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Business/ Sports business Alt

King Penner

Elina Frumerman

Ethan Penner's company motto is "Speed, Size, Certainty." That could also describe his personality. 

Penner, commercial real estate's financier extraordinaire, possesses a lightning intellect, a confidence that borders on arrogance -- and billions of dollars at his disposal. It is a potent mix he hopes to use to pilot his new firm, Capital Company of America LLC, into a global lending powerhouse. 

With the help of Nomura Securities Co., his former employer, the 37-year-old has forsaken the Big Apple to bring his bold, successful and sometimes controversial act to the Bay Area. Penner's goal is simple yet audacious: Apply the formula he used to create a $75 billion market in commercial real estate securities this decade to other industries, like auto loans, credit-card debt and entertainment. 

"When we look at an industry, whether it be real estate, entertainment or whatever, we want to be the dominant provider of financing for that industry," says Penner casually from his perch on the 42nd floor of 101 California St. in downtown San Francisco, the company's new headquarters. 

The Nomura spin-off will be well-capitalized. Capital America is receiving $500 million in equity from its parent, plus other leveragable capital for "a balance sheet capability of almost $10 billion, which is plenty to execute our business today," Penner boasts. While Nomura will initially own 100 percent of Capital America, Penner and his staff will gradually accumulate ownership that will drop its parent's stake to as little as 25 percent. 

The upshot: Penner has found a perfect platform to amass an even larger kingdom on his own, while living the good life in sunny Marin County. 

"The Bay Area is where we choose to live. New York is where we go to make money," says Penner, who tends to make such trips on his private jet. 

The Penner way 

Raised in a modest household near New York City, but with a knack for playing among the white shoes of Wall Street, Penner is widely credited with propping up the sagging real-estate lending market back in 1993. At the time, banks and insurance companies were caught in their worst slump in decades, and had tightened the real-estate lending spigots to a trickle. Using Nomura's abundant capital, Penner made quick decisions and lent big sums -- with big results. 

His vehicle: an innovative financing structure called conduits, in which commercial real estate loans are collected into large pools, rated by credit agencies, then sliced up and sold as commercial mortgage-backed securities. 

"He had the balls to take a big bet at a time when people weren't sure about the economy," says Mark Finerman, who worked with Penner at Nomura and is now managing director of Credit Suisse First Boston's real estate finance group. "And he was 100 percent right." 

The results have been stunning: Nomura has made about $32 billion in loans the last five years. Today, the firm underwrites at a clip of about $1 billion per month. 

"In basketball, everyone wants to be like Mike," says Ben Johnson, publisher of National Real Estate Investor. "In real estate, everyone wants to be like Ethan." 

Basking in the limelight 

Like Jordan, success has catapulted Penner's paycheck into the stratosphere. His 1998 bonus check rang in at $25 million, down from $47 million the year before, according to published reports. 

But amassing a fortune helping to create the commercial mortgage-backed securities market -- expected to hit $75 billion this year -- isn't the only reason Penner has attracted klieg lights in a traditionally low-wattage industry. Penner has enthusiastically embraced the limelight, cultivating a kind of understated flamboyance. 

He is perhaps best known for throwing lavish soirees, with big-name music stars such as Elton John, Bob Dylan and the Eagles to entertain clients. Penner's showcase conferences are a nod to former junk-bond king -- and Penner associate -- Michael Milken's "predators' balls" in the 1980s. 

Penner's penchant for showmanship has included belting out a karaoke version of Steppenwolf's "Born to be Wild" on CNN to promote entertainment industry lending. Even some of his philanthropic interests have a celebrity bent. Among his favorites: the Elton John AIDS Foundation and the Walt Frazier Youth Foundation. 

"There's a hidden part of everyone that would like to be a rock and roll star," Penner said. "I'm not uncomfortable with attention." 

However, an unplugged version of the rock '' roll banker may be emerging as he nears mid-life and settles into the California Dreamin' lifestyle. Despite a career in the highest of finance and his lofty ambitions for Capital America, Penner claims he's not in it for the money. 

