With the price of commercial real estate reaching record levels, a number of prominent real estate owners and developers are joining the ranks of entities providing commercial real estate financing.
Brian Cohen, a partner at Goulston & Storr’s New York Real Estate Practice, said “This market finds sophisticated real estate owners/operators with integrated acquisitions and management capabilities looking to provide debt with a lower risk profile than equity. Having the skill set necessary to handle the assets in a distressed situation, which these owner/operators typically possess, further mitigates their risk.”
Earlier this year, The Real Deal reported that Aby Rosen and Michael Fuchs of RFR Holdings, the owner of Lever House, 375 Park Avenue and other Class A properties, provided a $60 million mezzanine loan for the historic Mark Hotel, as well as the adjacent townhouse located at 25 East 77th Street. An industry leader who prefers to remain anonymous said “These guys are following the lead of other owners who want to be in the position to possible take over the project if there is a default.”
Over the past few years a number of established real estate families, which include Fisher Brothers, the Winter family, Moinian Group, Witkoff Organization, Sherwood Equities as well as large private equity funds and real estate investment trusts, have entered the financing market.
One of the New York family businesses, who has been active is Fisher Brothers, which was founded in 1915, providing land, construction, mezzanine and B-note loans. According to the Commercial Observer, the company has provided loans ranging in size of $5 to $100 million. Last year, they provided a $10 million mezzanine loan to Taconic Investment Partners for their building at 837 Washington Street. They also teamed-up on the $150 million land loan with JP Morgan Chase for Cerruzzi Holdings partner Shangai Municipal Investment USA, on a mixed use condominium tower at 43rd Street and Fifth Avenue.
Winston Fisher, one of the principals of the firm was quoted on “Leaders Magazine” stating that “One of the main areas that the firm is involved in is financial investment like the Fisher Brothers co-sponsoring of Citi-Investment Fund. We are actively making residential loans; we just did a multi-family acquisition loan; we did a land loan; and we’re looking at various other things.”
The Real Deal recently reported that Emanuel Stern, the former CEO of Hartz Mountain Industries, one of New Jersey’s leading real estate developers and owners, founded by his father Leonard Stern, is currently head of Tall Pines Capital, “A firm which is avoiding ground-up residential development and instead partnering with big time developers on mezzanine debt and preferred equity investments.”
Another family entering the lending market is Winter Properties, the real estate arm of 40 North Management. A November article that appeared in the New York Times profiled David Winter, a founder and co-chief executive of a company formed in 2014, as an outgrowth of the Winter Organization. Mr. Winter shared that the company has been primarily a mezzanine lender to anything residential, providing approximately about $60 million last year.
One of New York City’s leading owners and operators of office and residential properties is the The Moinian Group, which closed on a $361 million Israeli bond issuance last May and has also entered the financing arena. As reported in The Real Deal, in the fall, real estate developer David Marx secured a $65 million land loan from the Moinian Group to finance construction of a 399 room Marriott Courtyard hotel that Marx is building in the Hudson Yards at 461 West 34th Street on the corner of 10th Avenue. The financing replaced a $60 million bridge loan that Marx received last year from the Related Companies and Highbridge Principal Strategies. Marx secured the new financing at an interest rate of 10 percent and used the proceeds to pay off the loan from Related and Highbridge.
Savanna Real Estate Fund, is a New York City-based real estate private equity and asset management firm that has become an active player in debt investments. Two years ago, the fund hired seasoned structured financial professional George Perry (who had spent nearly twenty years with Malkin Holdings) as co-founder and managing partner of the financing entity, Savanna Mezzanine Capital, a subordinated debt lender.
One of the most active real estate investment trusts that owns and manages significant commercial real estate holdings in New York City is S.L. Green Realty. According to financial presentation by the company, approximately 9% of S. L. Green Revenues were generated by debt and preferred equity. All of the debt and preferred equity financing are for a total of fifty-four properties in New York City, with a net book value of $1.8 billion, a weighted average loan to value of less than seventy percent, and weighted yield of 10%. For example, the company earned an IRR on a mezzanine investment of 21.5% coupled with a fixed price option to buy 20% of the equity at a price of $800 per square foot for one of the largest, newly constructed residential rental towers on the far west side of Manhattan.
Industry leaders expect more and more real estate owners to pursue the debt side of real estate asset management over the next few years.