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Real Estate Renaissance Man

Howard Michaels

Age: 52

Company: Carlton Group

Title: Chairman and Chief Executive Officer

Time in current role: 16 years

Currently reading: Two-foot stack of trade papers

Howard Michaels, chairman and CEO of New York-based Carlton Group, has come full circle as a commercial real estate mortgage broker. In 1992, he bought a controlling interest in Carlton Property Auctions and auctioned distressed notes and real estate held by the Resolution Trust Corp. and Federal Deposit Insurance Corp. after the property crash of the late 1980s.

In 1995, he bought the rest of the company, renamed it Carlton Group, and began offering several other real estate financing and advisory services. Today the firm is not only marketing some $1 billion in problem condominium and commercial real estate loans, but in December Carlton Group's principal investment arm, Carlton Strategic Ventures, also raised $1 billion to buy distressed commercial debt. At the end of 2007, the fund acquired some $300 million first mortgage, B-note and mezzanine loans for about 80 cents on the dollar, according to Michaels.

“There's no question that we have a lot of experience with distressed assets, and the current environment is almost like a repeat of what happened [in the early 1990s],” says Michaels, who sold life insurance for a couple of years before launching his real estate career in 1980 by joining real estate syndicator Island Planning.

Buying and selling troubled loans is a small part of Carlton Group's business. The same firms buying assets through Carlton's auction business in the 1990s started financing commercial real estate a few years later. Michaels transformed his company into a real estate investment bank in 1995 and began to leverage those connections. All told, Carlton Group has consummated some $40 billion worth of transactions since 1998.

Carlton Group's specialty involves securing passive equity for borrowers in a structure in which borrowers earn increasing returns after capital providers receive a minimum yield. The firm also arranges highly structured equity and debt financing, and Michaels notes, “The last thing the world needs is another mortgage broker.”

Kent Swig, president of New York-based Swig Equities, can testify to that. The owner and developer of a $3 billion commercial property portfolio in Manhattan and California, Swig Equities has used Carlton Group to secure financing on occasion, Swig says. Carlton Group's success stems from its talent for crafting complicated debt and equity structures, its knowledge of real estate, and accuracy with details.

“I'm always a little suspect of brokerage firms because of the hype — a lot of firms throw out pretty pictures and don't have thorough information,” Swig says. “Carlton Group understands the business, and they produce without a lot of fanfare or BS.”

Carlton Group's repertoire includes property brokerage, hospitality advisory services, and investment management. The company launched Carlton Strategic Ventures in 2003 to buy opportunistic and value-add properties as well as mortgages. The division owns a 27-story student housing tower near the University of Texas in Austin and two office buildings totaling 381,000 sq. ft. in Long Island, N.Y. and Eatontown, N.J.

In July, it opened an office in Tel Aviv, and plans a presence in London and Dubai. “We're basically accessing capital for our U.S. clients,” Michaels says.

Despite the debt market doldrums of 2007, Carlton Group secured $7 billion for borrowers — about $3 billion of it materialized after the credit crash.

“It was easy for a borrower to pick up the phone and call the banks directly over the last couple of years,” Michaels says. “Now those calls aren't being returned, so clients need intermediaries.”

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