added that the bank’s approach has provided a good mixture for the market-place. “We’ve expanded the names of who we deal with over the last couple of years in a way that we haven’t since I’ve been here,” he said. Which leads to the concept of institu-tional memory. Many of the top executives at the bank have been there for decades—Mr. Martocci joined 17 years ago, Mr. D’Arcy the same, and Mr. Lipiec 15 years ago.

“One of the things that really differentiates M&T from a lot of the lenders,” Mr. Mar-tocci said, “is that management has been the same management for 25 years. The low turnover allows for a great deal of institutional memory, and institutional memory is criti-cal for protecting your balance sheet and making loans and making sure you’re choosing not only the right kinds of loans but the right people to do business with.”

He estimated that roughly 25 percent of the bank is held by insiders. These include Warren Buffett as well as the chairman and CEO of the bank, Robert Wilmers and Mr. Wilmer’s original investment committee and management. “For an $11 billion or so, $10.5 billion market cap,” Mr. Martocci said, “it is highly unusual—highly unusual, to have such a great deal of insider ownership.”

So how does the bank keep a fresh and talented group of newcomers streaming in? Martocci cited its Executive Associate Program, which he said has been crucial since Mr. Wilmers arrived in 1983.

“Our EA program recruits people from some of the best graduate schools in the coun-try—Wharton, Northwestern, Columbia here in New York and NYU,” he said. “We bring them in to the bank early and we help foster their growth and promote them to senior positions as appropriate and as they prove themselves so this keeps the talent and the blood flowing and the intelligence level and the intellectual capital high.”

He then named a number of high-level executives that had come through the pro-gram—including the bank’s current CFO Rene Jones and vice chairman Mike Pinto.

In M&T Bank Corp.’s 2011 Annual Report, Mr. Wilmers highlighted many of that year’s most notable events across the bank and one that stands out, and which will provide ad-ditional services to clients, executives said, was the acquisition of Delaware’s Wilmington Trust Corp.

“In good times we’re not the most aggressive but they know if we

give them the deal, the deal’s going to close. And in bad times no

one else is out there and because of the safety of our balance sheet

and the fact that we didn’t get ahead of ourselves, we were able

to be there for them.”—Jason Lipiec

Lipiec, Martocci, Gore and D’Arcy.

CMO_0412_M+T.indd 18 3/22/12 7:46:22 PM


“Wilmington Trust and affiliates brought with them some $50 billion of assets man-aged for an array of financially substantial individuals and corporations, increasing our year-over-year revenue from trust related services by 171 percent,” Wilmers wrote in the report.

The sale went through in May 2011 for a reported price of $351 million and made M&T Bank the largest bank in Delaware. It added $10.8 billion of assets and $8.9 billion of de-posits to its balance sheets.

Notably for New York tri-state, however, was the access it gives M&T’s high net worth clients—venerable, large family owners of commercial real estate—to trust and estate planning. Lawrence Gore, president of Wealth Advisory Services at Wilmington Trust, told The Commercial Mortgager that the firm’s two major focus areas—wealth and invest-ment management—dovetail nicely with M&T’s roster of wealthy tri-state clients.

“The environment that we live in today where there’s a lot of volatility,” Gore pointed out, “people are more focused on preservation of capital and they seek out firms like ours. People are seeking out additional information, they’re benchmarking their existing vendors and providers for those types of things and they’re also very concerned about mitigating risks.”

Mr. Gore’s team in New York is 26 strong, Mr. Martocci added, which will allow it to serve those bank clients looking to mitigate the risks that Mr. Gore referenced.

“We have a great many clients who we’ve been banking since the 80s and 90s and I’d say they were worth $15 million or $20 million back in the 90s,” Mr. Martocci said. “Well they’re worth $250 million today. To varying degrees they’ve done their estate planning—some not at all, some a great deal—to varying degrees they’ve got good wealth manage-ment. Typically a lot of real estate guys don’t put a lot of money in equities because they feel like they have enough risk, but nevertheless many still do. But everybody’s in need of good estate planning, good succession planning. And Wilmington Trust really brings that to the table in a world class way, in a way frankly that M&T really didn’t have up until this acquisition.”

Another bonus for the bank The Commercial Mortgager wanted to hear about was its advisory board in the tri-state area. The mortgage investment committee, as Mr. Martocci calls it, is made up of eight outside directors, as well as some internal directors. They vote on every loan made in New York City and Long Island.

“It’s been a tremendous asset,” Mr. Martocci said of the committee. “Because of this board, you think about a piece of real estate differently than most bankers.” Sometimes the news for a potential borrower is good, sometimes it’s not what they might have wanted to hear, but because of the committee’s insights it that news always includes some clues the borrower might use the next time around.

“You’ve sort of given a man a fish in that moment but you’re also teaching a man to fish because the next time that they go back, they’re thinking about that,” said Mr. Martocci. “Or the next time that they have a conversation with a client, they’re thinking in a way that a mortgage committee member might be thinking about a piece of real estate. Now that’s leavened with obviously the bank’s credit culture and the discipline of banking, but the expertise or the understanding of a piece of real estate is greatly enhanced by having this committee asking the questions of the relationship managers and group managers. We’re all there and it’s just a huge benefit to the team, not only as a piece of information and also an informational advantage as it relates to real estate.”

“The environment that we live in today where there’s a lot of volatility. People are more focused on preservation of capital and they seek out firms like ours. People are seeking out additional information, they’re benchmarking their existing vendors and providers for those types of things and they’re also very concerned about mitigating risks.”

—Lawrence Gore

Gino Martocci.

CMO_0412_M+T.indd 19 3/22/12 7:46:27 PM


PAU

L KI

SSEL

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CMO_0412_Galligan2.indd 20 3/22/12 7:51:44 PM

APRIL 2012 The MORTGAGe OBSeRVeR 21

It was a development that Matt Galligan described over lunch one drizzly and dreary afternoon as “heartbreaking.” At the time, Mr. Galligan was Bank of Ireland’s managing director and head of U.S. Property Finance, having joined in 2007 to start the group. Some four years later he was helping to wind it down.

“They did not want to sell that portfolio,” he said. “But it was the only opportunity that they had to repatriate capital.”

After an experience like this, many people might balk at the thought of once again starting something new. But Mr. Galligan, and the bulk of his Bank of Ireland team, is doing just that—launching a real estate finance division at CIT Group on the heels of its emergence from bankruptcy protection.

