Meridian Capital shifts focus amid ongoing investigation

Several months after leading debt broker Meridian Capital Group was effectively blacklisted by Fannie Mae and Freddie Mac, the firm is making changes to move forward. Key changes included replacing key leadership positions within the firm and implementing more stringent protocols and controls to ensure the accuracy of clients’ financial data. It’s unclear how long the investigation into Meridian will take, but the game plan moving forward is clearly geared toward avoiding future investigations.

The trouble for Meridian began last fall when it was revealed that major multifamily lending agency Freddie Mac was investigating Meridian Capital Group over one of the deals the company made for the agency. According to published reports, the investigation focused on certain loan origination credit information associated with a broker at Meridian who was placed on leave during the investigation. The brokerage firm was also barred from doing any deals through lenders with Freddie Mac for the duration of the investigation. This was a major blow to Meridian, one of the largest commercial mortgage brokers in the country. In 2022, the company was named Fannie Mae and Freddie Mac’s top originator for the seventh year in a row by Commercial Observer.

Founded in 1991, Meridian grew into a top player in commercial real estate finance with additional investment sales and retail leasing businesses. In 2018, the same year the company launched its retail leasing platform, Meridian was named the leading commercial real estate loan broker in New York City by The Real Deal, with $15.2 billion originated on 1,657 loans in 2017. The company’s rising numbers – the second-place firm had $5.8 billion originated on 15 transactions – were driven by its multifamily mortgage lending business. In early 2021, Meridian announced a new partnership with global investment management firm Barings, under which Meridian acquired the assets and liabilities of affiliate Barings Multifamily Capital. The new venture involved the two companies co-founding an origination platform called NewPoint Real Estate Capital. The new platform would be led by David Brickman, who was replaced as CEO of Freddie Mac to serve as CEO of NewPoint.

The company was still doing well through 2023. Meridian brokers had recently arranged financing for Empire Capital and partners’ $320 million acquisition of 1330 Sixth Avenue, a Midtown Manhattan office tower. And despite a wave of layoffs in the spring that reportedly saw 5 percent of employees laid off, mostly in the debt and investment sales teams, Meridian was still posting solid transaction numbers. But in November, Freddie Mac began investigating Meridian over allegations that brokers at the company had falsified client financials to obtain larger loans. This came as a shock to many in the industry, especially given that Freddie Mac’s former CEO had left the company just a couple of years earlier to join Meridian’s new platform at Barings. (Brickman left Meridian around the time the investigation broke).

Meridian is not the only company under investigation. Fannie, Freddie and federal housing authorities are reportedly conducting extensive investigations into the commercial mortgage market. In April of this year, as the investigation into Meridian was still ongoing, Freddie Mac announced a new set of rules designed to stamp out fraud. The guidelines updated the rules governing mortgage transactions and will increase the number of home inspections at multifamily properties with Freddie Mac loans and require additional documentation to confirm tenants’ rent payment amounts. The new guidelines were included in a new guide for multifamily sellers and servicers released by the government-backed entity two months ago.

Meridian has long billed itself as a high-volume firm. On its website and in other marketing materials, the firm bills itself as “America’s most active dealmaker.” But the long-term impact of the pandemic and a tough economic environment have significantly reduced its deal volume. This focus on deal volume led Meridian to hire a large number of brokers. When the market slowed, layoffs occurred. Then, Freddie Mac’s investigation of Meridian last fall was a major blow to the firm, considering how much of its strength lies in its refinancing deals with small building owners. With Freddie and Fannie pausing their work with Meridian while the investigation continues, the brokerage is forced to focus on other areas of its business to stay afloat.

Part of the new strategy is hiring new executives to strengthen controls at the company. In April, Meridian named Brian Brooks as its new chairman and CEO. Brooks previously served as acting comptroller of the currency, replacing Meridian co-founder Herzka, who stayed with the company as senior chairman. He told the Wall Street Journal that under his leadership, the company may have more guardrails and protocols to ensure accurate financial data and that it will not tolerate shortcuts. It will “fire brokers who cut corners.” The company’s most recent hire was the appointment of Melissa Martinez as Meridian’s first chief risk officer. Martinez, who previously worked at real estate data service provider CoreLogic, is set to join the company this month. “When you think about the mortgage broker industry today, there really are no standards,” Martinez said. “This will be the very first risk capability established within the industry.” The new leaders have experience rescuing struggling companies: Both Martinez and new CEO Brooks were part of a team that took over California-based bank IndyMac after it went bankrupt during the 2008 financial crisis. That team also included former Treasury Secretary Steven Mnuchin.

While Meridian is trying to strengthen the company with new leadership and a tighter framework for its processes to avoid risk, it is still grappling with the fallout from the Freddie Mac investigation. Earlier this month, the company laid off brokers in its New Jersey office, describing the move in a statement as one that would make the company a “leaner and more efficient” company. Herzka, who is still at Meridian in another role, sounded optimistic at a real estate event in New Jersey in April. While acknowledging that the company was going through a rough patch, he said Meridian’s business was still strong and that the company closed $4 billion in new business in the first quarter with nearly 100 lenders across the country. By late June, Meridian’s social media presence was buzzing, with frequent updates about completed transactions and retail space available for lease. Armed with new executives focused on tightening protocols and minimizing risks, the brokerage is trying to keep its business stable during the investigation, however long it may last.