Projects and Writing Samples by Martha O'Connell

By Martha Russis

Ed Padilla, NorthMarq Capital’s president and CEO, points to one accomplishment that demonstrates his company’s prowess, especially in these tough economic times: not one loan in its $10.5 billion portfolio is more than 30 days delinquent.

The main reasons behind that are an astute staff that makes excellent fits between borrower and lender and a long track record of solid transactions that keeps good, repeat business coming in.

Capital sources NorthMarq has cultivated make this financing possible.  They include 42 life insurance company correspondents.  Among them are Allstate, ING, a Dutch insurer with U.S. operations in Atlanta, and Nationwide Life.  Among other capital sources on NorthMarq’s roster are Freddie Mac, banks, pension funds and conduit programs.

Its mission extends well beyond arranging straightforward commercial mortgage loans.  The company’s structures credit tenant leases, mezzanine debt, and equity financing to accommodate its growing client base.  And that covers only a few of NorthMarq’s products.

Three recent acquisitions and forays into new markets have grown the Minneapolis-based company into one of the country’s largest privately-held commercial real estate investment banking firms as measured by annual transaction volume.  This contrasts with the evolution of the mortgage banking industry that is shifting to ownership by large, public-owned corporations.

However, while the company emerges as a national player, its management structure and philosophy aim at retaining a “small company” feel.  NorthMarq’s well-regarded regional producers in individual markets have cultivated long-standing relationships with borrowers and investors.

NorthMarq’s first major growth push was the big volume Texas market, where it has made significant inroads in the last four years.  In 1998, it purchased Stockton, Luedemann, French/Jackson & West, a private commercial banking firm with offices in Houston and Dallas.

In 2001, NorthMarq made another Texan move by buying Askew/Reese Investment Company, which has offices in Dallas and Austin.  Askew/Reese arranged $630 million in loans in 2000.  

Another major breakthrough came in 2000.  NorthMarq took in Trowbridge, Kieselhorst and Co. based in San Francisco, the largest independently owned commercial investment banking firm in Northern California.  That gave NorthMarq a sudden and solid presence in this highly desirable real estate area where entry barriers are high.  NorthMarq’s confidence in 24-year-old Trowbridge’s four loan producers clenched the deal.

Together, the acquisition of the three companies – Askew/Reese, Stockton, Luedemann, and Trowbridge added $2.4 billion to NorthMarq’s servicing portfolio.

NorthMarq also has offices in Denver, Kansas City, Los Angeles, Phoenix, St. Louis and two started from scratch in 1998 in Chicago and San Diego.

The company’s expansion strategy will be a mix of acquisitions and starting new offices from scratch.  However, that does not necessarily mean it will hopskotch around the country.

“We would not rule out expanding east of the Mississippi but our pattern has been to grow where we already have existing offices.  Geography is not as important to us as finding the right companies that fit,” Executive Vice President and Senior Managing Director Ken Stockton says.

Most mortgage banking firms don’t go past plain vanilla financing, but NorthMarq is noted for coming up with creative solutions for hard-to-do transactions.  Specialists in different types of financing and real estate development make this possible.

Adds Steve Bye, executive vice president and senior managing director of the Denver office, “If you want to market to the best borrowers, you need to understand their businesses.”

In Houston, the company arranged $150 million in mezzanine and equity financing for one of the first new construction multi-tenant office buildings downtown since 1983.  The building, which also includes two retail floors, is being done by Houston-based Century Development Co. and scheduled for a 2003 completion.  It was 60 percent pre-leased when construction began.

In these tougher economic times, Padilla says finding equity partners for customers is high on NorthMarq’s agenda.  In the post 911 era when borrowers are more conservative with their debt, Padilla says equity financing can be advantageous.

One such deal came out of Denver in December 2001, when SecurCare Self-Storage needed an equity partner in order to acquire 67 self-storage properties in 10 states and arrange an operating structure that would enable the Denver headquartered company to buy and develop more properties.

NorthMarq came up with an initial equity commitment of $10 million from one of its capital providers that made it possible for SecurCare to close a $62 million acquisition.  Beyond that, the capital source gave a $15 million equity commitment for SecurCare to buy and develop more properties over a three to five-year period.

The Denver office is one of NorthMarq’s powerhouses.  In this vastly competitive market, NorthMarq has been one of the dominant firms in the last decade.  It represents 20 life insurance companies and has existed for the same number of years.

“By living through the Denver market thick and thin, we have accumulated a lot of loyal investors,” says Bye, who started the office 20 years ago.

“It is pretty rare for someone to be at the same company for 19, 20 years,” he says.  “For me it was kind of the perfect environment because I’m kind of an entrepreneurial person.  You like to create your own identity but at the same time have the comfort of being part of a larger organization with your financial needs, your training, your technology.”

First place kudos came to NorthMarq this April (2002) from Freddie Mac when Freddie ranked it top in the nation for performance amongst originators it collaborates with.  NorthMarq represents Freddie Mac and works on soliciting, bidding, closing and servicing multi-family housing loans.