Analysts are taking note of the move. Guggenheim Partners’ Jeffrey Davis said that, along with a refocusing along its core businesses—these include transportation and

equipment leasing as well as financing—the arrival of Mr. Gal-ligan and his colleagues is a positive sign.

“CIT wouldn’t have hired them if they weren’t committed to the business,” Mr. Davis said over the phone recently. “I think from 10,000 feet it looks to be a really good fit for CIT. If you’re an investor, I think you like it because it provides diversification. Secondly, as I understand the situation, we

have a lot of commercial real estate mortgages that are financed elsewhere that are look-ing for new balance sheets.”

Back at lunch, Mr. Galligan said that he had just returned the previous day from a scouting trip of sorts. “We were in northern Vermont yesterday looking at an office deal coming out of the CMBS market,” he said, adding that the team has a “good feel for what’s in their wheelhouse.” And they should. That wheelhouse includes much of the same geographic targets that made up Bank of Ireland’s portfolio—gateway cities such as New York, Boston and Washington, DC.

Asked whether the move into commercial real estate finance was by its nature at odds with any effort to fine-tune the company’s core, Mr. Galligan referenced the gap that the lack of real estate product left in CIT’s roster of businesses. “I think the executives here looked at the businesses that we did have, and across each line of business we were a

W hen Bank of Ireland was ordered by regulators to deleverage in the midst of the debt crisis that was roiling Europe, it meant letting go of a portfolio of well-performing U.S. real estate loans.

Matt GalliganOn CIT Group’s New Real Estate Finance Division

Newcomer to sector takes Bet oN Former BaNk oF IrelaNd executIve’s luckBY CARL GAINES

Power Profile



Power Profile

senior secured lender,” he said. “The only product type that we were not playing in—and it was a vast hole—was this real estate product type.” Since Bank of Ireland’s team was essentially taken as a whole and dropped in to fill that vast hole, it becomes a much less risky move. Plus, as Mr. Galligan added, the company figured that “if it could be done on a moderately leveraged basis in both the middle market and in the larger trophy assets, then they were interested in being in the business.”

The move came about as the Bank of Ireland portfolio was being shopped around. CIT looked at the portfolio and passed. It ultimately went to Wells Fargo for roughly $1.2 bil-lion. It sold at a premium. Wells later bought Bank of Ireland’s Burdale Financial Hold-ings Limited and Burdale Capital Finance’s portfolio of loans, about $1 billion outstanding in the U.S. and United Kingdom.

During the marketing of the loans, CIT Group and Mr. Galligan started talking and an agreement was reached to do a lift-out of his entire team. Paul Mc-Donnell, head of the Property Finance Group at Bank of Ireland, told The Mortgage Observer that Mr. Galli-gan and his team had worked professionally through-out the closure of the business. He also underscored the success the portfolio had achieved.

“We had a very good experience with Matt—he did a fantastic job for us,” Mr. McDonnell said. “I think that the best way to confirm that was the success that we had with our book over there. And when we had to sell it—and we had to sell it in terms of broader issues—we achieved a very strong price for it. A lot of that I would put down to Matt’s management of the business.”

An announcement went out over the wires at the beginning of November 2011. CIT Group Inc. presi-dent Nelson Chai heralded the arrival of Mr. Galligan and his team as indicative of CIT’s focus on opportu-nities for growth. “The deep relationships and indus-try expertise of our team will enable us to capitalize on market conditions while pursuing a conservative approach in middle market commercial real estate financing,” Mr. Chai said in a prepared statement at the time. He added the launch highlighted a “focus on growth opportunities and efforts to source and build assets at CIT Bank.”

The road to CIT Real Estate Finance—his fifth start-up, no less—has taken Mr. Galligan through a long list of familiar bank names. He grew up in Wall-ingford, Conn. and attended college in Worcester, Mass. at the College of the Holy Cross. He and his wife, whom he met at Chase, have two sons and live on 41st Street, an easy walk to his new office.

Personal projects include golf, travel and reading (on a recent trip to Aguadilla on Puerto Rico’s western coast, he worked his way through His Way: The Unauthorized Bi-ography of Frank Sinatra, by Kitty Kelley). He meditates twice a day.

Professionally, he got his start in the Chase global credit training program. While finishing up the program, he met and started doing some analytical work for William McCahill, who retired last October from Capital One, where he was an executive vice president. The two became mentor and mentee.

Reached at his home, Mr. McCahill told The Mortgage Observer that he saw at the time “a fantastic young guy—very bright and energetic.” After 10 years at Chase, where he left as a vice president and team leader in the Real Estate Department, Mr. Galligan went to the Bank of Boston. There, he created and managed its real estate distribution process—structuring, arranging and placing multi-bank syndications.

Recruited to run its syndications desk, he rejoined Mr. McCahill at Fleet in 1996.

“He became what I would label the high priest of the syndications world,” Mr. Mc-Cahill said of his friend. “He was by far, I think, the most respected banker in putting major syndicated deals together. That reputation really put Fleet into the big leagues, so we were able to do $200 million and $300 million deals because we knew Matt and his group could sell them down very quickly.”

When asked about the title later, in CIT Group’s offices, Mr. Galligan shunned the credit. “He’s being very modest,” he explained. “He’s really who put Fleet into the big leagues here in the city.”

But structuring syndicated loans was definitely an area of focus, and one that provided him with a plethora of contacts. “I syndicated debt for 15 years, and that’s how I estab-lished a lot of my contacts here in New York, because I was here for 10 and then I went to

Boston for 20, but I was constantly on the phone with bankers in New York,” he explained. “And I got into that business when it was developing so I was one of the early guys, and I’ve gotten to know an awful lot of people as a result of it.”

At CIT Group’s midtown offices, homage is paid to one of the bank’s primary business areas. The bank is a leading aircraft lessor and dozens of aircraft models line cabinets and walls on the route back to the area where Mr. Galligan and his team sit. By industry, commercial and regional airlines comprise the largest chunk of the assets in its portfolio, at 25.9 percent. And as of December 31, 2011, transportation finance was a $13.3 billion portion of the bank’s business. Student lending—originations ceased by April 2008—still made up 18.5 percent as of its assets at the time, followed by manufacturing, at 12.9 percent.

