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A $700-million capitalization has spun Cohen Capital off from parent firm Cohen Financial, the Chicago-based investment banking firm. Focusing on bridge and mezz loans as well as a range of other products, Cohen Capital will be setting its sights on what CEO Bruce R. Cohen refers to as the middle market—properties in the $15-million-to-$20-million range. It’s not an overpopulated niche, Cohen commented in a recent exclusive interview, especially since he sees the new entity as a sort of one-stop funding shop for first and supplemental capital to that middle-market segment. The genealogy of the capitalization and his plans for the new venture–especially as we face rising rates and a possible new presidential administration–were also topics of the conversation.

GlobeSt.com: So now what is the relationship between Cohen Capital and Financial?

Cohen: Cohen Capital, which was the investment arm of Cohen Financial, is now an independent company. Cohen Financial remains with its historic shareholder base, engaged in the service businesses it has historically been engaged in–debt and equity placement, investment brokerage, loan servicing–while Cohen Capital will continue the investment activity it has been engaged in over the past several years.

GlobeSt.com: Who are your prime investors?

Cohen: Mass Mutual, an affiliate of Blackacre Capital, and an affiliate of the Lubar family in Milwaukee.

GlobeSt.com: How do you anticipate your investments rolling out in the near term?

Cohen: Over the past six years we’ve invested approximately $1.5 billion in roughly 150 transactions, serving primarily as a lender of bridge financing to the middle market. That activity has been defined by transactions pretty much under $50 million. We expect to do that exact business only on a larger scale. That was the purpose of the recapitalization–to expand aggressively the business we’ve been doing over the past couple of years.

GlobeSt.com: What are the parameters of that expansion?

Cohen: We’ll increase our transaction size modestly so we’re likely to do on average in the $15-million to $20-million range. But we’ll continue to do what we’ve done historically, that is, to serve as a national lender and capital provider, focused primarily on the four food groups. The key is that we’re an alternative to a bank. We’re not a mezz lender, we’re not a hard-money lender. We aim to provide modestly differentiated capital than what is available in the banks in the form of additional proceeds, less recourse or some other attribute. It’s an unusual niche. There aren’t a lot of people providing that capital on a national basis into the middle market.

GlobeSt.com: How will your numbers differ from those of a bank?

Cohen: We can be 5% to 10% higher than a bank in terms of proceeds. We’ll be partially recourse or non-recourse when a bank will be full recourse for the same proceeds.

GlobeSt.com: How will the election and a possible change in administration impact your volume?

Cohen: There are two great uncertainties that the market is anxiously awaiting. One is the effect of rising interest rates. The second is the effect of a growing economy. Clearly, rising rates will provide stress to the system because fundamentals that have been weak have been funded and supported by very low rates. So a change in administration or anything else that leads to rising interest rates will stress the real estate sector. The question is, will there be growth in the economy, and subsequently growth in absorption, enough to offset that stress.

GlobeSt.com: Are you a betting man?

Cohen: Not as an investor. I’m terrified of risk, but we bet everyday on the investments we make and it’s our view that growing demand in the real estate sector and well-executed business plans–good real estate with good sponsorship that’s marketed properly–will lease up. We think there will be growth in the economy to offset rising rates.

GlobeSt.com: Of course, no one seems to be expressing concern about a real spike.

Cohen: There’s a concern that real estate is overpriced as a result of low interest rates, and rising rates will cause valuation adjustments. That would be true if you didn’t have as much liquidity. It’s our view that, given the sheer amount of capital flowing into the sector, coupled with people’s assumption of risk, rising interest rates will not lead to a dramatic revaluation of the sector.

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