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Guest: Josh Zegen, Co-Founder and Managing Principal, Madison Realty Capital
Josh Zegen is Co-Founder and Managing Principal of Madison Realty Capital. The firm is one of the biggest names in real estate private credit.
Zegen started the firm in 2004 with a $10 million bet. Since then, Madison Realty Capital has closed tens of billions of dollars in debt and equity deals.
Along the way, the firm has weathered the Global Financial Crisis, the pandemic, and other market swings.
Today, Zegen looks back at how private credit grew from a nonexistent category in 2004 into an institutional asset class. He also explains where he sees distress today.
In particular, Zegen points to 2021-vintage construction loans and oversupplied Sun Belt multifamily markets. He also breaks down how back-leverage and recap deals work.
Finally, Zegen explains how Madison decides when to work with a borrower and when to foreclose.
Key Takeaways
Private credit didn’t exist as a category when Zegen started MRC in 2004 — it was simply the deals banks wouldn’t touch.
“The word private credit literally didn’t exist. It was everything at that time a bank didn’t want to do. It was more special situations. It was time-sensitive deals.”
Josh Zegen, [[2:03]]
Today’s distress is concentrated in a specific vintage: construction loans underwritten right before rates spiked.
“A lot of the distress we see are 2020, ’21, ’22 originations that originated before the world changed from an interest rate standpoint — a lot of the deals are construction that started in ’21 that were underwritten at low debt yields.”
Josh Zegen, [[24:38]]
A real Miami River recapitalization shows how MRC resets troubled construction loans with fresh equity rather than foreclosing.
“We had a deal in Miami River — a 650 unit apartment building. We did a loan in 2021 for construction, about $350 million to build that project. We closed on a recap of the deal. New equity came in with about $90 to $100 million, paid us down to $325 million. We reset the debt.”
Josh Zegen, [[27:12]]
The institutional-caliber borrower base private lenders serve today only fully formed over the last decade-plus.
“We were a pioneer in the business — the institutional caliber of borrowers really came about over the last 10 to 12 years.”
Josh Zegen, [[29:20]]
Zegen lays out exactly how private credit pricing is structured across the risk spectrum today.
“If it’s transitional lending, it’s 250 to 350 over. If it’s construction or renovation whole-loan stretch senior, it’s somewhere between 350 and probably 550 over.”
Josh Zegen, [[23:26]]
