From Zero to 60 with Grace Huebscher of Beech Street Capital
- Aug 24, 2011
For most commercial real estate entrepreneurs, building a new enterprise into a national player is like driving back roads at 30 miles an hour in an old station wagon. By comparison, Beech Street Capital L.L.C. is roaring down the Interstate in an Indianapolis 500-class race car. The Bethesda, Md.-based mortgage banking firm wasted no time after its founding in the fall of 2009 before making its presence felt in the multi-family finance business. In its first year alone, Beech Street racked up a startling $1 billion in originations, backed by Fannie Mae, Freddie Mac and the Federal Housing Administration. “Most lenders take years to get to that level,” noted Grace Huebscher, Beech Street’s co-founder, president & CEO.
For an encore, Beech Street is aiming to double that volume this year. At that pace, it appears likely to join the elite circle among Fannie Mae’s Delegated Underwriting and Servicing Lenders, the finance companies authorized to originate and service mortgages that are backed by the government-sponsored enterprise. That would place the fledgling firm in the company of established power players like Wells Fargo Bank N.A., DB Mortgage Services L.L.C., Walker & Dunlop L.L.C., CBRE Multifamily Capital Inc. and PNC Bank N.A. Fannie Mae declined to disclose specific volumes produced by its DUS lenders, and Beech Street itself is keeping detailed figures close to the vest. However, Fannie Mae offered a glimpse of the territory where Beech Street is heading. In its annual ranking of leading DUS originators, the agency revealed in May that each of its top 10 lenders tallied at least $870 million worth of originations last year.
Beech Street is seizing on an unusual combination of circumstances to build the company at an uncommonly rapid pace. The general health of the multi-family market, the sustained financial clout of Fannie Mae and Freddie Mac, and an abundance of accomplished professionals ready to switch teams are all standing the company in good stead. Managing this remarkable rise is Huebscher, who Douglas Bibby, president of the National Multi Housing Council, described as offering “a trifecta of being very smart, very high energy and very knowledgeable about multi-family finance.”
A veteran banker and Fannie Mae executive, Huebscher heads a 75-person team that extends across the country. Though its strongholds remain the New York City metropolitan area and the Mid-Atlantic region it was initially formed to serve, Beech Street is racking up a steady stream of multi-family originations from offices not only in New York City and Bethesda but Boston, Atlanta, Birmingham, Dallas, Chicago, San Francisco and Vancouver, Wash.
The linchpin of Beech Street’s remarkable debut was its rapid success in obtaining coveted licenses from Fannie Mae and Freddie Mac. Making use of those licenses was the initial force behind the company’s formation in the fall of 2009. At the root of its family tree is ICM Capital, a New York City-based entity formerly two-thirds owned by Boston-based Sovereign Bank and one-third owned by Meridian Capital Group, with which Sovereign had a correspondent relationship.
ICM Capital held a Fannie Mae DUS license, but by the fall of 2009, the license had generated only a modest pipeline. In a bid to build on its potential, Huebscher teamed with three other senior executives. Alan Fishman, a former CEO of Washington Mutual Bank, became Beech Street’s chairman. Prior to Washington Mutual, Fishman had held executive positions at both Meridian Capital, where he served as chairman in 2007 and 2008, and Sovereign Bank, where he was president from 2001 to 2007. Joining Huebscher and Fishman were Meridian Capital’s CEO, Ralph Herzka, and Jay Lobell, a Meridian senior officer and Beech Street’s vice chairman.
The key step in the process was Sovereign’s transfer of its interest in the DUS platform to Meridian. That gave Beech Street a ready-made entrée into the DUS lending business. Fannie Mae approved the transfer in four months instead of the typical six. On the heels of that fast endorsement, discussions soon started with Freddie Mac. The agency was particularly interested in the possibility of Beech Street’s establishment of a much-needed platform in the metropolitan New York City market, which Freddie considered underserved.
In April 2010, Freddie Mac approved Beech Street as a loan seller and servicer, making it only the 26th firm nationwide to achieve that milestone. Beech Street’s license allows the company to pursue Freddie Mac in New York City, New York’s Hudson Valley, Long Island, Northern and Central New Jersey and Southwestern Connecticut, as well as with current company clients.
