Commercial real estate's Verrone finds new niche
By Al Yoon
NEW YORK Fri Sep 11, 2009 2:59pm EDT
(Reuters) - Robert Verrone, one of the most prolific commercial mortgage makers during the real estate boom, is finding himself in high demand again.
This time around, however, borrowers and lenders are tapping Verrone to help restructure loans at risk of default.
A severe lack of credit and falling revenue from office, retail and apartment buildings are upending fundamentals in the $700 billion market for commercial mortgage-backed securities, a major source of financing during the real estate boom. With few options in terms of refinancing, borrowers are increasingly seeking to extend existing loans to avoid defaults or forced property sales in a distressed market.
That is where Verrone, 41, comes in.
Verrone's Ironhound Management Co. has ramped up its restructuring business since February, juggling negotiations on more than 30 loans at a time.
Some loans he helps restructure are the same ones he made while a 14-year rainmaker at Wachovia Corp.
When working on deals that he helped engineer, some parties in restructuring negotiations have been critical, Verrone said. But he won't be singled out as a player in a market where fiercely competitive lenders were all loosening standards to boost volume and finance leveraged buyouts.
"I definitely hear it," Verrone said during a rare interview in his Madison Avenue office this week. "We all made loans that we thought would work. People bought loans they thought would work."
Signaling he's moved on, he's downsizing his nickname of "Large Loan" Verrone, earned for his penchant for the biggest deals. "Call me 'No-Loan' Verrone," he quipped.
Ironhound -- which is affiliated with hedge fund Scoggin Capital Management -- and a similar restructuring firm led by former Lehman Brothers CMBS chief Kenneth Cohen have advantages because of their personal connections and intimate knowledge of dealmaking, he said. Some boutique investment banks are also in on the action, as well as junior CMBS players, he added.
Verrone on Friday oversaw the restructuring of a $230 million loan for the Setai building, a swank condominium, spa and restaurant complex in the financial district of New York. As with many loans, more equity was needed to get it extended, and to cover cost overruns, he said. He started that workout process in January.
Such work has rounded out Verrone's experience, after dealmaking at Bear Stearns and Wachovia, he said.
Wachovia, which was purchased by Wells Fargo & Co (WFC.N) in December 2008 several months after Verrone's departure, contributed $24.2 billion in loans to U.S. commercial mortgage-backed deals in 2007. It exceeded the No. 2 Bank of America Corp. and No. 3 Lehman Brothers by more than 35 percent, according to Commercial Mortgage Alert.
Volume plunged in 2008, and remains virtually nil.
"There are things that I am learning now that I should have known as a lender, and anyone that would tell you otherwise" about themselves isn't truthful, he said.
There is no shortage of business for the restructuring consultants, short of a rebound in lending that few expect will happen. Some $43 billion of loans in commercial mortgage bonds are expected to mature in 2010, with that number nearly quadrupling in 2012, according to JPMorgan Chase & Co. There are also troubled loans that have not been securitized.
Maturing loans on depreciated commercial properties are a major concern for the Federal Reserve, which sees the sector as a "particular danger zone" for the U.S. financial system, Janet Yellen, president of the San Francisco Fed said in July. A Fed lending program for commercial real estate can help, but the toll from a weak economy is likely to continue, she said.
"There is no meaningful lending going on," Verrone said. "If a property (was worth) $1 billion, and it goes to $600 million and you want a $300 million mortgage, it's almost impossible to get."
"We're in the third inning of a nine inning game that might go into extra innings."