A challenging financing market hasn’t derailed growth at Marcus & Millichap Capital Corporation (MMCC), a division of Marcus & Millichap (NYSE: MMI). In fact, the firm is leaning into expansion plans as it continues to fortify its capital markets teams in major cities and build a stronger bridge to enable collaboration between its capital markets, loan sales and Marcus & Millichap’s investment sales teams.
When The Real Deal last sat down with the team at MMCC, the firm was generating strong transaction velocity following the launch of a capital markets group within its Institutional Property Advisors (IPA) division. That move has given MMCC a greater reach into the larger private client and institutional client markets, and the firm has continued to build on that momentum over the past year with a series of new hires and geographic expansion.
“Our primary focus lies in the expansion of our business within both the private client and institutional market segments through corporate acquisitions and the recruitment of experienced, intelligent capital markets originators that have long-standing and close relationships with clients as well as with capital sources around the globe,” says Evan Denner, Executive Vice President and Head of Business at MMCC. “Originators are drawn to MMCC because they get the best of two worlds: the support and credibility of a national market leader, as well as the growth opportunities that come with being part of a company with a strong entrepreneurial culture,” he says. Originators are attracted to firms where absolute collaboration is the mantra and thinking “out of the box” can help to provide the best service to clients and advance their careers, adds Denner.
Besides growing its originator team, MMCC has expanded its presence geographically. The company launched IPA Capital Markets in the Washington, D.C. metro and Charlotte, and has made a first step into the Canadian market by opening a location in Toronto.
Growing team of capital markets professionals
Now with 200+ people and 40 offices, MMCC provides commercial real estate capital markets financing solutions, including debt, mezzanine financing, preferred and joint venture equity, sponsor equity, loan sales and consultative and due diligence services in top markets throughout the U.S. and Canada. Since the start of 2023, MMCC has added several seasoned professionals, including Max Herzog and Marko Kazanjian in New York City, Gary Mozer and Lee Norman in Los Angeles, Lindsay Stroud in Washington, D.C., Bobby Werhane in Charlotte and Jeff Wagner in Toronto.
“Our capital markets business really complements the loan sales and the investment sales platforms, and the debt side of the capital markets business is continuing to grow,” says Max Herzog, Executive Managing Director, Capital Markets at IPA Capital Markets in New York City. “That mission to expand the capital markets platform is very obvious, and we’re constantly talking about other markets where we want to hire people or teams on the debt side,” he says. Herzog and Kazanjian recently joined IPA Capital Markets and the two are focusing on growing the IPA Capital Markets practice in the tri-state area.
Industry professionals are attracted to the MMCC platform for a variety of reasons, including resources available from its research and marketing teams, as well as its recognized brand name and an extensive network of professionals in the U.S. and Canada.
“We’ve established a compelling strategy to attract top talent by making substantial investments in cutting-edge tools and technologies across our various divisions. Most recently, we introduced innovative technology that fosters an even tighter integration between our investment sales teams and our originators across North America. These tools allow us to provide clients with the highest quality service by pulling specific talent from across the country for their transactions,” says Erika Banach, First Vice President, Corporate Strategy & Development at MMCC.
Leveraging boots-on-the-ground expertise
MMCC’s capital markets and loan sales, as well as Marcus & Millichap’s investment sales teams, all work closely together to help close transactions in what is a challenging financing market. “We can collaborate and really lock arms to service our client the best because we’ve got boots on the ground across the country,” says Pete Fehlman, Managing Director at Marcus & Millichap Capital Corporation in Dallas-Fort Worth. Fehlman joined the MMCC team last year as part of the firm’s strategic effort to strengthen its hotel expertise, and he is actively working on numerous hotel financing deals with the company’s investment sales teams across the country.
MMCC’s growing national platform is part of what attracted Fehlman to the firm. The company has a prolific capital markets team that covers all asset classes. Nationally, MMCC participated in over 2,100 deals in 2022 that represented $12.8 billion in transactional volume. That pipeline of deals provides a tremendous amount of data and insights into current market dynamics. The company’s loan sales capability also received a significant boost with the 2020 acquisition of Mission Capital Advisors, the leading specialist in single asset and loan portfolio sales, as well as due diligence services.
