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Real Estate Weekly

PROFILE OF THE WEEK

WEDNESDAY, MAY 30, 2007


From his earliest days growing up in central New Jersey, Paul Fried, principal of AFC Realty Capital, always knew he was headed for a career in real estate.

“I always planned on going to law school and practicing law, but knew that I wanted to be involved in a practical business involving finance. As a lawyer, I was exposed to structured finance and real estate, and the two disciplines formed a natural path for my future. Early on, I noticed that the non-institutional aspects of real estate — acquisitions, sales, leasing and finance — distilled business to its essence,” he comments. “That, to me, was the hook.”

While today Fried and his AFC team head up some of the most unique real estate capitalization strategies in the country, he didn’t start out on this path.

After earning his undergraduate and law degrees from Rutgers University in New Jersey, Fried got his start as a junior associate at a Wall Street law firm, where he worked on several billion dollars of distressed real estate and bankruptcy cases. This work provided him with an appreciation for real estate. Seeing first hand how capital and structured lending impacted the outcome of real estate investment and ownership and working with Wall Street investment banks to utilize structured finance was an amazing experience.

“I enjoyed the brick-and-mortar aspect of real estate. I was in a firm where we worked on financings to build co-generation power-plants half way across the globe,” he says. “I preferred projects where I could see the property, review a rent roll, look at local market conditions and deal with private owners, rather than public companies.”

Taking his next formidable step in the industry, Fried moved over to real estate investment banking, joining Deutsche Bank’s conduit in 1997. In 1998 he was named director of Capital Markets, responsible for the development of new real estate financial products and lending processes for the middle market.

“We were the first to bring small balance mezzanine, preferred equity and bridge lending to the CMBS landscape,” he said.

In 2001, Fried joined one of his Deutsche colleagues in a start-up venture to develop and roll out new small balance structured mezzanine loans. One of his customers was the boutique investment firm that he subsequently joined: AFC Realty Capital.

“I originally met Arthur Fefferman, AFC Realty Capital’s founder, in the mid-1990’s. When I was at Deutsche Bank, I worked on several transactions with his team. At the time, AFC had distinguished itself as a firm with a team that clearly understood the underlying deal strengths, risks and mitigants of each transaction,” remembers Fried.

He joined AFC Realty Capital in 2005, handling a broad array of transactions, including high-yield and structured finance and the firm’s self-storage activities. Some of AFC’s capabilities include securing structured financing to support traditional first mortgages, including subordinate debt, mezzanine, and structured equity.

“Mezzanine financing for us is just a part of a very broad palette, and is extremely important in today’s market as virtually every deal utilizes some type of intermediate investment capital in between the senior loan and the first loss equity,” Fried comments. “Mezzanine financing contains elements of a loan and equity, taking its shape from the specifics of the transaction. Whether it’s provided by a separate mezzanine lender, or transparent to the borrower as a subordinate participation in a senior loan, we’re arranging this capital in pretty much every transaction.”

Following its $1.1 billion volume in 2006, AFC has done $350 million worth of transactions through the first quarter of 2007. Among the company’s most noteworthy deals in 2007 are: a high-leveraged senior debt and balance sheet credit enhancement for a condo conversion in Manhattan's Financial district; $6 million of subordinate capital to augment a senior construction loan for a hotel redevelopment in Fort Worth, TX; $50 million of acquisition debt and equity, including co-investment capital from AFC for three hotel properties in Allentown, PA, Warren, NJ and Basking Ridge, NJ. Additionally, AFC was recently appointed as the exclusive financial advisor for the $175 million development of The Soleil Center, a 620,000 s/f, mixed-use project in Raleigh, NC. “We work to reduce the asset and the business plan down to the basics and answer the only question that matters: is there a capital approach that would make the owner more money?” Fried says.

“That’s the specific role we play as an investment bank.”

(#14565) Reprinted with permission from Real Estate Weekly. Copyright 2007 Hagedorn Communications Corp.
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