“NorthMarq is in our assessment a very high-quality firm that has good people,” says Mitchell Kiffe, vice president of multi-family loan production for Freddie Mac.  “It has a good network, it has good resources.  It has a well-focused business plan and they execute their business plan very well and they show us a relatively high volume of high quality apartment loans in a given year that we end up doing with them.”

NorthMarq started with Freddie Mac in the early 1990s and has built up a $1.7 billion servicing portfolio with Freddie, almost a sixth of NorthMarq’s total portfolio.

One major reason NorthMarq continues to grow is because it retained key staff throughout its corporate transformations and acquisitions.

Gayle Starr, senior vice president, capital markets, for AMB Property Corp. in San Francisco, was a long-time customer of Trowbridge before NorthMarq bought it.  After the acquisition, she stayed with NorthMarq because the company kept Trowbridge’s principles and along with them, their lending relationships.

AMB, a national industrial developer, has used NorthMarq in more than $300 million of financial transactions over the past two years.  Several NorthMarq offices have assisted with multi-state portfolio financings and come up with creative financing solutions for AMB to accomplish hard-to-do deals, Starr says.

“They have excellent relationships with their lenders and their lenders basically place all their trust in them.  They have this knack because they have a continuity of staff, they have a high quality of work,” she says.

NorthMarq is also the primary servicer for more than 400 commercial mortgage backed securities (CMBS) loans totaling more than $2 billion.  Often, CMBS loans go into a “black hole” of sorts when it comes to servicing.  Instead, NorthMarq arranges and services these loans and they total well over $1 billion of the company’s portfolio.

Like most property companies coming off the gung-ho days of the late 1990s, commercial real estate is proving a lagging indicator at NorthMarq.  The economy has put a damper on lenders that became cautious and developers that pull back on new projects.

“I believe we are in the midst of experiencing a relatively bad year,” Padilla says.  “Luckily we might be able to squeeze it between two years that turned out to be okay.  The first half of last year our business was phenomenal and I believe the second half of this year is going to be terrific.  So when you look at both years, we might end up doing $4 billion each of those two years which is great for us as a business, but we might have a run of 12 months in between there where things are really slow.”

Padilla expects commercial market recovery will not happen all at once, and particular property types in different markets will rebound at different times.  Some have already bottomed out.  His optimism for increased activity in the last half of 2002 is buoyed by sustained low interest rates that will produce refinancing opportunities.

In the meantime, NorthMarq like other firms, is adapting to tighter underwriting.  Capital sources are doing lower leverage deals on certain property types right now, especially office.  Other signs of the times like casualty insurance, terrorism insurance, and vacancy rates are also being tightened up in underwriting standards, Padilla says.

NorthMarq falls in the middle to large lending market.  Its largest deal so far this year is $205 million and the smallest was $2 million.  In 2001, the company’s average loan size was $9.7 million.

With those size loans, in-depth knowledge of the transaction is vital and NorthMarq maintains that because all loans in its portfolio originated from NorthMarq employees.

“Being able to service loans is very important in the overall compensation or the earnings ability of a mortgage banking firm,” Stockton says.  “Because we originate all our loans with our people, we know what our portfolio is and we are very comfortable with it because it is loan transactions we have recommended to the different investors we do business with.”

Solid transactions and zero delinquency can be tied in a roundabout way to loan officer compensation.  Since it is not on commission-only basis, officers can look to the long term and make right decisions, instead of turning out quick deals to earn their keep.  That careful scrutiny of both transaction’s parties has led to long-standing relationships with lenders that given credence to NorthMarq’s advice.

Another staffing strategy uncommon in the industry has led to long-term success.  The company has a one-to-one ratio between loan production officers and support analysts.  In addition, analysts are MBAs who bring sophistication and expertise to financing decisions.

However, just about everyone in the company is actually in the trenches.  And that falls in line with NorthMarq’s entrepreneurial philosophy and flat management organization.  The 11 managing directors are also producers doing deals.

Being privately held has allowed the company to move in ways that might otherwise have been impossible.  Padilla says the advantage is that NorthMarq is able to take a more long-term view to profitability and becoming the No. 1 shop in regions.  It also means not having to obsess about chasing quarter-to-quarter results or pleasing Wall Street analysts.

The company is owned by the Pohlad Family of Minneapolis through its privately-held Marquette Financial Companies, a holding company with $5.5 billion in assets that owns banks and non-bank financial service firms in 16 states.  Family patriarch Carl Pohlad is at the helm, although the family is not active in NorthMarq’s day-to-day operations.

NorthMarq had undergone several transformations since its start in the early 1960s.  Back then, it was Northland Mortgage Co., part of a residential mortgage banking operation.  In 1984, the residential operations were divested and the commercial operations formed a new company, Northland Financial Co.  In 1998, Northland was sold to Marquette Bancshares and renamed Northland/Marquette Capital Group.  Finally, in 2001, it became NorthMarq Capital.

NorthMarq has changed its name but has not cast off the people that have grown long-standing relationships with lenders and borrowers.  And it’s that nod NorthMarq gives them to build and operate strong offices that influences people to stay.

“Our philosophy is very entrepreneurial –you run your shop,” Padilla says.  “We are all part of one company but we really believe in a local type of view.”