Seth Grossman opened Meridian Capital Group’s San Diego office in May 2011. Since then – working closely with his team of originators and analysts, while managing two Southern California offices – Grossman has created a mortgage brokerage dynamo. A graduate of NYU and now a senior managing director with Meridian, Grossman has overseen the origination and closing of more than $13 billion in debt and equity transactions. They span more than 650 loans across primary and more esoteric asset types.
The secret to his success? “Teamwork,” says Grossman.
In this interview with Commercial Observer, Seth Grossman discusses the state of the business, what it takes to succeed in a challenging environment and what he anticipates for 2023.
COMMERCIAL OBSERVER: How would you describe this past year in the lending market?
SETH GROSSMAN: Our team had our best year to date in 2022. However, that was largely driven by an extremely strong first half of the year and takes into consideration the fact that the last several months have been very challenging. Everything takes more time and it is harder to get transactions closed than it had been during the early part of 2022. But those factors have not stopped us.
CO: Can you quantify the volume?
SG: Our team closed in excess of 115 transactions in 2022. They encompassed a diverse range of sizes, going from $1.1 million to multiple hundreds of millions. The majority fall between $20 million and $100 million. Total closed volume was in excess of $3 billion.
CO: Quite the range indeed.
SG: From what we’re told, it is unusual to have that large of a cross section. Most people who close large loans don’t focus on the $2-, $3- and $4-million business. But we view all loans as being equally important. Clients grow organically. Many of our largest loans last year began with clients for whom, in the past, we closed some of our smallest loans. Then, over time, they come back to us with larger deals.
CO: How would you characterize the current state of the market?
SG: Lenders want to put out money. So it is not like 2008, when everything stopped. But higher interest rates and changes in acceptable risk profiles combine to create disconnects between borrowers and lenders. There are gaps between what most lenders are comfortable with and what most borrowers want. Compromises are harder. Our job, going into 2023, is to bridge those gaps. We, and everyone in the business, is now required to spend more time working on each deal. We go to broader sets of lenders than in years past. We leave no stone unturned and explore every avenue.
CO: The process sounds more arduous than it had been in, say, 2021.
SG: For sure. It can take tremendously more time than it did, pre-2022, before we get to a deal that makes sense. And, frankly, not everything comes together as planned. A large part of our job in the current market is to educate our clients about the terms available. We try to do this at the outset of the process, thereby avoiding surprises, but with the market continually moving, it requires fluid discussions.
CO: Yet you had a record-setting 2022. Where does Meridian find its edge in the current environment?
SG: Teamwork. That is a big advantage for Meridian Capital. We have 10 people on our team. I am involved in every aspect of our transaction process to some degree. Then we have three originators, one junior originator and five team members running the transactions for the originators. The deal runners underwrite, size, and help place and process the loans. The originators are out there, meeting sponsors and lenders and bringing in business. Everyone has the sole focus of getting the deal done, with each deal involving at least three people and sometimes four.
CO: Is this different than it had been pre-2022?
SG: It’s different than it had been pre-Covid. Everything is extremely collaborative now. Everyone on the team contributes to making the deals come together and we have honed a more collaborative strategy. There is no question that this approach will stick, even after rates and volatility settle down. We’ve matured and grown to the point where our team works more like a company and less like a group of independent individuals. Everyone is in sync with one another.
CO: You’re based in Southern California, moving between San Diego and Los Angeles. Does being part of a national company have an impact on your success rate?
SG: Definitely. We regularly collaborate with deal-teams across the country. In our business, information is key. The more we share, the better able we are to advise our clients. The objective is always to negotiate the best terms for Meridian clients.
CO: I understand that you have had some great successes with note-on-note lending. Can you walk me through that?
SG: It was a theme that dovetailed with the early days of Covid, slowed down as Covid abated, and came back again after rates began to rise and some larger lenders pulled back. Typically, we arrange financing for real estate investors. Other times, however, our lenders ask us to assist in their financing needs for back-leverage. In those instances, we step in and assemble financing from a variety of silos. There are many different verticals we can tap into for this and it tends to happen at the most senior level of our organization.
CO: Can you give me an example?
SG: Last year, we were closing a large, high loan-to-cost construction transaction. The lender approached us during the process. We were asked to help finance their position after early discussions between us indicated that some of our sources could be very accretive to their financing. In another case, there was a lender, with whom we often work, who closed a loan in Florida that Meridian did not originate. Nonetheless, they approached us to help them finance their position. It’s a validation to get a call from lenders to do this work. After all, they generally know all the brokers in the market. It’s a privilege to work on their behalf.
CO: Going back to something you said earlier, what motivates you to work on the smaller deals? I assume they require as much labor as the larger ones.
SG: That is true. Sometimes they can be harder and take longer. But you don’t walk away from them. One reason you do the smaller deals is because they allow you to work with people and projects you believe in. You have a job to do and they need a loan. Sometimes that $2 million loan is more critical to its sponsor than the $100 million loan is to its sponsor. The Meridian theme is that our business is built on all kinds of deals and that it is our job to identify the right lender for each one of them.
CO: What is your favorite part of the mortgage business?
SG: Hands down, my favorite part of the business is cultivating and maintaining relationships. Many of my closest friends are clients and lending partners of mine. I love the people I work with. I’m friends with the lenders, but I also have a job to do. So, sometimes, we go toe-to-toe on a deal. But having a relationship gives you the ability to push in ways that other people cannot. You get straightforward and candid answers that might not ordinarily come your way. Most tellingly, we often get referred to lenders by other lenders. People won’t do that for relationships they don’t care about – and respect.
CO: Realizing that you do not have a crystal ball, I nevertheless wonder if you can tell me what you see for the coming year.
SG: My prediction is that it will likely be a tough year. But it can be a great year for thoughtful and agile brokers. If things get choppy, you can arrange rescue financing and you will finance more unusual and structured transactions. While 2023 may prove to be challenging, assignments that require creativity also provide opportunities. Those who rise to the challenge can be outstandingly successful. Teamwork and good relationships will remain more crucial than ever.
Seth Grossman, Meridian Senior Managing Director, can be reached at (858) 964-1151 or [email protected].