Increasingly, commercial real estate players seeking financing are tuning in to CBRE/Melody.
The investment banking arm of CB Richard Ellis has only had a regional presence since 2000, but despite intense competition from established players such as Holliday Fenoglio Fowler, Meredith & Grew and Fantini & Gorga, CBRE/Melody is projecting its second straight campaign securing $1 billion in capital on behalf of its clients. The mark was reached last year after posting $350 million in activity in 2004, and is expected to be eclipsed this year by the end of the third quarter, according to Senior Director Frank Petz.
“It has been well received,” Petz acknowledged last week of CBRE/Melody’s New England operation, which includes offices in Boston and Hartford. “We’re expecting a huge year.”
Petz is one of several producers added to the CBRE/Melody team in recent years, joining Senior Director Michael L. Prakken, Phil Ward and Sean McKenna in the Boston office and Senior Director Michael Riccio, who runs the firm’s Hartford operation along with associates Christine Kubas and Julie Ryker. Founded in Houston in the 1970s as L.J. Melody Co., the firm entered Massachusetts in 2000 via its purchase of the Boston Mortgage Capital Corp. and was then acquired by CB Richard Ellis in 2003.
Uniting L.J. Melody and CB Richard Ellis has benefited both companies, according to Petz, with his group able to support the investment sales team at CB Richard Ellis by providing insight on the financial options and terms available, important given that upwards of 90 percent of all buyers have a leveraged component to a given deal. CBRE/Melody brokers, meanwhile, can access CB Richard Ellis’ extensive support services and resources, Petz noted, and can tap into the parent company’s client base to complement their own sources.
“We piggyback off each other all the time,” said Petz. “It’s a platform that works well for everyone.”
‘Moving Pieces’
CBRE/Melody provides a range of financing programs, including both debt and equity and customized offerings such as mezzanine and bridge loans. A former acquisitions officer for both Copley Real Estate Advisors and Yale Investments, Petz specializes on the equity side of the business, whereas Prakken and Riccio are adept at debt placement. Prakken came to L.J. Melody in the mid-1990s after a stint in the commercial real estate division at Fleet Financial Corp., while Riccio had a successful career at Cigna Investments in Hartford, Conn., before being tapped in 2004 to open Melody’s Connecticut office.
Having been a lender for most of his career, Riccio said he believes his experience helps in structuring a deal, securing the best rate and crafting the documentation of a financing program. The latter expertise is particularly useful during the closing process, said Riccio, adding that the hands-on approach means he will see an assignment right to the end. “As we build the business, I want to make sure I am taking care of my clients,” he said.
As with Boston, Holliday Fenoglio Fowler remains the big player in Hartford for investment banking, but Riccio said he believes CBRE/Melody is making inroads. Partly due to his background doing deals nationally, however, only about 20 percent of Riccio’s business at present involves Connecticut-based transactions, with the remainder outside the region. In recent weeks, Riccio has closed apartment deals in Denver, Houston and Austin, Texas, and represented a Connecticut-based pension fund advisor in buying an office building in Memphis.
Of the $1 billion that should be placed by the end of the third quarter by the New England contingent, Riccio estimated that $205 million will be from his office. Insurance companies provide the lion’s share of the capital accessed by Riccio, who even was able to get such a source to provide construction financing for a new motocross/retail center about to open north of Hartford. Typically focused on core-level real estate investments, insurers and other institutional funds are becoming more aggressive in order to generate yield, said Riccio, with many such lenders now even willing to back acquisition of underutilized office properties.
In Massachusetts, lenders also are becoming more comfortable doing value-added deals or buying a measure of vacancy, said Petz, making it easier to pitch opportunities. As with Riccio’s lending experience, Petz said he believes his background on the acquisitions front helps him relate to clients and better understand their needs. “The whole key is knowing how to assess the risk and how to underwrite it,” he said. “Once you do that, you can decide what sort of capital makes the best fit for the client.”
In buying properties throughout the United States and in Massachusetts prior to joining CBRE/Melody, Petz said he believes he has the ability to decipher a client’s business plan and explain it to the financing sector enough to alleviate any trepidations. That is particularly critical when pitching projects in off-locations or during difficult economic times, both elements which CBRE/Melody has successfully navigated through during the region’s recent struggles. Persevering through such challenges has helped establish CBRE/Melody as a viable broker for getting deals done, he said, leading to additional assignments.
“We’ve kind of moved upstream,” said Petz. “We continue to do the classic singles and doubles, but we’re getting some of the bigger deals now and have earned the trust of some larger players.”
This year alone, for example, CBRE/Melody has aided Gale International in its $58 million purchase of a suburban Boston office/flex portfolio, and also helped Griffith Properties complete a complicated series of deals in Wilmington, buying out one partner and bringing in a new capital source for 200 Ballardvale St. and then securing the money to purchase a two-building complex across the street at 181 and 187 Ballardvale St.
“There were a lot of moving pieces,” concurred Petz, who also provided money to assist in capital improvements to the buildings and for tenant fit out costs. There were similar elements in place for the Gale International deal, in which the investor partnered with JP Morgan Chase and Mack-Cali Realty Corp. to purchase a six-building portfolio in Andover, Bedford and Billerica from William Callahan and a seventh property from BPG Ltd.
The $58 million investment for the 667,000-square-foot portfolio included a high-leverage bridge loan also structured to finance tenant improvements, leasing commissions and a $20 million program to upgrade the assets. Gale principal Robert Maloney last week praised Petz for his efforts in crafting the financing and doing so in a timely manner.
“We were really happy with the way it turned out,” said Maloney. “Frank is a hard worker and real go-getter, and he was able to turn out all the right people who were appropriate for an investment of that type Â… We got good pricing on the debt and all the proceeds we were looking for.”
Assisting his clients brings “great satisfaction,” said Petz, especially when he is able to raise the profile of a client. In the case of Everest Partners, for example, Petz has helped principal Kambiz Shahbazi capitalize much of his New England portfolio and provide funding for additional investments such as the firm’s just-completed purchase of 225 Friend St. in Boston for $12.7 million. Everest now has a more institutional platform from its previous process of buying via syndicated investment structures. Introducing the crafty Shahbazi to the institutional arena has been especially enjoyable, said Petz.
Shahbazi “knows how to make money, and its fun making that pitch to people,” he said. “I like to think of my clients as the best real estate investors out there, and I really enjoy [providing] the capital to take advantage of their [talent].”
Although working on a commission basis can at times be daunting, Petz said he believes the team at CBRE/Melody and the backing of CB Richard Ellis has the division in good position to capture additional market share moving forward. “We have some great producers,” he said, with Ward, McKenna and Prakken all sporting substantial experience.
Among Prakken’s recent initiatives was the pre-sale and financing of Neponset Landing, a 280-unit luxury apartment complex planned in Quincy. Working with CB Richard Ellis multifamily sales specialists Simon J. Butler and Biria St. John, Prakken secured and structured construction financing for the project with Wachovia Bank and aided in the sale of the development from Conroy Development to Northwestern Mutual.
Earlier this month, Prakken also arranged $3 million in financing for the Hodges Companies to replace the existing first mortgage on the Meadow Brook Village Apartments in West Lebanon, N.H. The financing was raised through Advantus Capital Management of Minnesota and features a 15-year term and 15-year amortization schedule. “Our client was very happy with the rate and terms of this loan,” Prakken said of the assignment.
