Sizing up NYC’s debt brokerage powerhouses
A look at the top commercial mortgage shops as local players face off against global giants
UPDATED, May 3, 12:42 p.m.: HNA Group’s $2.21 billion purchase of 245 Park Avenue — the city’s biggest investment sales deal of 2017 — was brokered by the world’s largest property services firm, CBRE.
When HNA needed a mortgage to fund the acquisition, though, it turned to a much smaller, family-run firm. Cooper-Horowitz, a storied Manhattan-based finance brokerage, partnered with CBRE to arrange the $1.75 billion loan from a group of banks led by JPMorgan Chase.
While global powerhouses dominate leasing and investment sales, commercial real estate debt services are traditionally the domain of local firms like Cooper-Horowitz, Meridian Capital, the Carlton Group and Ackman-Ziff.
But the old order is slowly changing, and competition among firms is on the rise, insiders say.
“Until about 10 years ago, the giant brokerage houses totally ignored finance,” said Scott Singer, president of the Singer & Bassuk Organization, a longstanding boutique family firm. “Having the big firms go into the market has totally created a new competition.”
This month, The Real Deal ranked the top 15 commercial real estate debt brokerages as those rivalries continue to heat up.
Meridian, the Manhattan-based debt and investment sales brokerage co-founded by Ralph Herzka in 1991, led the pack, fueled by a booming multifamily mortgage business. The firm brokered a whopping $15.23 billion across 1,657 loans last year, according to TRD’s analysis. That’s up from the $8.9 billion it brokered in 2015, when we last ranked the city’s leading debt shops.
“Meridian continued to see strength across our national and NYC debt business in 2017,” said Herzka, the firm’s chairman and CEO. “We saw strength across a broad array of loan sizes and asset types and even saw a material increase in our construction loan business, which is a true testament to the strength of the New York market.”
Eastdil Secured took the No. 2 spot this time around with $5.8 billion across 15 loans, down from $12.96 billion 2015, and Newmark Knight Frank came in third with $3.46 billion across 40 loans — a huge jump from two years ago, when the global commercial brokerage didn’t make TRD’s ranking. CBRE, which saw its total dollar volume balloon nearly 900 percent, and Cushman & Wakefield, which doubled its volume, rounded out the top five with $3.36 billion across 12 loans and $3.09 billion across 14 loans, respectively.
CBRE hired two Deutsche Bank mortgage executives, Tom Traynor and James Millon, in mid-2016 to head its debt advisory business. And Newmark, which went public in December, poached JLL’s star broker Dustin Stolly last summer — a clear indication that the company is serious about expanding its debt business. JLL took the No. 8 spot in our ranking with $1.72 billion across 12 loans.
Add a bunch of smaller new entrants to the mix and it’s clear why the industry is bemoaning a crowded playing field.
“Borrowers have a lot of choices, and they have the ability to negotiate more than they used to,” said Richard Horowitz of Cooper-Horowitz, which came in at seventh place with $2.08 billion across 18 loans.
Representatives for Eastdil and JLL declined to comment for this story.
A year of paradoxes
There were plenty of reasons for mortgage brokers to be worried at the outset of 2017. No one knew how Donald Trump’s presidency would impact the market, how far interest rates would rise, and whether a long-feared cyclical downturn would finally hit the city’s real estate industry.
In the end, though, most of those fears were unfounded, according to several industry players.
“I’ve never been busier,” said Newmark’s Stolly. The newly minted co-head of the firm’s debt and structured finance group brokered a $170 million loan from SL Green to fund Normandy Real Estate Partners’ acquisition of 888 Broadway in December with his cohort Jordan Roeschlaub, among other deals.
Interest rates in 2017 remained low by historical standards, while private debt funds and other alternative lenders further expanded their commercial real estate lending. The continued influx of nonbanks and foreign lenders has kept the market flush with cash, ensuring a steady deal flow for mortgage brokers.
At the same time, New York investment sales took a nosedive, the luxury condo boom peaked, and public markets were gripped by phases of volatility amid global political uncertainty. In theory, those trends sound like they should be bad for the debt brokerage industry. But in practice, they turned out to be just the opposite.
While the decline in investment sales during the first half of 2017 meant firms had fewer acquisition loans to broker, it led to a surge in refinancing deals. Eight of the 10 biggest commercial real estate loans issued in New York City last year were refinancings, as more landlords decided to take out new loans rather than sell.
In October 2016, for instance, TRD reported that Brookfield Property Partners and Urban American Management were considering selling the Putnam Portfolio, a collection of Upper Manhattan apartment buildings. But instead, the owners ended up replacing existing debt with $714.7 million in loans from a group of lenders that included Wells Fargo and New York Community Bank in July 2017.
And last year, Walton Street Capital abandoned plans to sell its 49 percent stake in 237 Park Avenue. Instead, Walton and its partner RXR Realty refinanced the trophy office tower with a $850 million mortgage from Morgan Stanley and Société Générale. Cushman, which had the sales listing, ended up brokering the new loan.
“Owners have options to capitalize,” said Steven Kohn, president of the commercial brokerage’s equity, debt and structured finance business. “Debt markets have been so attractive that [refinancing] has been a very viable option.”
