Since Jeff Friedman co-founded Mesa West Capital in 2004, almost everything has changed for the West L.A. commercial real estate lender from its business model to its competition.
The days of doing deals with 75 percent loan-to-value ratios are long gone. So are the competitors, who have been driven to the sidelines or out of the business by the global recession. Indeed, Friedman's company, backed by investments from public pension funds, is one of the few private lenders doing deals.
That Friedman, 47, is still able to make loans is a testament to the foresight he exhibited when the commercial real estate lending business went into overdrive. Friedman watched as real estate values soared and loan-to-value ratios spiraled up to around 90 percent. It didn't feel right.
"Our views were contrary to the popular belief that there was systematic change in real estate values and leverage," said Friedman, who co-founded his company with Mark Zytko, a former colleague at financial services company Credit Suisse First Boston. "The way we adjusted to it was by not participating at the same level of most our competitors."
The decision proved to be a smart one; when the market collapsed, Mesa West was less exposed to bad loans.
The company's first $207 million fund, which it leveraged up to $1 billion using credit lines with commercial and investment banks, was invested from 2005 to 2007. Friedman said that the fund is still marginally exposed to the collapse. The company owns four properties through foreclosure and also is doing "a ton of workouts" to restructure loan terms.
Still, the company has begun lending from a second fund of about $420 million, which has a total of $1.5 billion in lending capacity.
The company generally makes loans of $10 million to $50 million with interest rates of 8 percent to 10 percent on only about 60 percent to 65 percent of a property's underlying value. Both funds have focused on short-term, first mortgage bridge loans on performing office, multifamily, retail, industrial and hospitality projects.
Friedman is used to difficult situations. In 2000, after his stint with Credit Suisse First Boston in New York, the L.A. native and UCLA graduate moved back home to work for L.A. real estate developer Robert Maguire.
His friends told him he was crazy to take the job; Friedman has a reserved personality that contrasts with Maguire's reputation as a fiery businessman. However, he said the job worked out well, as he focused on transactions, the company's debt obligations and its 2003 initial public offering.
"I learned a lot from Rob. He does have a great vision. He is very bright and he's a leader," Friedman said. "I went there at a time when Gas Co. Tower was in bankruptcy, and we had a bunch of other debt that was coming due. People that knew me and knew Rob thought I was crazy. For me the opportunity was tremendous."
JEFF FRIEDMAN , 47
Mesa West Capital LLC, West L.A.
The veteran real estate player co-founded Mesa West in 2004 to make commercial real estate loans. The company recently raised $420 million in institutional capital for its second fund, giving it $1.5 billion of lending capacity.
Big Challenge: Closing this ($420 million fund) earlier this year was brutal. We had a group of state pension funds who had circled our fund, but getting them closed was no less difficult than moving a mountain.
Notable Recent Deal: We provided the Magellan Group with a $25.6 million first mortgage loan for the recapitalization of Grace Place, a half-million-square-foot industrial complex in Commerce. There was a tremendous amount of documentation and Magellan needed to close the deal in 30 days.
Sage Advice: This is a great time to hang out with the old-school guys. Contrary to the popular view during the past few years, we have once again learned that there is no new paradigm in real estate investing. Real estate markets as well as all markets are cyclical.
Recession's Silver Lining: There is a great expression that is appropriate in these times: when the tide comes in everyone appears clothed, when the tide goes out you can see who is naked.
Stress Release: Chasing around my 9- and 6-year-old kids and letting my wife catch me. Our children are at that wonderful age of innocence. I also love sailboat racing and fortunately my financial well-being does not depend on my accomplishments on the water.
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