Exclusive Q&A: Mesa West Capital CEO Jeff Friedman Talks Commercial Lending, Strategy And Growth
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Jeff Friedman is co-CEO of Mesa West Capital, a company he runs with co-CEO Mark Zytko. The company now has offices in LA, New York and Chicago, and recently funded a $210M loan for Hearn to refinance the John Hancock Center. Bisnow recently caught up with Jeff to talk about Mesa West, commercial lending and future growth.
Bisnow: What is the future of commercial lending?
Jeff Friedman: We believe that there has been a fundamental shift in the landscape of lending on commercial real estate. The traditional dominant capital providers for floating rate loans have been the commercial banks, GE Capital and, to some degree, CMBS. GE Capital announced last year that they are exiting the business after 40 years of dominating it, CMBS has experienced significant volatility and the global financial crisis has not been a major player in the floating rate space.
More importantly though, as it relates to the market landscape, many US and foreign commercial banks either no longer exist or are not actively lending on commercial real estate. Those that remain are being subject to heavy regulation. Dodd-Frank, Volker and Basel 3 have yielded tremendous constraints and capital requirements for the banks, and we don’t see this dissipating any time soon. Like many things in life, things are cyclical, and there will be a day when the traditional lenders are back in force in the space, but for the next three to five years it seems that there is a great market opportunity for non-regulated lenders such as Mesa West Capital.
Bisnow: Why open an office in Chicago?
Jeff Friedman: We opened a Chicago office because I love the Cubs and nothing beats deep dish pizza, so it gives me a good reason to visit. Actually, truth be told, I am a die-hard Dodgers fan, and New York has better pizza. So the actual reason we opened the Chicago office was based on the success that we have enjoyed with our NYC office. We opened in New York five years ago, and it has grown from one person, Raphael Fishbach, with whom we had a long relationship, to 10 people and approximately 50% of our originations volume.
Like New York, we were seeing interesting loan opportunities in Chicago and thought we would benefit from having boots on the ground—both from a credit perspective as well as growing our presence in the market. And although it is relatively new, it has worked out terrifically. We currently have a solid loan portfolio in Chicago, including Google’s Chicago HQ building, and at the end of last year we closed a $210M loan on the John Hancock building.
Bisnow: How much debt has Mesa West originated?
Jeff Friedman: $8.5B. We started the company back in 2004 and originated $500M of loans per year during the first few years. As we have gradually increased our capital base, expanded our product offerings and grown our footprint, our annual originations volume has steadily increased with it—to over $2B last year. This makes us one of the largest non-bank lenders in the US originating loans and holding them on balance sheet. Our average loan size last year was $65M, so we are typically lending to private equity firms teamed up with local operating partners on institutional quality real estate.
But the key to our business is not our products or footprint but our relationships. Although our business is based on individual transactions, it is mostly driven by relationships, whether on the capital side with our pension fund and other institutional investors or with our sponsor or intermediary clients. I suspect that sounds corny or old-fashioned, but it has been a real difference-maker in succeeding in a competitive environment.
Bisnow: How have you gotten to where you are? What has been your strategy?
Jeff Friedman: I think a large part of our growth and success has been a result of building a really great team, our strong relationships and executing really well. When my partner Mark Zytko and I started the company 12 years ago, we had an analyst, three computers, a few Costco tables and a jar of candy. Since that time, we methodically built the team and now are seven partners and a total of 35 professionals in three offices solely focused on real estate debt—and, of course, still a jar of candy. As far as our relationships and execution, whether with our investors, sponsors or intermediaries, the hallmark of our company has been that we have done what we said we would do and have been transparent when difficulties or challenges have arisen.
We have been tested, including through the hyper liquidity of 2006-2007 and the credit seizure of 2008-2009. But by surviving this period, we were able to distinguish ourselves and used that success to grow our relationships and in doing so our capital base, footprint and products. There are times where we lament the global financial crisis, but in some ways the generational pain of that period created generational opportunities for us. Funny how that works.
Bisnow: Any other growth strategies?
Jeff Friedman: Our growth to date has been driven by our investor, borrower and intermediary relationships and market opportunities. When we first started the business we were focused on West Coast lending, notwithstanding that we had deep experience lending nationwide, and we were lending only on heavy value-add projects. The global financial crisis created a capital vacuum, and our clients were looking for us to broaden our products and footprint. This led us to open our NYC and Chicago offices and start our open-end core lending fund, effectively expanding our offerings in the market.
More recently, we began a separate account business to capitalize on voids in the capital markets not covered by our funds business. We believe that the increased regulations of the commercial and investment banks and the volatility of the CMBS markets will continue to persist and in doing so will present great tactical and/or strategic opportunities, and we expect to continue to grow this part of our business.
Bisnow: How do you view your business?
Jeff Friedman: Our business is about building and sustaining a long-term enterprise rather than trying to “crush” it on a particular deal or vintage. This causes us to think more strategically rather than tactically and to try to make decisions and take actions reflective of that. It also highlights the importance of developing and retaining a solid team, working hard at our key relationships and doing the right thing by others. This certainly does not seem or sound particularly complicated…until you need to consistently execute on this in a competitive and sometimes unforgiving market.
Bisnow: What kinds of things do you like to do in your personal life? (That's him hiking with his children in Whistler and on a ski trip)
Jeff Friedman: I love being outdoors and active…as well as a good weekend nap. My wife and I have a 15-year-old girl and a 13-year-old boy, so two teenagers, but luckily for us they have not yet succumbed to acting like teenagers. As a family, we are fortunate to have the opportunity to do fun things. This has included spending time in the mountains in the winter and summer as well as the beach and more recently exploring the world together. In addition to my family life, I play tennis once or twice a week, I run at least three times a week and really like business golf and sailing when I get a chance. It sounds like a lot of activity, especially combined with work, but that is where the weekend nap comes into play.