Its total assets, as of December 31, 2011, were $45.3 billion and total loans decreased from $21.9 billion to $19.9 billion over the fourth quarter of 2011, mainly due to the termination of student loan originations and the transfer of $2.2 billion of student loans to held-for-sale status.

Mr. Davis, at Guggenheim Partners, said that a part of this new chapter for CIT Group “is a return of CIT to being a more active lender after having reduced its loan and lease portfolio by about 50 percent from where it was pre-crisis.”

So with its focus on top-tier sponsors and develop-ers in major cities, what kind of loans might come out of CIT Real Estate Finance?

“Well, first of all, what we’re looking for is not necessarily the largest developer,” Galli-gan said when asked that question. “We’re looking for one that’s kind of best-in-class. We typically would like developers that are building very close to the urban core because we think that there’s less risk being associated with the marketplace because there are much higher barriers to entry.”

One recent project the bank financed is Edgewater Harbor, a 24-acre mixed-use in-dustrial complex that is being converted into 495 residential units and 100,000 square feet of retail and restaurants. The project is being undertaken by National Resources, whose president, Joseph Cotter, called Mr. Galligan “the right blend of the traditional relationship banker and a market-savvy New York real estate lender.”

Relationships and character seem to be key themes, in fact. In addition to terms like “best in class” and “urban core,” Galligan referenced “the three Cs” in talking about what he looks for in a borrower—character, capacity and capital.

“The driver there is character,” he said, “if the people are going to do the right thing when it’s easy to walk away and leave us with a property and perhaps a loss.”

As to how well capitalized a borrower needs to be, he indicated that it depends on the

I think from 10,000 feet it looks to be a really good fit for CIT. If you’re an investor, I think you like it because it provides diversification. Secondly, as I understand the situation, we have a lot of commercial real estate mortgages that are financed elsewhere that are looking for new balance sheets.

—Jeffrey Davis, Guggenheim Partners


APRIL 2012 The MORTGAGe OBSeRVeR 23

The driver there is character—If the people are going to do the right thing when it’s easy to walk away and leave us with a property and perhaps a loss.

—Matt Galligan, CIT Real Estate Finance

project. “There’s no specific dollar limit on it,” he said. “It’s pertinent to the project. We’re generally getting 30 percent or more equity in the deal up front and very often they’re using third-party sources of capital—private equity money or one of the other sources out there—so it’s not necessarily all their capital. And it varies by transaction as well—the larger transactions, if you’re doing a $100 million deal you might want $50 million in capital where if you’re doing $25 million deals you might want $8 million.”

As CIT Real Estate Finance forges ahead, and looks to carve out its place alongside the bank’s other businesses, Mr. Galligan seemed calm about his latest startup, and having taken on something new, though familiar.

“I really like the early stages—particularly of de-veloping a business,” he explained. “One of my key strengths is that I’m able to get people to really give their all to what they do and that’s one reason I try to be enthusiastic—if I’m giving my all to this, then per-haps it’s also what they do.”

CIT Real Estate Finance is off to a fast start. Here’s a look at some recent deals that Mr. Galligan and his team there have closed. One57—CIT Real Estate Finance closed on a $50 million commitment in a $700 million syndicated construction loan. Bank of America was administrative agent on the deal. The loan is funding 50 percent of the construction costs associated with putting Extell Development’s 90-story, mixed-use residential and hotel tower up. One57 will include a 210-room Park- Hyatt Hotel topped by 95 luxury residences. Hilton Orlando—In a deal that Mr. Galligan conceded was a bit outside the financings his group will ordinarily target, CIT Real Estate Finance recently closed on a $50 million commitment in a $285 million syndicated term loan to refinance the original construction loan for the Hilton Orlando. HSBC was administrative agent for the 1,417-key, four-star hotel’s loan. Edgewater Harbor—This $25 million construction loan will be used to partially finance the 70-unit condo conversion of the National RE/Sources project.

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The Mortgage Observer: I was wondering if you could talk a bit about how you got started in the real estate business.

Simon Ziff: I grew up in central Pennsylvania, and my family was in the clothing business, but I knew I didn’t want to stay in the clothing business. I majored in finance at Penn State, and my junior year, I took a real estate course and decided that this was something that I could do anywhere. Knowing that I didn’t want to return to my hometown, I needed a profession where I could go anywhere in the country.

I thought real estate was great for me because it involved finance, which I enjoyed, and I felt that it in-volved entrepreneurialism. So this course got me very excited. Penn State had a real estate program, and I ended up taking four real estate courses, directing all of my efforts to find a position in real estate. And I was very fortunate that Mass Mutual recruited at Penn State my senior year, which was not an easy year to get a job—1987. They recruited six kids nationally at schools, including Wharton, and they took one from Penn State.

And you also took classes at the NYU Schack Insti-tute of Real Estate, is that right?

Yes, after a year in Springfield, they decided to send me to Chicago, and then I applied to the NYU Masters in Real Estate program, which I ultimately graduated from.

How about your firm? Do you anticipate growing this year? I know that you were growing a lot in past years. What do you see happening now?

We have had a very focused business plan for many years. And while—probably twice a month someone comes to us with what I would call an add-on busi-ness or an extension, or something that people feel is a natural for us to be doing—we rarely do anything. We added a joint venture equity practice over ten years ago. We feel that we are the best today at doing that. We added hotel sales a few years back, and this week we brought in two very old friends of mine whom I’ve known for twenty years from philanthropy and through the industry. One, Marc Warren, will help expand our business—generally with our existing business lines. The second, David Robinov, who I think was eighteen years at Eastdil, will be expanding our sales brokerage business beyond hotels into retail, and eventually, office and multifamily.

It sounds like more senior people. Will you be hir-ing more junior folks as well?

Well, we are obsessively recruiting junior people, probably more so than any firm. We have been forever. We recruit at all the top business schools every year. We generally hire second-year MBAs in the summer, and we generally hire people with five to seven years of work experience and a masters for our junior positions.

Do you look for any particular qualities in the new talent that you hire?

Yes. Probably seventy-five percent of the associates we hire are technically excellent in finance. And twen-ty-five percent has to be technically excellent with a potential salesmanship—because our model is not to get salesmen. It’s to have what we call an execution model, which is to have the best execution people, not origina-tion people. To have execution people, we believe once a client, always a client. So we have very few natural salespeople who are hired for their salesmanship. But we have an incredibly analytical group.