Beech Street broadened its horizons still further in January 2011, when it won the Federal Housing Administration’s approval to participate in the agency’s Multifamily Accelerated Processing lenders program. The FHA expanded Beech Street’s portfolio again this past April, approving the company to originate Section 232 seniors housing loans.
Huebscher’s experience proved to be a considerable asset in the firm’s fast start. She had learned the nuances of agency lending during 14 years in a variety of senior roles at Fannie Mae before departing in September 2009. That track record helped win Beech Street instant credibility.
At the outset, the mission of the new enterprise was relatively modest in scope, focusing on originating loans and providing correspondent services to Meridian clients holding assets in New York City and in the Mid-Atlantic region. The original timetable called for national expansion to start in late 2011 and 2012. Those plans accelerated when Beech Street’s leadership spied increasing opportunities to differentiate the company from its competition. Another big incentive to pick up the pace, Huebscher added, was that “we felt that there was a lot of talent available.”
In response to those opportunities, the company has rolled out a network of offices in markets strategically located within striking distance of most of the country. Dallas-based Larry Sneathern, a senior vice president of loan origination, joined in July 2010. David Levine, a former top producer at PNC Financial Services Group and predecessor ARCS Commercial Mortgage Co., opened a San Francisco office last fall. In May, Beech Street added Chicago-based Joshua Rosen, a former executive vice president for Oppenheimer Multifamily Housing and Healthcare Finance, to run its national FHA healthcare platform. That business is a good fit for the company because it can provide services to Meridian Capital’s roster of clients in the nursing-home business, Huebscher explained.
Further expansion is in the works. On July 18, Beech Street revealed that it had tapped Greg Reed and Kristen Croxton,
both formerly of Deutsche Bank Berkshire Mortgage, to open an office in Newport Beach, Calif. That move gives the firm a Southern California counterpart to its San Francisco location. Reed and Croxton will primarily target originations in the western United States and will also oversee Beech Street’s West Coast operations. The company is keenly interested in adding staff in existing offices like Dallas and Chicago, as well. All told, about two-thirds of the company’s professionals are involved in some aspect of risk management, whether that entails operating risk, credit risk or underwriting.
Clients paint a picture of a firm staffed by hungry, up-and-coming professionals. “They push to get deals done and do so amazingly quickly, which obviously is a huge competitive advantage,” said Richard Hantgan, senior vice president for Multi-Properties Inc., an investment and property management company based in Baltimore that has done a half-dozen or so deals with Beech Street. “When the due diligence is ready to go, they jump on it.,” he said. “My staff has to play catch-up sometimes, but I sure prefer that (to) slow, lethargic underwriting.”
Hantgan cites a recent example. At the time, he asked the firm to review a portfolio of loans, convinced at first that refinancing would be premature. But the Beech Street team identified three small and midsize properties as solid candidates for refinancing. The assets offered manageable yield-maintenance fees, and Hantgan and his advisers decided that rates were too competitive to pass up.
Within weeks, the necessary loan approvals, underwriting and inspections were complete. Multi-Properties and Beech Street were ready to lock in a rate within a day of receiving commitments. “I know from my brief conversations and email exchanges along the way (that) Grace was quietly shepherding the process along,” Hantgan noted.
Indeed, Huebscher is building a reputation for handling high-pressure situations with aplomb. “Grace is both incredibly competent and nice, an all-too-rare combination of qualities in business,” Hantgan reported. “She displays equanimity under fire. It gets stressful pulling together so many varied strings, typically under tight deadlines.”
Huebscher is also a master of the diplomatic skills that are essential for maintaining good will. “Grace can say ‘no’ as well as anybody I’ve ever met, and in a wonderful way,” said Shekar Narasimhan, managing partner of Beekman Advisors and a longtime acquaintance.
Huebscher’s approach, he explained, is to say, in effect, “This is a very interesting idea, but here are all the reasons why I really don’t think it’s going to work.” And as a rare woman leading an agency lender, Huebscher has repeatedly overcome skepticism to win confidence and respect in a male-dominated industry, Narasimhan noted.
In terms of deal size, Beech Street’s “sweet spot” is the $5 million to $20 million range, Huebscher noted. A typical recent transaction was the 10-year, $9.3 million loan for a 166-unit property in the Indianapolis suburb of Zionsville, Ill. Closed in June, the fixed-rate loan features three years of interest-only payments, nine-and-a-half years of yield maintenance and a 30-year amortization basis.
