Madison Realty Capital - A Private Commercial Lender

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By Madison Realty’s Zegen
April 28, 2008

Truly active bridge lenders are almost as scarce as conduits right now. Not quite, of course, as conduit lending has all but ceased. However like the rest of the liquidity in the market, bridge lenders have become very cautious, as well as picky, in underwriting and deal selection. Still, many continue to support deals and some are even staying true to their origins — that is, advancing funds to developers in short timeframes or unorthodox circumstances. With $600 million plus in lending capacity, New York City-based Madison Realty Capital is among those companies. “Right now we are seeing more transaction volume than ever before, because we are one of the few players active in the marketplace right now,” Josh Zegen, managing partner and co-founder, acknowledges. GlobeSt.com: Give me a snapshot of your lending capacity now and in the mid-term.

Zegen: We have about $250 million of equity under management with the rest [of the $600 million total] with warehouse lines of credit. Also, about 15% of our portfolio turned over this quarter -- meaning we receive about $40 million to $50 million in payoffs.

GlobeSt.com: What is your investment criteria or guidelines? Zegen: We focus on $1 million to $50 million in bridge financing in deals that are up to 75% LTV. In reality, though, on average we are doing deals at 65% LTV. A lot of lenders are asking for 35% cash equity in a deal, but we are looking on a value basis as opposed to actual cash. We are willing to look at any real estate asset class. We are looking for time-sensitive situations — a developer needs to close in two to four weeks for instance. We also hold all of our loans on our balance sheet, so we are not subject to the securitization markets. GlobeSt.com: What type of returns are you realizing?

Zegen: We have yielded 12% to 15% net returns to investors in the last three years annually. GlobeSt.com: Tell me about some recent transactions you have closed. Zegen: We are providing construction finance on a Park Avenue [in Manhattan] condo for a repeat client. The loan is $18 million. The developer bought the land a year ago and was able to rezone it, receiving more square footage than they originally were able. Traditional lenders were asking for 35% cash in the deal -- we asked for 20% because of the value creation. It’s an 18-month loan with a six-month extension option. GlobeSt.com: Have you changed your strategy at all since the credit crunch began? Zegen: Well, the credit crunch has raised the bar for everyone. We are seeing more opportunity. That is the nice thing about the bridge market -- you can underwrite according to what is happening in the market on that day. GlobeSt.com: How is it that you are able to actively lend? A lot of bridge lenders have temporarily closed their doors. Zegen: We never lent in any of the hot-bed markets; we’ve never done a deal in Nevada, for instance. We also stayed away from land for the most part -- only about 1% of our portfolio is in land right now. The lenders that

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