Do you anticipate being active in a lot of debt placement this year?

About seventy-five percent of our business is debt placement, and roughly twenty-five percent is joint venture equity, or sales, and we’re having a very busy year.

Interest rates are still low, but as they begin to rise, with so much of your business focused on debt placement, any concern that that might negatively affect business?

Not at all. People that we represent generally have to do things. Over half our business are institutional bor-rowers, and they remain active. If rates go up a hundred basis points, they’ll continue to be active. If they go up a hundred and fifty basis points they’ll probably continue to remain active.

We’re not in the commodity financing business—we’re more in the structured arena.

I see. And what volume of equity and debt do you predict placing this year, or helping to put in place?

We’re boutique, so our goals are probably to do somewhere between two and a half, three billion of debt equity.

Any predictions about CMBS issuance for the year?

I don’t have a number prediction, but I do think that we’ve seen CMBS spreads spike up and down over the last two years, and eventually they’ll spike down, I think, to a level where they’ll be more competitive and will become a more significant part of the overall financing markets. Having said that, the past two years they’ve been a fairly insignificant part of our practice. Over the last three years, they’ve been fairly insignifi-cant—a quarter to a third, maybe a quarter of our busi-ness.

As far as lending in general is concerned, do you think it’s loosening up a bit? Easier to get financing?

For stabilized assets the market has, I think, gener-ally and steadily improved. And on transition assets, there’s still a fairly inefficient market.

Any thoughts on distress in the city and where it’s focused? Certainly in the boroughs, there is some...

We’ve recapped a few busted residential deals in the boroughs, but beyond that, we haven’t seen much distress.

Q&A

Simon Ziff / Ackman-ZiffFor our Q&A, The Mortgage Observer caught up with Ackman-Ziff’s Simon Ziff. We touched on a wide range of is-

sues—from how no love for clothes led to a start in commercial real estate to the volume of debt and equity his firm might help place this year.

CMO_0412_Q+A_Ziff.indd 24 3/22/12 7:33:18 PM

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ADpage.indd 30 3/22/12 8:10:01 PM


scheme of things

$33 Million Williamsburg Trade Shows Hotel Craze Fil-tering to Boroughs

The trade of a boutique hotel in Brooklyn is the latest indication that the New York City hotel market continues to be on fire. And the co-developers on the project weren’t even looking for a buyer.

Hotel Williamsburg, a 64-key, full service hotel that opened its doors just last November, was bought by King & Grove March 8th for over $33 million. Renamed King & Grove Williamsburg, the hotel, at 160 North 12th Street in Williamsburg, has followers of the city’s hotel sector abuzz.

Daniel Lesser, president and CEO of LW Hospitality Advisors, told The Commercial Observer that the deal speaks to the city’s overall health. “It’s a brand new hotel in a really dynamic market—Williamsburg is very much a happening place,” Mr. Lesser said. “It’s very emblematic of the fundamental health of New York and how all parts of the city have been, and continue to be, gentrified.” Mr. Lesser also pointed to areas like Long Island City, where ten to twenty years ago, “there wasn’t a whole lot happening.”

The hotel was co-developed by Minneapolis-based Graves Hospitality Corp. and Williamsburg-based KSK Con-struction Group—developer of the GEM Hotel Union Square.

According to a statement from Graves Hospitality, the developers hadn’t anticipated selling. Rather, they planned to “indefinitely operate the property,” until “the market’s overwhelmingly enthusiastic response to the high-profile project attracted a non-solicited purchase offer that was simply too good to refuse.”

Benjamin Graves, president of Graves Hospitality, said that the sale highlights the company’s “skills at under-standing the intricacies of specific locations and submarkets, identifying the right concept and developing relevant, high-quality projects to drive demand and profitability.”

Mr. Lesser, at LW Hospitality, referenced a “New York metropolitan renaissance,” the benefits of which are mak-

CBRE: Investments in European CRE Flowing from North America

MetLife’s Commercial Mortgage Volume Hit $11 Billion in 2011

MonthlyCharts

The Mortgage Observer has compiled a month’s snapshot of top commercial real estate financings in the five boroughs of New York City—including top lenders, most active property types, cap rates and the zip codes that saw the most action. We look back in time a bit, too, to put the activity

into a larger context. Check back each month, as we’ll target different areas to spotlight. The data is collected from Actovia, a cloud-based system that tracks mortgage information and streamlines leads, from city records. Accordingly, it reflects the date the city recorded the transaction.

What a difference a year makes. So far, 2012 financing activity has been bolstered by an uptick in Williamsburg’s development scene as well as a rush of activity in the East Village and Lower East Side of Manhattan. Neither really registered in 2011.

February’s top lenders. A look back at February of last year shows how the stack has rearranged.

Top Lenders, By Transaction

Most Active Zip Codes

CMO_0412_Charts.indd 26 3/22/12 6:32:16 PM


scheme of things

Mortgage origination data is provided by Actovia and taken from recent listings of mortgages filed by New York City.

Thanks to data from Massey Knakal Realty Services, The Mortgage Observer can give insight into where cap rates stood the past several months.

Cap Rates

Not surprisingly, data showed that Multifamily/Co-op properties saw the most financings—both this February and last. In fact, most property types followed last year’s trends, with one exception being vacant properties, which saw nearly twice the amount of activity in February 2012.

Financings by Property Type

CMO_0412_Charts.indd 27 3/22/12 6:32:22 PM


by Joshua Stein

It’s only a nonrecourse carveout guaranty—nothing to worry about, right? Well just don’t file bankruptcy, mess around with the collateral or get up to other mis-chief. It’s still a nonrecourse loan.

That was the mantra for thousands of commercial real estate loans that closed in the boom years. And everyone believed it—until recently, when some non-recourse carveout guaranties started blowing up in the faces of guarantors, in ways that no one ever envi-sioned.

Opportunitistic loan purchasers have scrutinized the fine print of the nonrecourse carveouts. Using that fine print and interpretations that were never anticipated, the loan purchasers are demanding that “carveout guarantors” pay the entire loan under circumstances that no one ever thought would trigger such liability.