Even if Beech Street’s typical transactions tend to be medium-size in dollar value, the company has repeatedly tackled bigger deals. During the course of a single week late last year, the company provided a pair of Fannie Mae DUS loans totaling $275 million for properties on opposite coasts. The larger of the two was the $175 million refinancing of a 490-unit residential high-rise in New York City. Originated by Meridian Capital, the 10-year, fixed-rate loan remains the largest deal by dollar value handled by Beech Street to date.
Around the same time, in the San Francisco office, Levine originated a $100 million refinancing of a complex in Daly City. That transaction involved three loans encompassing about one-third of property totaling nearly 3,000 units.
New York City has been the stage for other big-ticket financings, too. Last June, Beech Street supplied a $50 million cash-out refinancing for Hudsonview Terrace, a 36-year-old, 396-unit complex located in the Hell’s Kitchen neighborhood of Manhattan. That deal followed the February refinancing of Trump Village I and Trump Village II, two 23-story, 441-unit towers in Brooklyn’s Brighton Beach section. Originated by Meridian, the two Freddie Mac Program Plus loans totaled $80.2 million and were closed in less than 30 days.
Huebscher has noticed an evolution in her own role in the 20 months since the company’s inception. At the outset, she would often find herself serving as the face of Beech Street in transactions. Her reputation gave lenders and borrowers the necessary confidence in the young firm’s ability to handle complex deals. As Beech Street has quickly established itself in the mortgage banking world, the industry’s growing familiarity with the company has enabled the members of its growing team to take a higher profile.
But whoever takes the lead, Huebscher is available at any stage of a transaction to advise colleagues and clients, suggest strategies and, when necessary, help untie difficult knots—all while keeping a low profile.
Huebscher honed those attributes during a lifetime as a banker, starting at Chase Manhattan Bank fresh out of college. Her time at Chase amounted to an apprenticeship that Huebscher compares to “a mini-MBA program.” She stopped next at Security Pacific, followed by National Cooperative Bank Mortgage Co., where she served as CEO and created an early securitization platform.
Moving to Fannie Mae in 1995, Huebscher held a variety of executive positions. As vice president of capital markets, her final role, she managed pricing strategy for non-single family balance-sheet assets, including multi-family mortgages, municipal bonds and community loans.
On her watch, Fannie’s multi-family small-loan volume increased from $400 million a decade ago to a multibillion-dollar business. She also championed the development of Fannie’s lending platform in the manufactured housing niche.
Though Beech Street has achieved success at a breakneck pace, Huebscher and her colleagues took pains to make sure that even a rapid ramp-up would take place seamlessly. To begin with, the company’s founders made sure that Beech Street was sufficiently capitalized, Huebscher noted. No less important was Huebscher’s ability to handpick talented professionals who are looking for fresh opportunities. Bibby of the National Multi Housing Council describes her as a “good assessor of talent.”
Huebscher herself credits the contributions of several GSE alumni who work in senior management and draw on their inside knowledge of the agencies to navigate their procedures. Jeff Lee, Beech Street’s executive vice president for credit, overseeing its credit and asset management activities, had served as Fannie Mae’s director of capital markets before joining the firm.
Elie Tannous, the executive vice president who runs Beech Street’s capital markets operations, previously oversaw Fannie Mae’s multi-family portfolio, loan pricing and buying activities as director of the GSE’s multi-family whole loan desk. And from Freddie Mac, Huebscher recruited Michael Edelman, who had served the agency most recently as managing director in charge of multi-family production and sales for the Northeast region. Edelman, who joined this past March, handles Fannie Mae and FHA business as well as overseeing Freddie Mac loan production for Beech Street’s Northeast region.
Looking to national issues, Huebscher is unfazed by the uncertainty over the future of the GSEs. She points to recent signs that the long-debated overhaul of Fannie and Freddie is likely to be pushed out to 2012 and possibly beyond. Huebscher also noted that radical changes to the GSEs become less likely as time goes by.
No matter what fresh challenges lie ahead, Huebscher and her team have already shown impressive agility. As Narasimhan observed: “She’s had a great fast start, but I think she’s built something that can last.”