Wrightwood'sBruce Cohen

(Second in a two-part capital-markets series.)

Let the pundits talk about bubbles and corrections. Bruce Cohen talks about permanent liquidity, in a statement of faith that current market conditions will not derail. Of course, Cohen, CEO of Chicago-based Wrightwood Capital, can afford to be confident. He’s been riding the crest of a year-long wave that began when he spun off Cohen Capital from parent organization Cohen Financial (and brother Jack) in June of 2004, and culminated this June with the name change to Wrightwood. Sandwiched between the two events was Wrightwood’s $1 billion in capitalization and positioning to do some $800 million in originations this year. In a recent, exclusive interview, Cohen talks about why he thinks the current, strong investment climate is more than irrational exuberance and lays out his plan to continue the firm’s own upward trajectory.

GlobeSt.com: Why the split from Financial?

Cohen: In 1998, we raised $75 million essentially for the expansion of our principal activities. By 2003, we concluded that the opportunity was at hand to expand it vastly. We had built our infrastructure and systems and processes, and we had an enormous track record as well as a universe of clients. The time was right to raise the next round of capital.

GlobeSt.com: And the best way to do that was as an independent organization?

Cohen: That’s correct. We needed to separate the principal business, which was going to be our sole focus. We wanted to be unambiguous as to our independence and the exclusiveness of our focus. GlobeSt.com: People are saying it wasn’t the most amicable split.

Cohen: I have no idea what those people are referring to. We were producing a product that the market wanted, that wasn’t otherwise readily available, and the manner by which we delivered our capital would be valued by our customers. That was the essence of the capitalization.

GlobeSt.com: How is what you’re doing different from every other capital provider out there?

Cohen: : Wrightwood is a bridge lender. We provide short-term capital for properties undergoing a transition, and we represent an alternative to a borrower’s bank. We provide first mortgages, but we provide those loans either with more proceeds or less recourse or some other manner that allows us to differentiate from the banks.GlobeSt.com: Everyone’s talking about the evils of aggressive underwriting. No worries there?

Cohen: Well, there’s no question that values and prices are high. And there is a tremendous amount of capital in the system.

GlobeSt.com: . . . And deals have to be made quickly . . . .

Cohen: And deals have to be made quickly. So the key is to have market familiarity and a predictable, reliable system to underwrite and process these loans. At the end of the day, given the speed of this marketplace, the most important thing to a customer is certainty of execution. And that’s why we believe there’s such acceptance of the capital that Wrightwood delivers. Because we’re delivering it with predictability and transparency.

GlobeSt.com: But surety of close is only half the equation. What gets closed has to stay closed, no?

Cohen: Absolutely. Your point is valid, and the marketplace has greater uncertainty to it. Having said that, it’s a very large marketplace. In fact in 2005, we’ll probably do just under a $1 billion in total investment business. And while that sounds large, the reality is that we’re a fraction of the overall market the banks are funding. While we share the macro concerns, we are a micro-lender. We lend very specifically to sponsors we have confidence in and who are executing a business plan that we feel will allow them to both create value and repay our loan. We’ll probably look at between $10 billion and $15 billion of projects to get the billion of investing we’ll do. We see an enormous flow and can select the ones with the greatest probability of success.

GlobeSt.com: What does permanent liquidity mean?

Cohen: What disrupted the marketplace in the past has been the absence of liquidity or material changes in capital flow, exacerbated by the small universe of providers, banks and life insurance companies that had traditionally capitalized the industry. That small universe in turn exacerbated the cyclicality of the market. Today’s array of alternative providers is diverse, broad-based and uncorrelated, and we don’t expect there to be the disappearance of large swaths of capital as there was in previous cycles. It will ebb and flow, but the window will always be open. So while pricing may appear to be aggressive or yields low to the professional, to the investors looking at asset allocation, pricing is very attractive on a risk-adjusted basis. This is the essence of permanent liquidity.

GlobeSt.com: We’re still hearing of would-be buyers getting bounced from deals and going elsewhere to alternative investments. Where is your capital going?

Cohen: We’re a middle-of-the-fairway lender. We lend on the four food groups and in institutional marketplaces and we lend predominantly to stronger capable sponsorship–those with track records and capability. We’re not migrating from what we’ve done for the past 10 years and in the course of 250 transactions to go with property types or sponsors we may not have lent to previously.

GlobeSt.com: So how does the next year shape up for you?

Cohen: We’re in a growth mode. We have six offices now, in New York, Atlanta, Dallas, Chicago, Northern California and Southern California, and we expect to grow those offices and probably open another office or two. We think we can grow to $2.5 billion in originations in three years.

GlobeSt.com: Where will those offices be?

Cohen: We’ll probably try to fill out the major-market footprints, maybe Washington, DC or Boston, but we haven’t made those decisions.

GlobeSt.com: And you’re bullish on the market for the foreseeable future?

Cohen: Given the structural changes that have brought this permanent liquidity to the market, there isn’t an event or series of events over the short term that would lead to meaningful capital outflows.

GlobeSt.com: Barring, of course, some unforeseen event . . .

Cohen: The things that happened in the past had material adverse consequences for property fundamentals. But the industry has proven remarkably resilient from a capital-flows perspective. So, because the sources of capital are so broad-based, diversified and uncorrelated, it is highly unlikely that you’ll have what you had in previous market declines where large swaths of capital withdrew. As long as capital flows stay strong, values will stay strong, and even if there is pricing correction, the window will always be open.

GlobeSt.com: So the long-term outlook is positive.

Cohen: Which is why we’re expanding as aggressively as we are.