In one Michigan case, Cherryland Mall, the loan documents required the guarantor to pay the entire loan out of its personal as-sets if the borrower didn’t remain a “single purpose entity.” One of the single purpose entity covenants (covering ground that would typically fall under a different provision of the loan documents) required the borrower to stay “sol-vent.” The collateral value dropped below the loan balance, the loan went into default, and—bingo!—the loan holder successfully claimed that the borrower was insolvent, so the guar-antor faced liability for the entire loan.

The documents in an-other Michigan case, Ches-terfield, produced a similar surprise. Here, the guaran-tor had to pay the loan if the borrower didn’t comply with “separateness covenants.” One required the bor-rower to pay its debts from its own assets. When the borrower stopped paying the loan, the lender claimed

the guarantor became personally liable for the entire loan. The court agreed.

These two cases have shocked the commercial real estate lending community, by making a guaran-tor liable for the whole loan at exactly the point—loan default—where nonrecourse treatment matters most. Any nonrecourse loan fundamentally contemplates that if a property gets into trouble, the borrower can walk away without liability. The borrower and its principals are not supposed to place their “other assets” at risk if the collateral can’t support the loan. The borrower has choices very much like dealing with a pawn shop, at a different stratum of the credit market.

The two Michigan cases may represent the begin-ning of a trend, though, where opportunistic loan pur-chasers scrutinize a nonrecourse carveout guaranty, and assert claims against guarantors in ways that no

one ever expected.In other cases, innocent

or trivial actions by bor-rowers have been asserted as the basis for triggering claims under nonrecourse carveout guaranties. We can expect to see more of this.

In one case, a limited liability company borrower wasn’t supposed to change its business purpose—but someone foolishly and probably innocently amended the organizational papers to broaden the com-pany’s permitted activities. This, again, violated the single-purpose entity cov-enants and—again, bingo!—the lender claimed the guarantor had to pay the entire loan.

Mortgage/mezzanine financing structures offer fertile ground for these claims. In one case, the mortgage lender foreclosed. The mezzanine lender said

this was a prohibited transfer, triggering the nonre-course carveout guaranty for the mezzanine loan. The court ultimately didn’t buy it, but the guarantor spent many months in litigation to get there.

The converse situation could also produce surprises: a mezzanine lender forecloses, takes control of the mortgage borrower, and throws it into bankruptcy. Next thing you know the mortgage lender can sue the carveout guarantor for the entire loan, because the mortgage borrower filed bankruptcy.

In a pending case, the lender is claiming the guaran-tor must repay the entire loan because the borrower incurred levels of indebtedness—in this case, ordinary unpaid trade payables—that violated the loan docu-ments, and didn’t remove some mechanics’ liens.

In all these cases, everyone expected that the ordinary vicissitudes of commercial real estate were part of the lender’s risk—not the guarantor’s risk—when the parties negotiated their loans. But aggressive loan purchasers have sometimes been able to interpret loan documents in a way that no one would have anticipated, and in fact in a way entirely inconsistent with the underlying theory and deal structure of nonrecourse financing. We are probably not done with surprises in this area.

Regardless of how today’s litigations turn out, tomor-row’s loan negotiators now know about one more prob-lem area on which to focus. And deal sponsors may “just say no” when asked to sign nonrecourse carveout guaranties. The risk of surprises is just too great.

Joshua Stein is the sole principal of Joshua Stein PLLC. He acted as an expert witness on industry stan-dards and expectations in two of the litigations discussed in this column. The views expressed here are his own. Mr. Stein can be reached at [email protected].

Stein’s law

Guaranties Bite

Regardless of how today’s litigations turn out, tomorrow’s loan negotiators now know about one more problem area on which to focus. And deal sponsors may “just say no” when asked to sign nonrecourse carveout guaranties. The risk of surprises is just too great.

CMO_0412_Stein.indd 28 3/22/12 6:34:56 PM


By Sam Chandan, phd

A slow increase in bank lending, competition to fi-nance apartment trades, and hopes for a deeper CMBS pipeline define the outlook for commercial mortgage markets in early 2012. Offsetting these sources of mar-ket optimism, threats range from the potential for rising interest rates to waves of maturating loans from the market’s bacchanal days.

Months of improving economic data and the coin-ciding stock market rally have failed to lift the Federal Reserve’s dour assessment of downside risks to growth. The language coming out of the March FOMC meeting acknowledged the improving indicators but also held fast to historically accommodative monetary policy.

Extending the commitment to its current targets into 2014, the Fed has put its credibility with investors on the line. Borrowers and bond buyers expect short-term rates to remain low for another two years, even if the crisis that called for extraordinary interventions recedes further.

The Fed has far less control over long-term Treasury yields. Washington’s dereliction in addressing the na-tion’s fiscal imbalance and our cowardice in encamping on the Cisalpine bank of the Rubicon constrains mon-etary policy.

The maturity extension program is soaking up a sur-plus of bond issuance but its mettle has not been tested. At least for the time being, the failure of European governance is doing more to keep American interest rates low. If the sovereign debt crisis abates, stanching demand for Treasuries, Operation Twist will prove its ineffectiveness.

Over the last two weeks, as Greece has stepped back from the brink, free market mechanisms have made a rare appearance. Rattling investors and providing fod-der for the broadsheets, long-term Treasury rates have inched up from their historic lows. Markets have been rattled by their first taste of an inevitable and much larger shift in the cost of capital.

The challenges are most acute in the apartment sec-

tor, where the cost of financing has plumbed new depths with the support of government guarantees, fomenting excesses in pricing that are observable in remarkably low cap rates.

Asset price bubbles arise when prices diverge from levels consistent with a market that is functioning efficiently. In this ef-ficient market scenario, currently available information with regard to the future performance of an asset is reflected rationally in its price. Since mispricing is therefore rooted in irrational expectations with respect to the present value of future cash flow, the ex ante identification of bubbles is elusive in practice. By definition, the identification of bubbles will be contrary to the market’s widely held views until such time as it deflates. A correct identifica-tion may be rejected incorrectly because the market deems it a false positive result. Since the bubble is largely a behavioral phenomenon, a purely statistical exercise cannot settle the matter conclusively.