“MMCC’s relationship with our subsidiary, Mission Capital Advisors, is symbiotic both with our capital markets teams and with the extensive Marcus & Millichap national sales platform,” says Marc Sznajderman, Senior Vice President, Head of Production, Eastern Region Division at MMCC. The close relationships that its originators have with lenders across the country have led to several successful loan sale closings with Mission. Additionally, Mission’s long-standing relationships and ongoing dialogue with banks, credit unions, insurance companies and special servicers allow them to bring the full suite of MMCC and Marcus & Millichap’s capabilities to bear for the client, including deed in lieu negotiations and the valuation and sale of REO.
“The ability to partner with top sales agents in virtually every corner of the country with expertise in specific asset classes gives Mission, and its clients, unique insight into the market to provide market color and valuation feedback to the lending community and owners, and, ultimately, best-in-class execution in a sale process,” says Sznajderman.
“We can utilize resources in other MMCC offices or other Marcus & Millichap brokers to make connections with lenders that we might not otherwise have had,” adds Fehlman. In 2022, MMCC secured proceeds from 456 different capital sources on behalf of their clients. In addition, there is a lot of shared information internally on closed deals, which provides valuable market intel on critical data points such as spread, interest rates, I/O periods and leverage.
Expertise in loan portfolio sales
In the secondary market for loan portfolios, front of mind for bank risk managers are the words “office“ and “balance sheet management”, often in the same sentence. MMI’s Mission Capital subsidiary recently closed on the sale of two portfolios of performing loans that directly addressed these risk factors.
The first was approximately $102 million, consisting of 65 performing small balance multifamily, retail, office and mixed-use loans sold by a bank in the Northeast seeking to repatriate capital to reinvest in higher yielding assets. The second was a $25 million loan pool secured by three related class B office loans located in Southeastern and Midwestern cities. Each transaction traded at a modest discount, correlating to an aggressive performing yield to maturity, in competitive auction processes. A bank and two debt funds were awarded the transactions.
“Despite recent rate volatility, we continue to see aggressive bidding for seasoned performing loan portfolios” said David Tobin, Senior Managing Director of Mission Capital. “Prudent risk management dictates methodical quarterly pruning of portfolios to reduce risk and raise capital. It is critical for financial institutions to take advantage of the liquidity in the market, because history suggests it can dry up in the blink of an eye”.
Navigating a challenging market
Having resources and a strong team of capital markets professionals is more important than ever in the current financing environment. Interest rates are incredibly high, and borrowers are hearing a lot of “no’s” from lenders. One of the things that MMCC teams are doing to help clients navigate in the current environment is to double down on time spent with clients educating them on where the market is on a daily basis and running a lot of “what if” scenarios, notes Herzog. Many clients are adopting a “hoping for the best” mentality in this market, but the best approach is to be proactive and to work with an experienced advisor to refine and implement a well-thought-out strategy, he adds.
In addition to assisting clients with debt financing, the MMCC’s capital markets teams are helping clients access equity to fill gaps in their capital stack, whether that is through preferred equity, JV equity or some form of hybrid debt-equity structure. MMCC also formed a strategic alliance with M&T Realty Capital Corporation in 2021 which has been an essential element to the company’s growth in providing agency offerings to its mid-market and institutional clients.
“With M&T Realty Capital’s dedicated resources and streamlined processes that are seamlessly integrated into our platform, we can deliver the most competitive agency solutions to our clients,” says Paul Lewis, Senior Vice President, National Director of Agency Programs. “Coupling one of the largest U.S. financial institutions with one of the largest originators of multifamily transactions has provided the market with a new and unique option. In this challenging market where the agencies have seen a 23% year-over-year decline in production, our agency business is up over 20% year-over-year,” says Lewis.
Despite financing challenges, MMCC’s team of experienced capital markets professionals are finding solutions to assist clients, such as financing transitional deals with a fixed-rate mortgage with preferred equity on top instead of a floating-rate mortgage. In other cases, creative solutions involve bringing in new kinds of structures like C-PACE or ground lease structures that have not been prevalent options over the last few years.
MMCC also has a strong closing department that is working to get deals across the finish line. As choppy as everything is in today’s world, they’re making sure that everything is lined up with the lender, buyer and seller and going through the checklist of title and loan docs to make sure that the loan closes timely. “At the end of the day, it’s all about the client, and we all want to serve the clients as best we can,” says Fehlman. “It’s great to be able to utilize our internal resources to help get that deal across the finish line.”
Learn more about how MMCC and IPA Capital Markets work with clients in a challenging market.