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CIBC’s Commercial Banking podcast series, Conversations in Commercial Banking, understands that your business is a living, breathing entity in need of nurturing to continue to grow. Whether you’re looking to navigate a tough economy, tap into current industry trends or identify key tools to take you to the next level, our team of experts are here to equip you with the information you need to make your vision a reality.
Introduction:
Welcome to Conversations in Commercial Banking, a podcast series dedicated to the pressing financial topics facing middle market business leaders. Today we bring in experts from all facets of our North American institution to provide actionable insights that help you navigate today's environment. Our discussions include industry trends, strategies to identify and manage risk and unlocking opportunities for growth, all with the purpose of helping you realize your ambitions. And now for this week's episode,
Eric Newmark:
Hello and welcome to Conversations in Commercial Banking. My name is Eric Newmark and I run the Commercial and Industrial Syndications group at CIBC US, and I'm pleased to be your host today for this episode, we are discussing how CIBC's, commercial real estate, banking, and syndications capabilities have facilitated strategic growth for a long-term strategic client. Joining me today to discuss further is Jeff Shulman, managing director and Florida Region Manager for US commercial real estate, and Kate Marchi, head of US CRE Syndications. Further, we are grateful to welcome Daryl Shevin, CFO and principal of 13th Floor Investments, a best in class investment and development firm based in South Florida to share some insights and experience working with the collective team at CIBC. First everyone, thank you for joining us today. To begin, I'd like to start with Kate. If you could offer a primer to the audience on syndicated structure, when do we use those and why?
Kate Marchi:
Certainly. Thanks Eric. So pleased to be with this group today. The syndication technique is employed primarily when the credit is larger than a single bank is going to hold on their own balance sheet. Then we become the agent and the goal is to bring in other sources of debt capital to the client to facilitate an execution. This is typical of all banks really, and it's never a reflection on a client view. It's really aligned with risk parameters that we need to hold to from a regulatory perspective, frankly. But we also use the technique and commercial real estate to help add value to the client base. We want to preserve dry powder, so to speak, to be ready for the next transaction to facilitate the ongoing growth of our clients. And it helps us to also introduce new sources of debt to the client base.
Eric Newmark:
Thank you Kate. And then just to build further on that, how would you say CIBC has differentiated itself in the space relative to other agent banks and when CIBC is thinking about forming liquidity for our real estate clients, what additional steps go into that?
Kate Marchi:
Certainly, I reflect on a number of ways. We work really diligently to differentiate ourselves. Real estate and capital markets have a reputation for being transactional and that's really couldn't be further from our thought process and mindset as we're working with our internal line of business relationship teams. And then certainly it extends to our clients. The relationship approach extends through all of those stakeholders. Our team is really focused on riding alongside our relationship teams to understand the clients who operate and excel in the private economy. Frankly, we are understanding how are you raising capital, why have you selected this project? What is the overall investment thesis? How can we add value to what you're doing? We spend a lot of time upfront even when there isn't a deal, really trying to understand that from there we're hyperfocused on running a clean execution and driving new sources of debt to our clients to the extent they want to make it a really relationship sub type of transaction.
We're happy to facilitate that, but if we can introduce new sources to continue to facilitate growth and leave loan exposure available at their other relationships available, we see that as adding value. We're spending a lot of time getting our materials prepared to really showcase the client and their investment and financing opportunity and really all of that. The other point I'd like to make is vis-a-vis our consistent ranking at the top of the middle market league tables. That's sort of an endorsement. The process works and we're proud of it and we really just continue to try to improve.
Eric Newmark:
Thank you, Kate. I'm going to turn it over to Daryl now. And Daryl, we really appreciate you joining us here today and certainly appreciates the relationship that our bank has been able to have with you and your best in class team. So just to provide a little bit more on the background, can you share a bit about your company, the relationship you've had with CIBC and perhaps some of the things our team has helped play a role in 13 Floor’s growth?