In spite of the inherent complications, the identifica-tion of bubbles is not limited in its relevance to policy applications; it has real implication for lending and investment strategy, as well. As the housing crisis has demonstrated, property price bubbles are particularly pernicious. Because of the widespread use of lever-age in property markets, the impact of a sharp drop in assets prices may cascade through a mature, interde-pendent financial system, impacting the availability of credit in unrelated sectors. While the lesson is readily apparent as relates to single-family houses, the market may now be fomenting a bubble in the rental market.

As house prices have fallen and households’ tenure bias has shifted in favor of renting, apartment fun-damentals have necessarily improved. But prices of apartment properties have been rising relatively faster

than property income, reflecting expectations of continued growth in property cash flow and the avail-ability of low-cost financing. The latter is endogenous in the former since leverage is increasing as a function of fundamentals projec-tions. Exacerbating this dynamic, the government-sponsored enter-prises’ position as the dominant source of apartment financing has introduced a unique feature to the market pricing of apartment credit risk.

Has the virtuous dynamic of ris-ing fundamentals and exception-ally low-cost credit developed an

independent momentum? Across a range of interest rate and underwriting scenarios, my tests of more than $12 billion in fourth quarter 2012 apartment loans show that individual properties are systematically projected to outperform investors’ expectations for the market as a whole. A state of cognitive dissonance is allowing each investor to believe that he has outsmarted every-one else.

The credit policy implications of these finding relate principally to the refinancing capacity of newly origi-nated loans. Higher rates of balloon default imply costs that will be borne by agency guarantees and on bank balance sheets, albeit not until current loans mature. For investors in the apartment sector, the findings em-phasize a need to identify and circumnavigate segments of the market where financing conditions and aggres-sive cash flow assumptions have inflated values and where agency financing may recede from the landscape as housing finance reform progresses.

Sam Chandan, PhD, is president and chief economist of Chandan Economics and an adjunct professor at the Wharton School. H ecan be reached at [email protected]. The views expressed here are the author’s own.

The basis point

The Smartest Guy in the RoomHas cognitive dissonance allowed investors to believe they’re outsmarting each other?

CMO_0412_Chandan.indd 29 3/22/12 8:56:00 PM


by michael stolerSpecial to the Mortgage Observer

With investment sales volume across the major prop-erty types in the U.S. expected to grow by 50 percent to approximately $300 billion according to some sources, there’s a real need for the lending community to pro-vide funds for acquisitions and refinancing.

The Mortgage Bankers Associa-tion expects loans for commercial real estate to surge this year. The group reported that U.S. commer-cial mortgage originations are pro-jected to hit $230 billion this year, up 17 percent from $197 billion last year. Commercial and multifamily originations are expected to grow to $265 billion in 2014 and will prob-ably reach $290 billion by 2015.

Life insurance companies, once the lifelines of commercial mortgage financing, are expected to increase their debt and equity placements to meet the demand.

Approximately 23 percent of the commercial mortgages originated last year were provided by life insurance companies. The American Council of Life In-surers reported total commitment volume of $45.4 billion in 2011, a 48.2 percent increase from the previous year.

“Our forecast anticipated continued strength in lend-ing by life companies and the GSEs, increased lending by banks and others, and a slow but steady return in CMBS activity,” MBA vice president of Commercial Real Estate Research Jamie Woodwell said about the group’s predictions.

Of the $45.4 billion in commercial mortgage loans origi-nated by insurance companies, the most active lenders were companies based in the NYC metro area. Leading the pack was MetLife, which reported that it had originat-ed $11 billion in commercial mortgages in 2011, compared to the more than $8 billion that it originated in 2010. New Jersey– based Prudential Mortgage Capital Co. originated $9.7 billion surpassing its 2010 level of $9.1 billion, making it the company’s third-largest production year ever. The company announced that it is looking to provide up to $11.6 billion in financing for 2012.

Other active life insurance companies include TIAA-CREF, New York Life, Guardian Life and Pacific Life, as well as Northwestern Mutual Life Insurance Com-pany and Principal Insurance Company.

Nicholas Jahnke, director at Northwestern Investment

Management, told me that the company originated ap-proximately $4.7 billion in debt and $2 billion in equity in 2011. The company was active in the local market originat-ing about $850 million for variety of asset classes.

“Everyone is in the market to lend and provide equity,” Mr. Jahnke said. “Lots of competition in the market is driving rates down to sub 3.5 percent for five-

to seven-year, and 4 percent for 10-year money.”

Last year Northwestern provided financing for residential rental apart-ment buildings, including a $60 million loan on the apartment build-ing Riverbank on West 42nd Street and $115 million in financing for the apartment building at 1510 Lexington Avenue. The insurer provided $270 million in financing for the Staten Island Mall and $87 million for Forest City’s Queens Place Mall. In a club deal with Great West Life, the com-pany provided a $250 million loan to the Canadian REIT, H&R REIT, for its purchase of the 670,000-square-

foot office building Two Gotham Center. Melissa Farrell, managing director at Prudential

Mortgage Capital Co., concurred with Mr. Jahnke, say-ing “everyone is after the same type of deals, making the market very, very competitive.

“The insurance companies are working together club deal or syndicating deals over $300 million,” she added. This was evidenced a number of times last year with one major deal specifically, the club deal of MetLife, Prudential Mortgage Capital Co. and New York Life for the $725 million loan on Boston Properties’ office building at 601 Lexington Avenue. Prudential provided $200 million, with MetLife providing $375 million and New York Life with the balance of $150 million in financing. The fixed rate loan, with a 10-year, seven-month term, was secured by the 59-story, 1.6-million-square-foot, Class A office tower and retail property.

Another insurance company that has continued to pro-vide financing in the market is Pacific Life. Last year, the West Coast insurance company teamed up and originated a $500 million fixed rate financing for the joint venture of SL Green Realty and New York State Teachers on the Class A office building at 919 Third Avenue.

As I mentioned earlier, many of the major life insur-ance companies are active purchasers and provide joint venture equity for commercial real estate transactions.

For example, Northwestern Mutual has been a partner with the Albanese Development Corp. in the develop-ment of rental properties in Battery Park City, including its latest building—the Verdesian—as well as the Solaire, the first luxury residential property constructed in Lower Manhattan since the 9/11 terrorist attacks.

New Jersey–based SJP Properties entered the New York City marketplace in the ground-up development of 45 Park Avenue, a condominium at Park Avenue and 37th Street. Its second condominium development was the Platinum on Eight Avenue and 46th Street, and it’s the developer of the 1.1-million-square-foot 11 Times Square. SJP’s equity partner in all of these develop-ments was Prudential Real Estate Investors.

