Q&A with Stephen Quazzo
| CEO Stephen Quazzo co-founded Pearlmark Real Estate Partners in 1996. Since then, the principal investment firm has sponsored 13 private real estate investment funds, committed $4B of equity capital (with its capital partners), and made nearly 490 investments in office, retail, industrial, and multifamily properties, representing a gross investment of over $11B. | ||
 |
||
Seven partnerships have been fully liquidated and over 400 properties have been sold for combined sales proceeds of over $8B. So in advance of our Capital Markets Summit on May 29 (sign up today) —for which Stephen will serve as a panelist along with Quintin Primo and other top players—today we bring you this exclusive preview. Bisnow: You’re now investing your third mezz fund: What’s going on with mezz lending and how is it different from your past two funds? Stephen: The environment is very attractive for mezzanine lending that is somewhat reminiscent of the 2001-2004 period when we were active in the post dot-com bubble era. Interestingly, a lot of previously active mezz lenders such as the Wall Street-oriented firms and commercial banks are currently out of this segment of the lending market. The CMBS market is also a fraction of its former self and in recent years has been very conservative in how it underwrites senior loans. With so much debt coming due today that needs to be refinanced, there exists a big gap between what the proceed levels are from a new senior loan and what the maturing, underlying loan level is. Therefore now is a perfect time for borrowers to seek mezzanine as an alternative to bridge that gap. |
||
|
||
Bisnow: Where does mezzanine fit into the capital stack? Stephen: Our attachment point is further down in the capital structure than it was five years ago. Generally our mezz today is between 60% and 80% of the capital stack, which means the equity is between 80% and 100%. For Pearlmark, from a risk-reward standpoint, it’s an attractive way to play what we view as a very uncertain market environment. For a double-digit return, we're happy to let someone else have the last dollar exposure. Bisnow: What kind of borrowers and property types are you looking for? What kind of yields? Stephen: In the words of Bubba Watson, “awesome.” Awesome borrowers, awesome properties, and awesome yields! Seriously, though, Pearlmark is seeking experienced sponsors who are blue-chip institutional borrowers that can offer A/A-minus property types in A/A-minus locations. And in the current environment we can afford to be choosy. We’re active in office, industrial, retail, and apartments, and selectively we also look at hotels, student housing, and senior housing. Bisnow: Would you share with us a personal anecdote? Stephen: I have an engineering major daughter who’s graduating from college this week and I’m not just proud that she’s graduating, but I’m really excited that she has accepted an excellent job with IBM. I’d like to say she’s off my payroll, but I’m not that naïve! |
