Lee Brodsky Talks BEB’s Lending Growth, Industrial Momentum – Commercial Observer
Lee Brodsky grew BEB Capital into a leading owner and operator of industrial assets along the East Coast after assuming the CEO role in 2013, and the firm has been in expansion mode during the COVID-19 pandemic — in large part thanks to a new lending division, whose launch happened to coincide with the onset of the global health crisis.
Under the direction of Brodsky, BEB’s CEO, and Keyvan Ghaytanchi, president and COO, the platform has surpassed $100 million in capital deployed to various commercial real estate borrowers since its debut on March 15, 2020. While the pandemic presented a number of challenges across the CRE industry, BEB Lending was in good shape to withstand the headwind thanks to creating the necessary infrastructure just before the pandemic took hold.
“If we wanted to build it during the pandemic it would have been more challenging in that environment, but because we had already built the platform and had all the pieces in place and had already launched it technically we were able to execute,” Ghaytanchi said . “We were very fortunate that we had the platform ready to go prior to any effects of COVID.”
Port Washington, NY-based BEB is targeting an additional $150 million in deployed capital by the end of 2022. It originates smaller loans up to $50 million in primary and secondary markets across the nation
Brodsky, who previously spent more than a decade at brokerage giant Newmarkis looking to further scale BEB’s reach on the equity side through a new joint venture partnership with Rockpoint Group that will target an investment pipeline of up to $1 billion of industrial assets. The firm also hopes to expand its debt business into other sectors including multifamily, mixed-use, office and retail in markets across the country.
An Emory University alum, Brodsky, spoke with Commercial Observer about his goals for BEB’s new lending platform, the industrial sector’s momentum during the pandemic, his past experience at Newmark and the influence of his father, Bert Brodsky, founder and chairman of BEB Capital. The interview has been edited for length and clarity.
Commercial Observer: What was the impetus behind launching BEB Lending?
Lee Brodsky: To build a long-term, stable institutional platform, I think you have to look at both the debt and equity side. We have a long history of equity investing and felt that for us to be a permanent fixture throughout all market cycles that we would need to have another platform to help in those moments when investing on the equity side didn’t make a whole lot of sense from a financial perspective. It also balanced current cash flow with future potential upside. A lot of our equity deals have huge potential upside but don’t have a lot of current cash, and the lending side is mostly a current pay model. Being able to balance what we had here already really allowed us to transact in all market cycles and really build a platform that could sustain any changes in the real estate market. We’re seeing now that interest rates are rising and the competition on the equity side is starting to be a little different, and for us it’s a perfect moment to continue to invest, and this is why we built a lending platform for this moment.
The launch of the debt platform happened to coincide with the beginning of the COVID-19 pandemic. How did that timing impact your business and operations?
We were always launching on March 15, 2020. I joke around that our vice president walked in, put his cup of coffee down, and I told him the office is shutting down and I don’t know when we’re coming back. That’s basically what happened. It actually was fortunate because the credit markets were completely locked down. Banks were doing nothing and folks still were being held accountable to close on certain dates, so it gave us an opportunity for a probably a 90- to 120-day head start before the banks started to wake up again, and we had already put ours foot home in a couple of transactions. It was really fortuitous that it happened simultaneously [with the height of the pandemic] because most of the banks were focusing on their existing loans and doing forbearance agreements and other deferrals, where we had a fresh start since we didn’t have any old loans.
You have long-term plans for a pooled vehicle platform. What is the goal behind that?
It allows us the ability to go after larger loans, and it allows us to be more competitive on pricing because we have committed capital.
A big part of your debt and equity platform involves the industrial sector, which saw increased momentum during the pandemic. How do you see demand for this sector playing out going forward amid the market volatility?