Prudential is also a joint venture equity partner with Roseland Property Co. on many of its residential devel-opments, including the Monaco in Jersey City, which was financed by Northwestern Mutual.

TIAA-CREF is a leading financial services organization with $440.7 billion in combined assets under manage-ment. Last year, it purchased the residential rental com-ponent of the Corner, a luxury rental apartment building at 200 West 72nd Street, for $209 million. A few weeks later, the pension fund manager and institutional investor purchased the land beneath the office building at 425 Park Avenue for $315 million. And earlier this year, it purchased the retail condominium at 2300 Broadway at 83rd Street in the residential condominium tower, paying $44.73 mil-lion. In the summer of 2010, TIAA-CREF purchased the 559,000-square-foot, 33-story office tower at 685 Third Avenue, paying about $190 million.

In December, Manulife Real Estate, the global real estate arm of Canada-based Manulife Financial Corp., one of the largest life insurance companies in the world and parent of John Hancock Financial, acquired three real estate assets, totaling $555 million. They included 10 Exchange Place, a 748,000-square-foot office tower acquired for $285 million. The acquisition represented Manulife’s entry into the New York City metropolitan real estate investment market and its second acquisi-tion in New Jersey.

With yields on 10 year treasuries at 2 percent, these life insurance companies and others are evaluating opportunities to purchase and make direct equity investments in com-mercial real estate around the nation and in the metropolitan area. Expect this trend to continue for the foreseeable future.

Michael Stoler is managing director of Madison Realty Capitol, president of New York Real Estate TV and host of the Stoler Report.

In-depth look

With Treasury Yields at Record Lows, Insurance Companies Remain Bullish

Riverbank.

CMO_0412_Stoler.indd 30 3/22/12 6:22:03 PM

APRIL 2012 THE MORTGAGE OBSERVER 31

the scheduleThe commercial mortgage and real estate industry’s 10 biggest tickets for April

MONDAY, APRIL 2

Don’t be the last to understand the pipeline of new taxation, real estate and sustainability law coming down the pike. Join the Real Estate Board of New York as it gathers a host of panelists at its “Proposed Law and Real Estate” panel. Real Estate Board of New York “Proposed Law and Real Estate” seminar, REBNY Mendik Education Center, 570 Lexington Avenue, 5:30-8:30 p.m., contact Indi Jaipal at [email protected] for info

MONDAY, APRIL 9This New York Real Estate Salesperson class is

scheduled to meet for 10 days, Monday through Friday, April 9-20, between 9 a.m. and 5:30 p.m. The final exam will take place on Friday, April 20. The New York University Schack Institute of Real Estate 75-hour New York Real Estate Salesperson Course, April 9-20, Midtown Center, 11 West 42nd Street, Fifth Floor, contact Sal Gulino at 212-992-3305 or [email protected] for more info.

THURSDAY, APRIL 19Prudential Douglas Elliman’s

Faith Hope Consolo will be among the honorees receiving Mercy College’s Trustee Medal at the school’s 31st Annual Trustees event. Mercy College Annual Trustees Scholarship Dinner, the Plaza Hotel, 6:30-9:30 p.m.,

TUESDAY, APRIL 24Learn the inside secrets of top brokers when

the Real Estate Board of New York hosts its “In-side Secrets of Top Brokers” seminar. Real Estate Board of New York “Inside Secrets of Top Brokers” seminar, REBNY Mendik Education Center, 570 Lexington Avenue, 5:30-7 p.m. call 212-532-3100 for more info

TUESDAY, APRIL 3

Metropolitan Transportation Authority Chair-man Joseph Lhota will be the guest speaker when the New York Building Congress hosts its next breakfast forum at the Trianon Ballroom at the Hilton New York. New York Building Congress breakfast forum, Hilton New York, 1335 Avenue of the Americas, 8-9:30 a.m., visit www.buildingcon-gress.com for more info

SUNDAY, APRIL 15These quiet tree-lined streets near the Hudson

River from West 96th Street to West 110th Street boast some of New York’s finest remaining turn-of-the-century row houses, apartments, institu-tional structures and public monuments, often designed by leading architects. Municipal Art So-ciety “Bloomingdale Blocks” walking tour, meeting place will be provided upon registration, 2 p.m., call 212-935-2075 or visit www.mas.org

SUNDAY, APRIL 20Thousands will attend the International Coun-

cil of Shopping Centers event when it comes to Las Vegas this year. International Council of Shop-ping Centers, Las Vegas Convention Center, Las Vegas, May 21-23, visit www.icsc.org/2012RECON/index.php for more info

THURSDAY, APRIL 26Massey Knakal Realty Services is hosting the

second annual Commercial Real Estate Invest-ment Summit, with guests that will include head-liner Michael Fascitelli of Vornado Realty Trust. Commercial Real Estate Investment Summit, New York Bar Association, 42 West 44th Street, 8:30 a.m. to 3:30 p.m., visit http://mkcresummit.com/register

WEDNESDAY, APRIL 4

The White Plains region’s new organizer of commercial real estate information and network-ing events, CapRate Events, will present the Northern Metro Multifamily & Mixed-Use CRE summit. The Northern Metro Multifamily & Mixed Use Commercial Real Estate Summit, White Plains Performing Arts Center, White Plains, NY.,

TUESDAY, APRIL 17The 25th Annual Commercial Real Estate Awards Gala

will be presented by the New Jersey Chapter of the Na-tional Association of Industrial and Office Properties. Rob-ert Lieb of the Mountain Development Corp. will receive the Lifetime Achievement Award and Andrew Merin of Cushman & Wakefield will receive the Impact Award. National Association of Industrial and Office Proper-ties 25th Annual Commercial Real Estate Development Awards, The Palace at Sommerset Park, Somserset, N.J., visit www.naiopnj.org/25gala for more info.