Daryl Shevin:
Yeah, sure. Well, let's tackle those one by one. Before I even start, let me just say that Kate way undersold the role they play in the syndication process and the importance in the quality of a good syndicator. So we'll dive into it, but I think Kate didn't even do her herself justice. So really quickly, just to get the 13th Floor part out of the way, we are a Miami-based investor and developer. We are on our fifth fund. We typically invest through private equity style funds. We've been in business for 16 years now. Our first deal was in Q1 of 2008 right after the GFC or whatever words you want to use for it. We were back then a small group buying land when land was a four letter word and trying to figure out what to do with it. And even back then Jeff was very involved in our business and we'll talk about that as the course of this conversation goes on.
Fast forward to 2024, we are a team of about 50 people. We touch every type of real estate, but predominantly where people sleep. I say it like that because depending on where we are in the cycle is whether we're building something for rent or for sale, whether it's a 80 story tower or a one story home, which we do both of it. It may be for sale or it may be for rent, and that's driven by market conditions and locations. So I kind of just say where people sleep as opposed to residential and all the different words that get used in our industry.
We have done about 5 billion dollars of growth project costs. That's not necessarily equity or debt or deposits or any individual number, but the combination of everything that has gone into all of our projects. And so if I had to just throw a number out there because I did not sum them all up before this call, I'd say we've probably closed on about $2 billion of debt. And I would say Jeff Shulman has probably been involved in about 1.2 billion of that. So it is no surprise that Jeff and CIBC get our first phone call for a number of reasons that we'll talk about in this podcast, in this conversation. But Kate touched on something in her intro, which was the relationship nature of the business as opposed to the transactional nature of the business. And there's no question that the best bankers are relationship driven. And I would hope and assume that Jeff would say that the best borrowers are relationship driven and that it's a two-way street. But certainly from our perspective it is not a transaction. So back to the summary of the company. We build high-rise condos, high rise apartments, mid-rise, garden style, everything of the sort. We are generally low-ish leverage borrowers in the 60 to 65% range, which today means 55 to 60. But that's kind of where we typically hover. And CIBC is the perfect lender for our type of deal flow. And again, whether even predating Jeff at CIBC, which has now been what Jeff, I mean eight years, 10 years, I don't even know. How long have you been to the bank?
Jeff Shulman:
Just shy of seven years now.
Daryl Shevin:
Yeah, seven years. So obviously the last seven years we've ramped up the relationship and not quite generally the last seven years have been multiplication of growth for us. That was a really bad grammar, but I think you get the point. We went from doing five 10 million deals in 2008 to doing $25 deals in 2014. And now whether this is for good or for bad, I'm not necessarily taking the position, but now our average field size is like 150 million development, which needs real relationship on all sides of the coin. I think you also asked me to gently start touching into the relationship with CIBC. I touched on it before, but I say this not because I'm on A CIBC focused phone conversation or a podcast, but CIBC is like five x the deal flow as a lender for 13th Floor versus probably the sum of everybody else, let alone the second place lender.
And there are some other great lenders for us. I'm very good friends with a lot of other lenders. I'm not speaking gill of anybody, but essentially the way our business works is that we call Jeff and we say, does CIBC want this loan? And he says, I think it fits for us, or I think it doesn't fit for us. And then we move on. And that's because of the relationship and I'll stop and allow the conversation to be more free flowing in a second. But there's a list of probably 20 things that drives that. But there's one that stands way above everything else. And that's that Jeff, and I assume as an extension of CIBC, but it's Jeff that's on my phone calls. Jeff will tell you basically immediately what he can achieve and what he can't achieve. And it doesn't necessarily mean he's telling you what you want to hear, but it's way more efficient to manage a business that knows what's going to happen with some level of certainty versus spends months hoping for something to happen and then maybe or maybe not getting it.
