At a time when the real estate finance industry is on life support, a pioneer of commercial mortgage-backed securities is back and hoping to work his magic yet again.
Ethan Penner, credited with rejuvenating real estate lending after the downturn in the early 1990s by slicing up pools of loans and reselling them, is set to make a comeback amid yet another industry slowdown.
"I can't help but notice the synchronicity," said Penner, a tan and youthful 48, who took a position last year as executive managing director of CB Richard Ellis Investors in Los Angeles, which has $38.5 billion under management.
"I kind of made my mark in the world in the last major financial crisis, when the real estate capital markets fell apart completely."
Penner joined Nomura Holdings Inc. in 1993 and proceeded to make real estate loans at a time when most of its competitors were reluctant to do so. In his five years there, he made some $35 billion in loans, and reportedly took home more than $125 million during that span.
But Penner went a step further, pooling those loans together, slicing them up and selling them to investors thereby helping create the commercial mortgage-backed securities market.
He's not shy about saying so: "I came in and helped create a new model that set the stage for a recovery in the industry."
Penner headed up Nomura's U.S. mortgage-lending unit, Capital Co. of America, turning it into the country's largest mortgage lender, but left abruptly in late 1998 over disagreements with the parent company over the direction of the division. In the following months, as the Asian financial crisis spread across the globe, Capital Co. of America reported a $275 million loss and Nomura announced plans to shutter the unit.
Still, it was Penner's proven ability to cash in during a downturn that got him his current gig with CB Richard Ellis Investors, which typically works on behalf of institutional investors such as pension funds and endowments.
During a round of golf with Brett White, chief executive of CB Richard Ellis Group Inc., the giant L.A. real estate services firm that wholly owns the investor subsidiary, Penner said they got to talking about the financial crisis and its opportunities.
"This is a crisis of historic proportions. That's really what I'm seeking to take advantage of here," he said.
Top executives were not available for comment, but colleague Mike McMenomy, the global head of investor services for CB Richard Ellis Investors, discussed the appeal Penner holds in the industry.
"He has been a pioneer in the real estate finance arena and that pioneering was intriguing to us because it demonstrated his creativity and passion for the real estate finance industry," said McMenomy.
Rock 'n' roll investor
Now, Penner is constantly on the road seeking investors for a new debt fund that he hopes can take advantage of a vacuum in the commercial real estate market.
Penner declined to comment on the fund due to regulatory concerns, but industry insiders with knowledge of the fund said Penner is seeking as much as $1 billion to make longer-term loans, though Penner has no specific charter yet.
Raising money in the current economic environment, however, is a tall order. And that doesn't even take into account Penner's personality, which he readily admits has not always been typical of the investment community.
"I was a bit of a rebel, maybe even a rebel without a cause sometimes," he said.
In the 1990s, Penner was perhaps as well known for his raucous client parties as he was for his innovative investment strategies.
Dubbed the "rock 'n' roll banker" by the financial press, Penner threw legendary soirees featuring artists such as the Eagles, Joni Mitchell and Sheryl Crow. At one memorable event, Penner even jumped onstage to entertain the crowd with his own rendition of "Born to Be Wild."
"He had some of the best parties ever," said Michael O'Connor, who has known Penner since the two of them worked together 25 years ago.
O'Connor, founder of Michael O'Connor & Co., a real estate finance company in San Francisco, said Penner's reputation sometimes masked the fact that he was supremely gifted as an investor, calling Penner "one of the best numbers guys around."
But the good times didn't last. Capital Co. of America was hemorrhaging money by the time he left, and Penner admits the departure wasn't on his own terms, leading to a decade of pseudo exile from the financial industry.
"I left, really, not of my own decision. My career was interrupted at a very peak time. I wasn't ready to leave or retire, but it happened," he said. "So I took the opportunity in that crisis, after I picked myself off the ground, which was a very difficult time for me, to remake my personal life. I spent a lot of time with my kids and got remarried."
Penner laid low, dabbling in venture capital and even trying his hand in the Silicon Valley tech world. But his love of numbers and finance soon pulled him back into the game.
"I'm just a free thinker," he said. "I think the rock 'n' roll banker moniker, which implies free thinker, is a good thing. I hope to die being a free thinker."
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