Berkshire Mortgage Venture Bets on Florida’s Rebound
Berkadia Commercial Mortgage LLC, the joint venture of Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) and Leucadia National Corp. (LUK), is expanding in Florida as it prepares for an end to the state’s real estate slump.
“Florida in general is on the rebound, albeit slowly,” Hugh Frater, chief executive officer of Horsham, Pennsylvania- based Berkadia, said in a telephone interview today. “We expect Florida to be a place that people will continue to migrate to for some time.”
Frater, 56, said he expects the revival particularly in multifamily housing, pointing to Miami where new apartments and condominiums are already being built. Berkadia announced in September that it agreed to buy banking assets from Tavernier Capital Partners LLC to expand in Florida.
Sales of commercial properties totaled $50.3 billion in the first quarter of this year, up 40 percent from a year earlier, according to Real Capital Analytics Inc. The improving availability and cost of mortgage capital has helped fuel deals, especially in apartments, said Ben Thypin, director of market analysis at the New York-based researcher.
Florida sales in the first three months were $4.57 billion and are on pace to surpass last year’s $15 billion total “by a significant margin,” Thypin said today in an e-mail.
Berkadia originates and services commercial mortgage loans including financing multifamily properties through Fannie Mae, Freddie Mac and the Federal Housing Administration. The firm serviced about 25,000 loans with a $185 billion portfolio as of March 31, the company said. That’s expected to increase to about 29,000 loans with an unpaid balance of $225 billion this summer when Berkadia completes a deal to take on servicing about $40 billion in commercial loans from Cleveland-based KeyBank Real Estate Capital, a unit of KeyCorp, Frater said.
Berkshire and New York-based Leucadia created Berkadia from the mortgage-lending business they bought in 2009 from bankrupt Capmark Financial Group Inc. (CPMK) and it’s now the third-largest U.S. commercial and multifamily mortgage servicer, according to the Mortgage Bankers Association. Servicers collect payments from borrowers and pass them on to mortgage lenders or investors, minus fees. They also handle foreclosures when borrowers don’t pay.
Buffett, 81, Berkshire’s chairman and CEO, said in a May 2011 interview after his company’s annual meeting that the commercial property market was showing signs of strength. The billionaire investor is scheduled to share his views on Berkshire and its units tomorrow at the company’s annual shareholder meeting in Omaha, Nebraska.
Looking to Grow
Berkadia said in July it was looking to grow and hired Randy Jenson as chief financial officer with duties including “an important role” in mergers and acquisitions. Jenson was president and co-founder of Ranch Capital LLC, a San Diego-based private-equity firm, according to a statement.
Berkadia started originating floating-rate bridge loans in March 2011 that are funded by its own capital. The company also originates loans for inclusion in commercial mortgage-backed securities. About $371 million of bridge and CMBS loans were outstanding as of March 31, the company said.
The bridge-loan program offers commercial mortgages of $5 million to about $25 million with terms of 10 months to two years, and may go up to $50 million, the company said.
“The bridge loan activity is a growing part of what we do,” Frater said.
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