And there are many bankers who choose to operate more as a salesman and wait until they have to deliver bad news hoping they never have to, as opposed to a partner who tells you upfront what is and is not achievable. And in that comes syndication. The very first conversation is when Jeff would say to me, we have to syndicate this and you guys on this call certainly know, but maybe not all the listeners know, there's three ways you should think about whether a loan is going to be syndicated. It's either not going to be syndicated, which candidly is typically a borrower's preference, but that's neither here nor there, right? Or it's going to be syndicated with the bank taking the risk, which really is a selloff. It's not so much a syndication. And Kate will probably correct me because my terminology is not being used perfectly, but speaking amateurishly, it's when a bank agrees to fund the loan but tells you they may want to sell some of the position to another bank, which simply means as a borrower, you may have to be talking to someone else if things go wrong in a few years, but that's not the worst thing in the world.
And then the third thing is it's a true syndication where the debt may not be available to you if the other partners don't show up. And obviously I listed them in order of preference. That being said, if you have $150 million loan, you're not going to get many that don't fall into category number three if you're going the traditional bank route. So I think, Eric, as we talk about syndication for the next half hour, I think it's important to think about them in those kind of three buckets. Although bucket one was not syndicating so that it doesn't really apply, but we should talk about them in two buckets and then the different levels of risk and then why it's so important that if you're in bucket three, why it's so important as a borrower to be working with a banker and a bank who can perform. That was a lot of rambling and ranting and I went down a street and then turned around back on the highway, but that's often what happened to me.
Eric Newmark:
No, that's very helpful. Daryl, I appreciate you spending time going into detail on the business and obviously the historical relationship and the tremendous growth and success you guys have had over the years and certainly appreciate how you've partnered with CIBC. I'm going to bring Jeff into this discussion now just to share a bit more about how Jeff served as a trusted advisor to Daryl and his team over the years, and then also drawing in Daryl, what is most important to you with your relationship with CIBC as an agent bank?
Daryl Shevin:
Jeff, the one thing I forgot to help tee you up with and to tell the listeners I'm to use a sports analogy, I'm the number two of my company, the managing principal. My company is a guy named Arnaud Karsenti who's an incredible businessman in person and the smartest guy in every room. And the relationship actually started with Jeff and Arnaud forming a very friendly relationship in 2007 before I joined the firm. So I was kind of lucky to inherit the relationship and then continue to outgrow it. But fortunately for our company, the relationship started with the managing principle and Jeff very early on in their career. So Jeff, I didn't know if that went.
Jeff Shulman:
No thanks Eric and Daryl. So as Daryl mentioned, my relationship with the firm started in a very, very challenging environment. Okay, 2007, 2008 was the worst financial conditions we've seen in this country since the Great Depression. And at the time, no banks were originating loans, but I was asked to kind of pivot my role into both workout and selling our problem loans, whether they were real estate owned or defaulted notes. And Daryl, myself and Arnaud at 13th Floor built our relationship in that environment. At the time, they were the most active buyer of our distressed real estate or distressed real estate paper. And we built the relationship. We found out very quickly that we could trust each other and they could trust me that I wouldn't just, if I said, we've got a deal, we'll sell this to you. I wouldn't just play their offer off onto somebody else and then blame it on some committee somewhere. Okay? I would trust them that if they shook my hand and said they were going to buy this asset for a price, they did it when and at the price that they agreed to, never a retreat. So when you talk about trusted advisor, the word trust is in there, but trust is earned over time. And the first time do you make a loan or sell an asset to someone, you're not a trusted advisor. It takes time, it takes interaction, it takes challenges and working through challenges. And so what I would say about our relationship is it was built on a foundation when times were really challenging. And if you can find your footing in those times, it just solidifies the relationship going forward. So we started in really tough times, but there's been billions of dollars worth of transactions ever since. And the fundamentals are the same. Okay, we do what we say we're going to do when we say we're going to do it, and 13th Floor, Daryl, Arnaud and his team does what they say they're going to do when they're going to do it. And it's pretty simple. It might sound a little trite, but that's how real relationships that have real tenor are built. And not to say that there weren't challenges along the way. Every deal has challenges and we've gone through that together. And as you go through that together, you get stronger.