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CMO_0412_Calendar.indd 31 3/22/12 6:42:54 PM


of interest

AAG Net Lease Fund II 15Albanese Development Corp. 30Alexico Management Group 10American Council of Life Insurers 4Angelo, Gordon & Co. 15Anglo-Irish Bank 12Ariel Property Advisors 9-10Australian Stock Exchange 12

BBank of America 10, 22Bank of Boston 21Bank of Ireland 12, 20-21Baydala, Terry 12Bellwether Enterprise Real Estate Capital 6, 8Bellwether Enterprise Community Investment 6Berkeley Point Capital 6Blackrock Group 12Blackstone Group 6Blackstone Real Estate Debt Strategies 6BNB Bank 8Bolivian Consulate 15Boston Properties 4, 30Buffet, Warren 18Burdale Capital Finance 21Burdale Financial Holdings Limited 21

CCanyon-Johnson Urban Funds 10Capital One 21CBRE 6Chai, Nelson 21Chase Bank 15, 21Cherryland Mall 28Chesterfield 28CIT Group 12, 20-21CIT Real Estate Finance 12, 22Citrin, Jeffrey 10College Green Branch 12

Compo Acres 10Cotter, Joseph 21Criimi Mae 12Cushman & Wakefield Sonnenblick Goldman 10CVS 10

DD’Arcy, Peter 18-19Darinor Plaza 10Davis, Jeffrey 20-21Day, Jeffrey 6Deutsche Bank 6Deutsche Bank Berskshire Mortgage 6Draft/Foote Cone & Belding 6Duncan, Pat 10

EEastgate Realty 15Edgewater Habor 21-22Ehlinger, Mark 10EMEA Research & Consulting 6Emmes Asset Management 12Enterprise Community Investment 8Extell Development 22

FFannie Mae 6Farrell, Melissa 30Federal Housing Commission 6Federal Housing Finance Agency 6Feldstein, Thomas 12Fitch Ratings 12Fleet 21Forest Avenue Shopping Center 10Fox, Adam 12Freddie Mac 6

GGalligan, Matt 20-22Gamestop 6Garodnick, Daniel 15GEM Hotel Union Square 4German American Capital

Corp. 10Gore, Lawrence 19Graves Hospitality Corp. 4Great West Life 30GTIS Partners 12Guardian Life 30Guggenheim Partners 20

HH & R REIT 30Haddock, Michael 6Harbors at Haverstraw 15Helios Capital Advisors 8Heyman Properties 10HFF 15Hilton Orlando 22Hotel Williamsburg 4HSBC 15, 22Huffman, Ned 6

IInvesco Advisors 10

JJahnke, Nicholas 30JC Penney 6John Hancock Financial 30Jos. A. Bank 10

KKaufman, Randi 12KBS Realty Advisors 12Kelly, Kitty 21Kimco Income Operating Partnership 10Kimco Realty Group 10King & Grove 4Klein, Michael 15Kohl’s 10Krueger, Liz 15KSK Construction Group 4

LLandesBank 15LaSalle Hotel Properties 10Lesser, Daniel 4, 6Lindwalk, Chuck 12Lipiec, Jason 18-19Lockhart III, James 6LW Hospitality Advisors 4

MM&T Bank 16-19Madison Realty Capital 8-9, 12

Malka, Josh 8Manhattan Mall 6Manulife Financial Corp. 30Manulife Real Estate 30Marcus & Millichap Capital Corp. 15Martocci, Gino 18-19Mayrose Holdings LLC 15McCahill, William 21McCarthy, Brian 10McDonnell, Paul 21Merck, Robert 4Meridian Capital Group 12MetLife 4, 30Miami Equity One 10Michael’s 10Monoghan, John 12Morgan Stanley Mortgage Capital Holdings 15Mortgage Bankers Association 30Mountain Development Corp 10

NNational Resources 21New York Life 4, 30New York State Teachers 30Northfield Bank 8Northwestern Investment Management 30Northwestern Mutual Life Insurance Company 30NYU Schack Institute of Real Estate 24

OOff-market RADAR 10Old Navy 10One57 22Orvis 10

PPacific Life 30Pariser, Evan 15Park Central Hotel 10Park Hyatt Hotel 22Parkside Apartments 15Payless Shoes 10Polo Ralph Lauren 6Post Road Plaza 10

Principal Insurance Company 30Prudential Capital Co. Prudential Mortgage Capital Co. 4, 30Prudential Real Estate Investors 30

QQueens Place Mall 30

RRanieri Real Estate Partners 6Ratner, Jonathan 12Real Estate Capital Revlon Consumer Products Corp. 15Richter & Ratner 12Riverbank 30Rock, Steven 15Roseland Property Co. 30

SSchultz, Steven 8Seats, Lamar 6, 8Shapiro, Tom 12Shulman, Ben 8Silverstone Property Group 9Sinatra, Frank 21SJP Properties 30SL Green Realty 30Solomon, Craig 10Sozio, Victor 9Specialist Business Banking 12Square Mile Capital 10Stein, Joshua 28Stoler, Michael 30Sunkyo Mahikari 15

TThe American Council of Life Insurers 30The Corner 30The Moinian Group 15The Platinum 30The Solaire 30The Verdesian 30TIAA-CREF 30Tishman Speyer 12TJ Maxx 10

Trader Joe’s 10Two Gotham Center 30

UUSAA Real Estate Co. 10U.S. Bank 15

VVaccaro, Jon 6Victoria’s Secret 6

WWells Fargo 21Werhane, Charles 8W. 27th Street Rental LLC 15Westside Congregration of Jehovah’s Witnesses Inc. 15Wilmers, Robert 18Wilmington Trust 16-19Wilsmann, Mark 4Wind-Up Entertainment 15WL Ross & Co. 6, 10Woodwell, Jamie 30

ZZegen, Joshua 8-9Ziff, Simon 24

#10 Exchange Place 30100 Wall Street 15100 West 33rd Street 61000 Madison Ave 1011 Times Square 301510 Lexington Ave 301540 Broadway 4160 North 12th Street 4200 West 72nd Street 302100 Round Pointe Drive 15211 East 43rd Street 152121 State Route 27 152300 Broadway 30374 Post Road East 10425 Park Ave 30430 Boston Post Road 1045 Park Avenue 30500 Connecticut Avenue 10537 West 27th Street 15601 Lexington Ave 472 Madison Avenue 15870 Seventh Ave 10992 Madison Ave 10

A comprehensive index of all the people, places, addresses and companies mentioned in this month’s issue

10. 21. 30. 6. 15. 6.

CMO_0412_OfInterest2.indd 32 3/22/12 8:01:09 PM

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Mortgage Observer 0312

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