If you took 100 professionals in the space and put them in a room, people would be all over the place in their answers. It is at all time highs; the leasing velocity, the sales velocity, the growth of rents has been historical. I do believe, though, that what occurred for this to happen is a monumental shift that’s not just a market cycle. We all buy and purchase things differently today, which is almost the obvious one at this point, which is the e-commerce piece. What people aren’t talking about as much is the supply-constrained piece. For 50 years, and you look at Long Island City as the best visual example of this, if you look at every one of those buildings that are now multifamily or office, they were once all industrial. So you spent 50 years removing supply from this particular asset class. Now you have an increased demand because of the way we purchase all things, you have the reduction of supply over a 50-year period, and then you have a pandemic where everyone decides that we have an issue with the supply chain and you can no longer offshore to make sure your business runs effectively so you want to bring back everything onshore. Those three supply/demand factors are really powerful, and I don’t think just a real estate market cycle is what’s driving this.
What particular markets are you most focused on now when it comes to industrial on the equity side?
The epicenter is Long Island, but we are looking at the entire tri-state area. We recently made a purchase in Wallingford, Conn. We want to continue to grow in this area and the tri-state area, and we are speaking with other folks up and down the East Coast on potential partnerships there as well.
With lending for industrial deals, how do you strategize on geographies you target?
There has to be good access to labor and good access to transportation. The fundamentals of location, location, location in real estate still apply. I think you’ll have a hard time going into a sparse market where there’s not a lot of density and not a lot of solid transportation or major highways. That’s not something that I think is sustainable, either on the lending side or the equity side. But for the most part, those markets where we think there is a play are those that have been hyper-escalated. Being a lender in that market, I’m comfortable with because we do believe that our basis is a good basis as it relates to where we’re lending at. We’re in a safe position.
Industrial outdoor storage has emerged lately as an alternative property sector for lenders and developers. Is something that you’re looking at, either from the lending or equity side?
We look at it from both sides. I think that asset class is also a beneficiary of where we are with the supply/demand. The reality is that because of the onshore of the entire supply chain, people are storing a lot of materials outside, and as a result you’re seeing that asset class become more and more robust.
What other sectors are you looking to expand into?
We’ve always used our family office as an incubator for different asset classes so we have a diverse set of assets that we own within that family office. The entirety of our business before I arrived five years ago was that family office and really focusing on whether the deal metrics work, and if your metrics work we’ll figure out how to manage it.
I could see urban multifamily being in an area that we focus on. We have a large multifamily portfolio at this time that we either manage third-party assets or manage for ourselves. We have some sites that we own in the boroughs that we’re working on transactions to develop. On Long Island we have a large flex, suburban flex office industrial portfolio. Traditional industrial is at 10 to 20 percent office. These buildings that we own are more like a third to 50 percent office.
If we continue to evolve where we feel like these industrial users are also going to have a large office component, I feel like those assets are going to come to fruition as being a potential investment grade for institutions to partner with us in growth strategies.
How did your experience at Newmark prepare you for this current role?
I have always been a hunter by trade. I was always the one trying to find opportunities, trying to find potential clients, being out and about and meeting people and building relationships. That was my role at Newmark and I’ve done the same thing here. So whether it’s investors, whether it’s strategic partners, whether it’s potential acquisitions, that’s always been my core competency and where I’ve really added the most value. I’m lucky to have someone who can execute because if I can’t do what I do if I don’t have someone to execute. I had a partner at Newmark and then a partner here who executes for me. I spend more day-to-day here than I did at Newmark. At Newmark I would say I hunted 90 to 95 percent of the time, and here I spend
probably almost half my time in operations and building a business and strategic planning and thinking of things that make our business viable for the long term. But that ability to sell and the ability to find opportunities has really allowed us to accelerate our growth, and I learned that at Newmark.
Last, speak about the influence your father Bert has had on you and on your career?
Even at nearly 80 years old, he’s still a first one in, last one out guy. That’s the way he’s always been, so I’ve always taken that mentality. I don’t want to tell you what time I got here this morning (laughs). Everyone here was sleeping, and I should have been, but that’s the mentality he taught me. There are also the strong relationships he has built. He has a tone of fortitude, and he’s built businesses through all market cycles over the last 50 years.
Being resourceful, building relationships and hustling is really the foundation that was set for me now. He’s a high integrity person. We tell our lenders if there’s any issues you’re going to hear from me and nobody else, and that’s really his culture that he’s instilled here for a long time.
Andrew Coen can be reached at [email protected].