Every day is a new adventure. Every deal is a new opportunity. And the fundamental thing is we trust each other because we do what we say we're going to do, when we say we're going to do it. Taking this back a step or two, I want to highlight some of the things that Kate said, and I'm trying to highlight them really from a borrower perspective, because working for large financial institutions, banks tend to be inwardly focused and it's a real mistake. What we try to do at CIBC is we try to put ourselves in the shoes of the borrower. So when a borrower hears syndication, for most banks, that's a one-way street. The loan is bigger than the bank wishes to hold on its balance sheet, and the bank is looking to manage that single asset, single company, single project risk. We at CIBC look at it differently.
No doubt we have to manage our exposure because diversification is an important part of risk management. But we also try to think about what is the best execution to bring value to the client. And Daryl was right, Kate undersold her and our syndications team's capabilities, it's really easy to go to a borrower and say, okay, it's $150 million deal and we only want to do half, and who do you bank that might want the other 75 million? But that doesn't really add value. As Kate mentioned, it dries up capacity with those other lenders. What we try to do is first and foremost, see through the network that Kate and her syndications partners have delivered over a hundred investors that we have across the country, can we bring outside sources of capital that in this case, Daryl couldn't otherwise access. We operate 13th Floor and CIBC I cover Florida, 13th Floor is primarily in the southeast, but through our network, we've been able to bring capital from the Midwest where we have deep, broad roots into Florida who not only trust us, but learn to trust our clients. And that's the way you bring real value to a company, to a deal, to a syndication. I think often most banks don't think that way. They really think one dimensionally on how they can lower their risk, but we think, yes, we have to lower our risk, but also how can we couple that with adding value to the client? And that is very unique in the banking industry and something that at least I'm very proud to be part of. Kate and her team really, really drive that business, but it's really important to our clients.
Kate Marchi:
I appreciate that, Jeff. I want to chime in with one other thought. Just in terms of doing what we say we're going to do. I think we'd be remiss not to recognize and acknowledge the market environment that we find ourselves in, particularly for real estate financings. It is more challenged and less liquid than before. When I'm thinking about a financing, there might be a situation where I am duty bound to say, Hey, really your best execution and your best path to certainty, Daryl, client, is really looking to those relationships. We never want to be in a position where we're suggesting that we can bring something that we cannot. So I did want to just in this moment in time, it will be more liquid. Again, it is cyclical, but we think about it to Jeff's point, really from the client and the borrower's lens, because that's what we would want on our side.
Daryl Shevin:
Yeah, but agree. But to use more specifics, let's get out of 30,000 feet and get down the ground level. In the last two deals that we've done together that have been syndicated, one of them, the comment was, you've got other great banking relationships. I know you have other term sheets on this deal. Why don't you see if you can bring in $30 million from one of those and then we'll hit the ground looking for the small gap in between, or CIBC can fill it. And one of them was, we'll take care of this one. Obviously we have to go perform so nothing is signed and inked until then, but we'll take care of this one. We think that we can syndicate this without your relationships 13th Floor. We're going to go to banks in the Midwest that you've never met before that will A, create a new relationship with you and B, bring new capital to the table that assuming you perform the way we know you will be there for you in the future and see not have capacity of your existing relationships. And I couldn't have done that on my own. So that's the real value here is performing in what you say you're going to do, not telling us you can accomplish something that you can't accomplish. And then potentially doing even more absent just filling the entire stack with your balance sheet, which again, deal size dictates that, not you guys because the regulatory. So even doing more and bringing in new relationships. So I think that a good syndication team brings immense value to the process that a borrower can't really control or handle. And I'll tell you one other anecdote, which is mostly meant to be funny, but there is some seriousness to it, which is that what happens throughout a syndication process, the borrower's just sitting there waiting.
I mean, let's be honest, there's only so much I can do. There's maybe some phone calls I can take. Maybe there's a tour I can make, maybe there's a meeting I can take where people fly in town to meet the management team, but there's only so much I can do in the process because the agent make runs the process. But of course we're maniacal, so we don't just sit there and wait what we do. We text and we call them, we email 'em, we say, where are we? How's it going? How's it going? How's it going? And every time I would ask Jeff that, he would then behind the scenes, ask Kate the exact same question. Kate would say to Jeff, I'm not worried we're going to get this done. Jeff would say to me, Kate's not worrying. And I would say, well, then I'm not worried.
