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October 28, 2008



“Somewhat of a blessing” isn’t exactly a phrase we’d expect to hear describing Manhattan’s office market today. But Marcus & Millichap, which is about to close on two significant (yet secretive) transactions on 5th and 7th Avenues, says it’s actually growing in these rocky times, thanks to active private investors putting down money for buildings under $50M. We recently sat down with regional manager Ed Jordan and associate Ross Mezzo and in their Madison Avenue office to hear more.


Deals in the $50M and under category are still being financed, by mostly private players with cash, as institutional investors, foreign money and funds that shaped the market during the boom years are sitting on the sidelines. Ross and Ed echoed others we’ve been hearing lately: expect the return of the bread-and-butter investor, who wants quality and location. This is the market such investors have actually been waiting for, so we’ll see a return of players who scaled  back when the market became too expensive and cap rates and returns too compressed.


But in such a market, they say, comes the bid-ask spread, and too many owners are in denial about where values are (and for a change, Ed and Ross actually credit the media for reporting declining values and reinforcing what they’ve been trying to tell clients). Their secret to success is three-fold: know your market, get back to the basic underwriting of assets, and keep your clients’ expectations in line with the market. Even though the firm has been ramping up its office platform for several years now, this formula has injected more momentum into its business, and in the past three months, it has plucked brokers from Besen & Associates, Massey Knakal, and Helmsley-Spear. It also helps that many competing brokerages are dealing with bottom-line issues and sidelined institutional clients. But with blessings comes a lot of hard work: so, no golf, sailing or yoga for these guys. Ed and Ross, with associates Joe Averbrook and Benjamin Bottner, claim it practically involves sleeping in the office. They’re getting soft—we didn’t think they slept at all.

Debt Pool Party!

CapitalSource hasn’t any qualms about the market either—and why should they? Not only is the commercial lender fresh off its acquisition of Fremont Investment & Loan’s retail banking operations, which provided the firm with an additional $5.2B in deposits, but competition is waning in the lending market as other players drop out or merge. We dropped in the Fifth Avenue office of Gabe Boyar, a director in CapitalSource’s real estate finance group, who tells us many companies are trying to reduce their risk exposure by selling off debt, which CapitalSource is snatching up. The firm is acquiring large pools of performing debt, as well as helping clients looking to buy debt. On the lending side, the firm’s more conservative, focusing on better-capitalized clients and lower loan-to-cost ratios. So, if you want a building financed, it should have cash flow, yet require some time to turn around: “We want deals with a story. Office and industrial remain sweet spots, but the firm is being cautious about retail and hospitality in wake of reduced consumer spending.


Despite the increased activity, CapitalSource’s execs still have time for extra-curriculars. We said a quick hello to resident structured finance guru and TV star Christopher Harms, who appeared on Bloomberg last Friday to talk about how the day affected the fixed-income market. And Gabe was off to the soccer field over the weekend, performing a triple play as coach, referee and division head for his two daughters’ league—roles that have taught him a lot of patience. A good thing to be re-learning these days.

Arent Fox
Casa Noble
Leo A Daly
Reznick Group
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