One of my goals for 2013 was to do more career-related posts. So I bugged a bunch of my friends and luckily I was able to coerce a few to put together a “day in the life” post. This first one comes from J.P. Harlow, an associate with a well-respected bank.
Enter J.P. Harlow
Joe kindly asked me to write about a day in the life of a lender. Doing so however, means I must dispel some preconceived notions of what a lender even does. Truthfully, I thought real estate debt was a boring proposition. I imagined boiler plate systems, little interaction with owners/operators, and a slow paced environment. That is a far cry from the industry.
To give you a quick background on myself, I recently received my Master’s degree from the NYU Schack Institute of Real Estate with a focus in finance and investment. While pursuing my Master’s, I held various internships including a summer MBA position at MetLife in their $60B real estate investment group and an internship at BlueRock – a private equity firm focused on acquisitions of multi-family and senior living facilities.
Prior to attending NYU, I worked in real estate investment sales at CB Richard Ellis and Apartment Realty Advisors in the Pacific Northwest. During my time at CBRE and ARA, I brokered the disposition of over $70M of multi-family property. In 2006, I graduated from the University of Washington in Seattle with a Bachelor of Arts in Business.
My job is in real estate debt. But what does that even mean? As Bob so eloquently said in Office Space, “what would you say you do here?” When I first started interviewing with the Bank I had a slight idea since I had just completed an internship at MetLife, but there are many focuses within debt that I had no idea about. Are you a balance sheet or securitization/conduit lender? What position in the capital stack do you lend in – senior/junior/mezzanine? Does the firm seek high yields (10%+ on debt) or lower returns? Are the loans recourse or non-recourse? Do you make large or small loans? Is your platform national, regional, or local? What property types do you focus on? These are questions to ask and consider when evaluating a career in lending. It’s important to understand these differences and how it affects what you will be doing, for example the risk tolerance of the group, how much you will travel and to know if it is something you will be satisfied with overall.
In lending there are two primary job functions: origination and underwriting. Originators source business and deals within the parameters that fit their group’s criteria. Once a deal goes through screening, a term sheet is issued. The term sheet is the bone structure of the agreed upon deal between the borrower and the lender. After the term sheet is signed and official, the deal moves forward to the underwriting team. Both are heavily client facing in their own respects. There is nothing back office about lending.
I work on the underwriting team. Essentially, we conduct all due diligence on the properties from directing appraisal, environmental, and insurance, to full underwriting of the properties and the borrower, to the legal negotiations of the loan documents, and finally to the infamous credit memo. One thing that was surprising to me was due to the highly structured nature of our deals, loan documents are far from standard and there is a heavy negotiation process.
The group I work for is a national balance sheet lender that provides first position, non-recourse mortgages across three specific platforms. These platforms provide financing to performing and non-performing real estate loans and pools, bridge lending, and warehouse lines to other bridge lenders. Each is very different and serves a specific purpose.
For the first platform, we work with major private equity funds specializing in opportunistic acquisitions of performing and non-performing loans. Typically, funds go out and buy a pool of notes/REO properties from a bank on an all-cash basis, then come to us to provide leverage against these assets. An example of a deal we recently closed was the financing of a 16-asset portfolio with an $85,000,000 unpaid principal balance pool of sub-performing and non-performing real estate loans. The property types included industrial, retail, office, mixed use, and specialty industrial use and were spread across the nation in nine different states.
The bridge lending platform we provide is also national. Recently, we have financed a high-end retail construction project in Aspen, CO (although, full disclosure, I was somehow passed over for that site visit!), a 90,000 square foot life science building in California, and a 3,000,000 square foot industrial portfolio in Ohio (not surprisingly I was sent on this site visit).
The last platform we provide is warehouse lines to other bridge lenders. This gives lenders providing bridge loans enhanced leverage on their portfolios. In return, we get a portfolio of a broad-based cross-collateralized pool. Our basis is at a much lower leverage point than the original lender’s (if they make a loan at 50% leverage and we subsequently provide 50% leverage to the lender, our leverage is at 25% on the underlying collateral), thereby allowing for a safer steady stream of income.
There is nothing typical about my day. I spend it mainly in New York City but immersed entirely in other parts of the country. Given that we do all property types from condo inventory loans to the major food groups to hotels, I have sharpened my skills to become an expert of them all. From Argus to Excel, single assets to portfolios, we make it happen. This is one of my favorite parts of the job; there is no monotony of one product type or geographic area.
In addition to all of this, we have a lean team. There are five members in underwriting and two in origination. Working on a small team allows me to see all aspects of the business at both a very broad and granular level. However much responsibility I feel that I can take on is always given with open arms. My skills over the past year have greatly improved in all facets of real estate including negotiations, underwriting, sizing deals, and truly understanding the inner workings of the business. Thus far it’s been great working with the best and brightest both internally and the clients we serve. Whether I continue my career in debt or seek out other opportunities in the future, the breadth and depth of knowledge I am gaining will continually set me apart and keep me ready for any career in real estate.
For any additional information please feel free to contact me at [email protected]
Feel free to bug J.P. with any questions you have by leaving a comment or emailing him directly.