And basically there would be a game of telephone that goes, I'm not worried. He's not worried, she's not worried. And then I would tell the conference room, Hey, team, we're not worried. And I believe had Kate ever gotten the indication that the other 50 million dollars we were looking for in this example was not going to be done available, she would've said, Jeff, I'm starting to get worried. And that would've been the indication to me to go start calling other banks like, Hey, I know you love CIBC and we want to be there for you, but what we don't want to see your deal to have a problem because we can't perform. So go start calling other banks. And during this process, and I say this process, we just put a loan two weeks ago, so this is the one that's kind of top of mind, a syndicated loan during this process, there was never a period where I made another phone call because there was never a period where Kate sent from the Batmobile any signs of concern. And so that whole triage of the relationship is of the utmost importance and often not discussed.
Jeff Shulman:
This is not just theoretical. In the last deal we closed, we have a repeat investor that is in another 13th Floor deal that's going quite well, and they came into this deal as well. They're a Midwest bank that we have a strong relationship with. And so it's not just theoretical, it is happening on the ground now as we continue to grow the relationship between CIBC and 13th Floor.
Kate Marchi:
And I just wanted to make mention too, I have the great privilege of being able to speak with you, Jeff today, and you, Daryl. Eric and I along with the other leaders, Ingrid Carlino, Bernie Locayo, on the syndications team, there's a whole team of us and that team is purpose built to showcase. I used the word showcase earlier. Really, we take our role in investor relations quite seriously. And a big reason we have some of the repeat investors we do. The count is actually up over 175 liquidity sources across the country today. We're very proud of that. That's in the face of bank market consolidation. We take it very seriously. No bank has to do business with us, so we better do our job during the term of the loan. And the team is really focused on treating our bank group right? And that extends to Jeff.
Jeff always opens himself to field questions. Daryl, you pulled the team together to help tour. That would be a thought I'd offer to the audience. To the extent you have the opportunity to meet your bank groups, meet more people within your primary agent bank, do it. I remember meeting Daryl very early on in Jeff's tenure at the firm because Daryl, you and Arnaud invested the time to come meet with a lot of constituents in the US headquarters in Chicago. We all sat around the table to get to know each other, and I would suggest that's catalytic. I mean, that is really a great example of how we think about the business, certainly under Jeff's leadership and really across the platform.
Eric Newmark:
That's very helpful and really appreciate the insight that was going to lead into the last discussion here, which Kate, I know you and Jeff and Daryl both highlighted in terms of how do we as CIBC formulate and execute upon a distribution strategy. I know we've touched on that a bit of what the borrower can do, but maybe just a little bit more on how do our commercial borrowers best position themselves for a financing opportunity, particularly in today's market, to have a successful placement.
Kate Marchi:
A few things I observe out of 13th Floor's approach, again, absolute willingness to have full transparency both to the administrative agent and the bank group, your actual financial reporting top notch. We know you spend a lot of time on that. That is meaningful. That is not every real estate investment firm. Sometimes a bank does a lot more coaching to their clients on that front to have that in place. Every single member of the team is of quality. Every detail managers speaking with Ray Mei on the construction side and his team that he's built, you have your verticals and everything is of quality. I think that is huge. And it's really never too early to draw in the banker. It's never too early to draw in the syndicator to talk about a deal. We've been talking about the most recent financing going on a year. There was some visibility to it, and that only helps us when it comes time to actually execute. So I'd encourage the early and often conversation and then just if a client can really think about their infrastructure and think about it in the lens of investor relations, the debts like the equity, and to be able to have a meeting, being open to meeting with the bank group, clients always going to tell their story best. Certainly 13th Floor’s a couple of thoughts. Jeff, would you have anything to add to that?
