Rebuilding An Empire - Page 3 of 6

Rebuilding An Empire

survive, Primo and Carter bought out Chesterton’s stake in their business later that year, for approximately $4 million. “For every dollar [Chesterton] invested, we gave them a $40 return,” Carter says.

With the backing of two pension fund clients, they then acquired Washington Capital, an independent asset management firm, for $40 million in 1998. Capri had only $500 million in assets under management at the time, while Washington Capital had a $2.8 billion commercial real estate loan portfolio. But the deal was made possible because one of Washington Capital’s shareholders needed to liquidate, the loan servicing systems of the two companies were compatible, and Carter had worked with both the CEO and CFO of the holding company. “The relationships were key in the execution of that transaction,” says Carter.

The acquisition of Washington Capital diversified Capri’s investments, gave it the size and scale needed to finance additional multimillion-dollar real estate projects, and provided the contacts to pursue asset management opportunities with some of the largest pension funds in the country.

Prior to Capri’s strategic alliance with CharterMac, the company generated roughly $40 million in revenues. These revenues were primarily from fee income — asset management, acquisition, and loan servicing fees — produced by:

Purchasing core investment properties on behalf of separate account clients, with initial yields of 6% to 7%.

Originating mezzanine loans that had borrower pay rates of 7% to 11% and overall investment returns of generally 13% to 15%.

Completing first mortgage acquisition, renovation, and construction loa
ns as a Fannie Mae DUS lender and as a seller/servicer for Freddie Mac and the FHA. Interest rates on these five-to 10-year loans ranged from 6% to 10%.

The strategy of acquiring firms that already had sizeable assets and standing in the industry allowed Capri to build a $5 billion mortgage banking portfolio while it benefited from the phenomenal growth in mortgage lending from 1997 to 2004.

Just as he navigated Capri into the mortgage banking business at the right time for maximum gain, it appears Primo timed his exit from the business just right as well. Frank Nothaft, chief economist for Freddie Mac, says the red-hot market for mortgage loans has slowed significantly as homeowners are reluctant to refinance at higher interest rates. He says originations dropped from $3.9 trillion in 2003 to $2.7 trillion in 2004, with 2005 estimates at $2.6 trillion. “Refinance volume is down so much that overall lending volumes are down,” says Nothaft. “What we are looking at in 2005 is a market that is something on the order of 33% smaller than 2003 — that’s the total market, refinancing and home purchase lending.”

Shedding Capri’s $5 billion mortgage loan portfolio was the first step toward repositioning the firm for future growth. In the deal, CharterMac’s mortgage banking arm, PW Funding Inc., was merged with Capri’s mortgage banking operation, Capri Capital Finance, to form the new CharterMac Mortgage Capital, which manages more than $9 billion in assets. The new entity is 100% owned by CharterMac, and Carter is CEO. The deal also allows the