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Berkshire’s Berkadia Buys Hendricks & Partners

January 14, 2013 | About:
Berkadia Commercial Mortgage, the commercial real estate servicer which is a hybrid of Warren Buffett’s Berkshire Hathaway (BRK.A)(BRK.B) and Guru Ian Cummings’ Leucadia National (LUK), reported last week that it has acquired Hendricks & Partners, a multifamily investment banking company that has now changed its name to Hendricks-Berkadia.

Based in Phoenix, Hendricks & Partners is a company that advises clients on the sale, purchase and financing of multifamily real estate through its 30 offices in the U.S. Through this partnership, both parties will experience its desired expansion in client-base and services.

Developed in 2009, Buffett and Cummings formed Berkadia, betting that the U.S. commercial real estate market would rebound from its dark period when millions of homes were foreclosed and homebuyers resulted to renting, leading to stricter lending standards and loan approvals.



In this February 2012 video snippet, Buffett appears on CNBC’s Squawk Box and describes the market as a “really attractive asset class.”

Berkadia is an approved lender for Fannie Mae, Freddie Mac and HUD/FHA, and has financed various community projects including multifamily, retail, office, industrial, senior housing, student housing and manufactured housing.

"Since the company was formed back in 2009, Berkadia has been able to steadily grow its strength and presence in the commercial real estate industry," Buffet said in a statement. "We see Berkadia's acquisition of Hendricks as another significant step in the growth of their multifamily expertise and services."

Buffett’s confidence in real estate recovery runs deep. Wells Fargo (WFC), the largest mortgage lender in the U.S., remains Berkshire’s second largest holding, representing 19.4 percent of its portfolio. Buffett has also been reported last October in partnering with Canadian real estate investor, Brookfield Asset Management, through Berkshire affiliate, HomeServices, to introduce Berkshire Hathaway HomeServices, a franchise brand that will serve as a full-service residential brokerage firm.

Cummings, himself, remains optimistic about the housing economy as well. He mentioned Berkadia in his April 2012 shareholder letter, expressing that it will be a slow and steady road before experiencing large returns from that market:

“The real estate financing market remains depressed with the commercial mortgage backed security market in prolonged intensive care, the primary reason that Berkadia's book of Mortgage Servicing Rights continues to shrink. From 2010 to 2011, the portfolio principal balance shrunk from $214 billion to $190 billion.

We are not alarmed by this contraction for three reasons. First, we expected it and priced the deal accordingly. Second, we restructured the company to hopefully become the lowest cost servicing provider in the industry. Finally, Berkadia's national network of originators are beginning to refuel the servicing engine, albeit slowly.

When Berkadia originates commercial loans for sale to investors, we typically retain the servicing rights. In 2011, Berkadia originated $5.2 billion of multifamily and commercial loans, up from $4.6 billion in 2010. The majority of these loans were multifamily loans sold to Fannie Mae, Freddie Mac, Ginnie Mae or the Federal Housing Administration, with Berkadia retaining the servicing rights. The more loans Berkadia can originate, the faster it will stabilize the servicing portfolio and the better the return on our investment.

Making money from a slowly melting ice cube is hard work and the success to date is a testament to the work of Hugh Frater [Berkadia CEO] and his team. When Hugh presented a budget for 2012 with an increase in both MSRs and dividends, we did not argue. Go team!”


Leucadia National, which Cummings runs with Joseph Steinberg, currently maintains three stocks: Cowen Group Inc. (COWN), INTL FC Stone Inc. (INTL) and Jefferies Group Inc. (JEF). Typically, the investment company engages in buying distressed companies at discount prices, and then revives them, profiting from the sell.

Besides Wells Fargo, Buffett’s top holdings include Coca Cola (KO), IBM (IBM) and American Express (AXP).

To view more details about the two Gurus’ portfolios, visit Ian Cummings’ stock picks and Warren Buffett’s stock picks.

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About the author:

Dianne Tordillo
Dianne Tordillo is staff writer for GuruFocus.com. She reports on a variety of financial news, primarily dealing with investor portfolios and stock trades. Her articles also highlight insider trades, as well as the many useful features of GuruFocus.

Visit Dianne Tordillo's Website


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