The weakening condo market and slowdown in construction also drove developers to refinance existing projects. As fewer condo projects sell out in time to repay construction debt, sponsors turn to new debt to pay off old loans, sometimes on short notice.
Steve Witkoff, Fisher Brothers and Howard Lorber, for example, refinanced their condo project 111 Murray Street in November with a $650 million loan from the Blackstone Group, in a deal brokered by Newmark. Yitzchak Tessler landed a $164.3 million condo inventory loan from TPG and Deutsche Bank for his 172 Madison Avenue project in March 2017, in a deal negotiated by the young debt brokerage Maverick Commercial Properties. Other examples abound.
Public market volatility even aided mortgage brokers because it made them more valuable to their clients, Singer argued. In 2016, for example, TF Cornerstone tapped his firm to help refinance the Carnegie Hall Tower at 152 West 57th Street.
The presidential election was drawing near, and no one knew how interest rates would react to the outcome. So Singer negotiated an unusual provision with MetLife — a so-called forward rate lock. The loan wouldn’t close until April 2017, but the interest rate would be set in stone before the election. After Trump’s surprise victory, rates briefly spiked across the country and the rate lock paid off, Singer said.
Two of the biggest anxieties that debt brokers mentioned were the growing crop of competitors and a fear of oversharing information in the face of so much competition.
“I’m neurotic about it,” said Ayush Kapahi, a principal at the boutique firm HKS Capital Partners, which took the No. 14 spot on our ranking with $728.7 million across 96 deals.
Kapahi said the deals he was able to confirm with TRD made up about half of his firm’s total in the five boroughs last year. “I’m just not willing to share 100 percent of our closed pipeline in a format that a competitor could get their hands on,” he noted.
The liquidity trap
When TRD last ranked debt brokerage firms two years ago, CBRE didn’t make it into the top 10. But the global firm has expanded aggressively since it hired Traynor and Millon from Deutsche Bank to head its debt brokerage business in New York.
Their first major loan was the $1.75 billion 245 Park deal that CBRE co-brokered with Cooper-Horowitz in May 2017. And last November, Traynor and Miller arranged a $702.5 million refinancing on Fosun International’s 28 Liberty Street from a group of lenders including Deutsche Bank.
Before those deals, the large loan business had “never really existed at CBRE,” Millon said, adding that he was almost never offered attractive deals by the brokerage powerhouse in his previous role at the German financial giant.
“The senior folks at CBRE, globally, look at the same list you’re looking at and say, ‘We have to do something about this’,” Traynor added.
The firm’s expansion shows why 2017 wasn’t necessarily an easy year for debt brokers — despite the surge in liquidity. It’s the curse of success: As more brokerage firms wake up to the money that can be made in the business and join the game, competition increases. Industry players say clients expect more services from their debt brokers, including help setting up contracts and providing additional research and advisory work.
“Borrowers have become a lot more sophisticated,” said Maverick’s founder, Adi Chugh, who declined to talk about specific deals his firm closed (Maverick did not make TRD’s ranking). “They pay big fees, and they’re looking for more service.”
Clients in commercial real estate are also increasingly able to negotiate how much they pay their debt brokers. The standard commission is 1 percent of the loan amount, but that tends to shrink for larger deals and borrowers have more leverage than ever to push the price down, sources say.
In such a competitive environment, large firms have two clear advantages: They can link their debt brokerage and investment sales services, and they can work with clients in multiple countries.
Traynor and Millon started working on the 245 Park Avenue financing well before HNA bid on it, they said, because CBRE also had the sales listing. While the firm’s star brokers Darcy Stacom and Bill Shanahan searched for buyers, Traynor and Millon kept an eye out for lenders that could finance a deal. Firms like Cushman and Eastdil, which both run successful investment sales businesses, enjoy a similar advantage.
And as real estate markets become more globalized, offering services to clients around the world can be a competitive advantage. “In this environment you really need to follow your clients,” Millon said. “They’re doing deals all over the world.”
Smaller shops, by comparison, need to rely that much more on local relationships, while some find that it helps to focus on smaller deals.
Ira Zlotowitz, president and founder of the midsized commercial debt brokerage Eastern Union Funding, said his firm mostly negotiates loans that are around $25 million and under. Big global players, he said, “are really shooting at deals over $100 million. For me, they left the playing field open.” Eastern Union took the No. 10 spot on TRD’s ranking with $1.31 billion across 435 loans.
Other debt brokers at smaller shops say that it helps to specialize in a single market and that some clients appreciate the more personal approach. “There’s different strokes for different folks, as they say,” Chugh quipped.
Meridian’s continued supremacy also speaks volumes to the fact that size isn’t everything. The firm employs 300 people nationally, with most of its brokers based in New York, compared to CBRE’s 75,000 employees around the world and Newmark’s nearly 5,000.
But as global brokerages expand their market share, established local firms have to grapple with the fact that competition now comes in all shapes and sizes.
“I guess we’ve gone from being typical to having a niche,” Singer said, “but it’s a niche we believe really benefits our clients.”
Correction: An earlier version of this article misreported that Bank of China financed HNA Group’s 245 Park Avenue buy.