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Monday, May 29, 2023

Going Beyond Low Cash Flow

Ten years ago, when Jeff Friedman and Mark Zytko were trying to secure their first deal, they had a nearly empty office, one employee and no track record.

Zytko remembers a prospective borrower sending a questionnaire that asked for all kinds of figures, including the number of loans his firm, real estate lender Mesa West Capital in Westwood, had closed in the past three years.

“After filling out the questionnaire and replying ‘zero’ and ‘none’ to almost every question, I called the borrower and gave them my word that we would get their deal done smoothly for them,” Zytko said. “We did.”

The firm was new, but Zytko and Friedman had been around the L.A. finance and real estate scenes for a while. They worked together at Credit Suisse First Boston, and Friedman later worked for L.A.’s Maguire Properties until it went public in 2003.

The following year, they co-founded Mesa West to make the kind of property loans that weren’t available – ones that might not be a good fit in a pool of commercial mortgage bonds, for instance.

“If your property had high cash flow but was lower quality, it would still work in a commercial mortgage-backed security,” Zytko said. “But a higher-quality property with lower cash flow wouldn’t. We thought we could make a safer loan on a better property, even with less cash flow.”

Mesa West lends to property owners or buyers who want to improve a property and then either sell it or get a longer-term, lower-interest loan. The firm makes loans with about $2 billion in capital from institutional investors, including pension funds. Last year, it raised $752 million with its third fund.

The firm can make bigger loans than a bank likely would on the same property. Friedman and Zytko say they’ll make loans based on what the value of a property could likely be after improvements, not only on the current value.

For instance, Mesa West last month closed a $120 million loan for a property on Rodeo Drive. They say a bank wouldn’t have loaned that much because a gym on the property pays relatively low rent. But the borrower’s plan is to bring in a new tenant that will pay higher rent, justifying the larger loan amount.

“Our job is to find opportunities that fall just outside the strike zone,” Zytko said.

So far, they’re finding plenty. Last year, Mesa West originated $1.4 billion in loans nationwide. And though borrowers didn’t know them 10 years ago, Friedman said that’s not a problem anymore.

“It’s a small world,” he said. “If you do a good job, word of mouth travels.”

– James Rufus Koren


Co-Chief Executive,

Mesa West Capital

RESIDENCE: Santa Monica

FAMILY: Married; 13-year-old daughter and 11-year-old son.

ACTIVITIES: Road trips to the mountains in the summer and winter; running, sailing, tennis and golf.


Co-Chief Executive,

Mesa West Capital

RESIDENCE: Santa Monica

FAMILY: Married to Nancy; 9-year-old twin sons, Ben and Cole.

ACTIVITIES: Taking the kids to soccer and football; golf, skiing, fly fishing and mountain biking.

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