Capital One acquires Beech Street Capital

Capital One Financial moved to become a larger player in the financing of apartment buildings Friday when it announced that it was acquiring Bethesda-based Beech Street Capital, the country’s sixth-largest issuer of multifamily loans backed by Fannie Mae, Freddie Mac and the Federal Housing Administration.

Founded in 2009 by Grace Huebscher, a 14-year veteran of Fannie Mae, privately held Beech Street grew its multifamily mortgage business from $1 billion in loans in its first year to $3.9 billion in 2012. Virtually all of the loans are backed by one of the government-sponsored entities, typically for 10-year terms.

Rick Lyon, head of commercial real estate banking for Capital One, said the bank had been looking for more than three years for a company with Fannie and Freddie expertise that could expand its commercial real estate business.

Multifamily mortgages are already Tyson Corner-based Capital One’s biggest line of commercial real estate lending, and Lyon said Beech Street will make Capital One a top-five multifamily lender nationwide.

“It wasn’t today’s economy that drove this; it was really rounding out our business that drove this,” Lyon said. “For us, it was looking for the right partner.”

The deal will close in 60 to 90 days, pending approval by Fannie and Freddie, Lyon said. Terms were not disclosed.

Beech Street has about 130 employees, about half at its Bethesda headquarters and the rest at offices in Alabama, California, Florida, Georgia, Illinois, Massachusetts, New York and Texas.

Huebscher said that having greater financial backing and other Capital One offerings at her disposal would allow her to expand the business more easily than if she had kept it independent. Among competitors in the government-backed multifamily mortgage business are firms such as Walker & Dunlop and Berkeley Point Capital, both also based in Bethesda, as well as top banks that include Citibank, JPMorgan Chase and Wells Fargo.

“There are a lot of private players [in the business], and I think bank balance sheets and having other alternative products is going to round out our offerings to borrowers,” Huebscher said.

On a conference call to explain the deal, Huebscher and Lyon said demographic changes meant that more Americans were likely to continue renting rather than buying homes. College graduates choosing to remain renters longer, urban neighborhoods growing in popularity and the number of immigrants arriving in the country all are factors, Lyon said.

He said President Obama’s recent push to close Fannie and Freddie, something also being considered by members of Congress, wasn’t likely to change the fundamentals of the business in the short term. “This isn’t rotary phones that are just going away. This is financing apartment buildings,” he said.

Capital One does not expect any job losses as a result of the transaction. Lyon said Huebscher will become president of the bank’s multifamily business and continue to lead her team in Bethesda.

“We really like the people,” Lyon said. “We think Grace has assembled not only a top-shelf executive team but all the way through the ranks of the company, and this is a situation where we expect to keep all people and in a growth mode.”

Jonathan O'Connell has covered land use and development in the Washington area for more than five years.
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