Jeff Shulman:
Sure. Daryl and I were texting at eight this morning about a deal that's going to close at the end of 2025. Okay. And so you talk about early and often, but that's the way our relationship goes. And he immediately honed in on what he knew would be an issue and how are we going to solve it? And we're doing that at eight o'clock in the morning or we'll do it on Sunday morning. Okay. And so it's that early and often, but also the minute I identify a deal that I know in our world, it's going to need to be syndicated. I bring you and your team in early and we have a dialogue and open forum communication on the best way to solve for the need for the client. And we do that as a matter of course, we're partners with each other and we talk early and often. And let me not forget that we also loop in risk as well early on. So if you communicate and you're transparent and you're focused on solving problems, not letting problems manifest, you can have a successful execution. I would say this last one is about as smooth as anyone could expect. So it's all about, it's common themes, trust, communication early and often, and not just hearing or saying what you want to hear, but being willing to tell each other what each of you need to know. And that's a really important component of communication.
Daryl Shevin:
It all ties into the relationship. I mean, every Jeff and I talk daily, if not weekly, if not daily. And every year starts with a meeting with Jeff to show 'em our pipeline and say which ones we think you want to take down and which one's not. I mean, I have an anecdote. About seven years ago, we had a condo deal. I was talking to another bank about the deal. It was a 50 story high rise. That was a really good deal, very financeable deal actually, and spent a lot of time with this other banker who will obviously nameless for this phone call.
And we had negotiated terms and we had gone really far. Of course, I was telling Jeff, Hey, I think I'm going to give this to another bank. Don't be mad at me. I love you, blah, blah, blah, blah. And I get a call from this guy after three and a half months of working on terms and not negotiating docs yet, but getting through his committee process. And he calls me at the 11th hour and he's like, I got a problem. I said, what? He said, I got pushed pushback in committee today, and I don't think I can get this deal approved. And I said, wow, that's crazy. We've talked about all the numbers. I know the numbers look good, what's going on? And he said, someone on credit thinks that the building's too tall. And I was like, stopped in my tracks. And I thought to myself, the building height has not changed in the last 120 days, since we've been talking about the steel and since you've toured the land with me and since I've shown you renderings and shown you contracts on sales.
And he said, I know. I know. But this one guy, he just couldn't get comfortable with it. And not even joking because Jeff's on the phone right now. The very first thing I thought is Jeff Shulman would never do that to me because Jeff Shulman would've known on day one that he's got a guy in credit who's not going to approve a 50 story building. And he would've said, I hate to even tell you this, but I'm not going to be able to get this approved. As ridiculous as it may sound because of the height, you should call someone else. As opposed to this guy who not only took me down a 120 day path, that took a lot of time and energy, but kind of turned their backs. I'll give you one guess as to who ended up closing the loan to save the day for me.
It's the guy who I'm on the podcast with seven, eight years later. But he didn't do it out of the goodness of his heart, he did it because it was a good deal, and he was there and was ready to close a deal for our company. But the story is somewhat funny. And of course I'm still friendly with the guy because I don't have that vindictive bone in my body. But a good banker is someone who knows what he can get done, he or she can get done. And a good syndicator is someone who knows what he or she can get done. And that what internally leads to good borrowers.
Eric Newmark:
Thank you, thank you all. I just want to say to Daryl, Jeff and Kate, thank you all for your time and insights today. It's been really energizing to hear about the successful partnership and certainly the great growth story out of 13th Floor. And also, I want to thank everyone for joining us on the podcast with a focus on loan syndications. And if you have any additional questions, please reach out to me or your relationship manager at CIBC to assist in the meantime. Check us out at cibc.com/us or across several social media platforms by searching @CIBC_US. Thank you for listening.
Disclosure:
CIBC is a member FDIC and equal housing lender. Loans are subject to credit approval. Guests of Conversations in Commercial Banking are not paid for their participation. To the extent that information contained herein is derived from third party sources, although we believe the sources to be reliable, we cannot guarantee their accuracy. The CIBC logo is a registered trademark of CIBC, used under license. Investment products offered are not FDIC insured, may lose value and are not bank guaranteed.