06/25/2010

Citadel Turning Its Sights to CMBS Lending

Citadel is ramping up to originate commercial mortgages for securitization.

The hedge fund giant, which formed a commercial real estate group in April, plans to start writing fixed- and floating-rate mortgages in about six months.

Citadel has been aggressively branching into the commercial real estate arena. Early this year, the Chicago firm's Citadel Securities unit set up a broker-dealer desk to trade structured products, including commercial MBS, in the secondary market. It also created the real estate group, under the direction of managing director Joseph Vassallo, a former CMBS lender at Credit Suisse. Soon after, Citadel hired three other former Credit Suisse staffers for the New York-based group, including two who specialized in CMBS lending.

Those hirings sparked speculation that Citadel planned to launch a securitization program, but the group has initially focused on trading B-notes and mezzanine debt in the secondary market on behalf of clients and its own account.

Now comes word that the group also plans to get into direct lending. It is laying the groundwork for a program that would originate and securitize fixed-rate loans ranging from $10 million to $50 million. Citadel would retain the mortgages until they are funneled into CMBS offerings, which the firm could float on its own or with partners.

Citadel will also selectively originate large floating-rate loans, which would be placed with insurance companies and other investors.

Vassallo's four-member team is still setting up the internal processes needed to get both lending programs under way. Origination goals have not yet been set. Citadel does not plan to hire additional lending staffers for now, but may consider that after the operation is up and running. In the meantime, the group will continue to trade B-notes and mezzanine debt.

Citadel is open to originating or buying loans in all property sectors, but for now Vassallo's group is mostly trading debt on office buildings and hotels. Managing director Jeff Lewis, who runs CMBS trading for the broker-dealer unit, isn't involved in that effort. But he might help distribute any CMBS offerings that Citadel brings to market.

Vassallo and Lewis were among more than a dozen structured-finance pros who joined Citadel a few months ago from ICP Capital, a struggling broker-dealer and asset manager in New York. Vassallo's team also includes managing director Douglas Rohrer and vice presidents David Elgart and Jeremy Sedrish. Before reuniting last year at ICP, the quartet previously worked together in Credit Suisse's commercial real estate finance group.

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