"My goal is to have a great life, not to amass the greatest amount of money, not to run the biggest company, not to have the most people reporting to me or sucking up to me because I'm powerful -- those things really don't matter that much," he said. 

Penner adds that all he ever wanted was financial security -- something he has achieved many times over. 

"I knew at a very young age that I didn't want to be poor ... but I never had a number in mind. It wasn't $1 million, $2 million, $10 million, $100 million or whatever the number is. I wanted financial security so I didn't have to budget, so I didn't have to go to a restaurant and look at the bill. I hate that stuff. I know budgeting, and I don't like it." 

Blue-collar beginnings 

Penner's aversion to financial constraints can be traced to his humble roots. The son of a rabbi from blue-collar Yonkers, N.Y., Penner was raised primarily by his school-teacher mother (his parents divorced when he was 8), whom he credits for instilling a sturdy belief in himself and a sense that it was all right to fail on occasion. 

"She taught me that it was OK to get Bs in school, and that it's OK if not everybody likes you," Penner says. 

His father, the rabbi, was more heavy-handed. 

"He knew nothing other than achievement orientation. One of his mantras was, `There is no greater sin than unfulfilled potential.' " 

Those words, still echoing in Penner's mind, are helping fuel his latest venture, despite his already enormous financial success. 

Unshackled from Nomura, his goal is to build an international, diversified finance company by opening up offices worldwide and expanding the asset-backed securities model he has so successfully implemented in real estate. 

Penner said Capital America's deep pockets and flat organization give it a nimbleness few competitors can match. 

"The miracle of our company is that we're an entrepreneurship with an institutional capital base." 

Despite its corporate routes, the youthful CEO said he plans to run the company with equal emphasis on fun and intensity. And Penner will continue to manage in a paradoxical style characterized by passion and insouciance. 

"I don't care at all about any one deal," he said. "My life would be great whether we did any given deal or not. If a client doesn't like you, there are a lot of others who will. At the same time, I care desperately about every single deal and every client. I am able to balance total intensity with near-total apathy and walk a fine line between the two." 

New ventures 

While real estate will remain Capital America's core business, Penner sees opportunities in areas such as auto loans, home mortgages and credit-card debt, especially in countries with less-developed banking systems. He also plans to tap other equity sources to expand his financial reach. 

But the new company's foray into one of its first niche industries -- packaging loans to the entertainment industry and then reselling them as asset-backed securities -- has been a flop. Despite Penner's heady pronouncements of $1 billion in loans by year-end, a $15.4 million loan to rocker Rod Stewart is the only business to date. Penner, typically, is undaunted. 

"We underestimated how difficult it was to pool together (comparable information on artists), and without that information there is no lending business," he said. "We will move forward on that. We don't give up." 

Friends and enemies 

While Penner's fame demonstrates that the typically arid world of real estate lending has room for star power, his act has not always received favorable reviews. 

He has been criticized for some unusual lending terms as well as for stunts like relieving himself in a stall in an occupied ladies restroom at Nomura on a dare. 

Penner brushes those criticisms aside and says that's just his way of having fun and keeping the office loose -- part of a hands-off, sophomoric management style on which he prides himself. 

Penner also offers no apology for hiring friends and family, such as co-COOs and buddies Boyd Fellows and Brian Pilcher, and his younger brother Joseph: "Believe me, if I could figure out a way to employ every person I know, I would." 

In contrast to his rock ' roll persona, Penner has lately shown signs of developing an almost new-age side as well. At Capital America's firm-wide retreat in April, he drafted a list of 10 company tenets such as, "the company must foster a sense of partnership/belonging" and, "people need to have control/ownership of their own day" -- hardly guitar-smashing material. 

Supporters maintain that's the real Penner, that the spotlight he has courted has distorted his image. Far from an arrogant Wall Street master-of-the-universe, they say he is down-to-earth, generous, engaging and inclusive. 

"The characterization of him in the media is complete bull," said Michael O'Conner, who has known Penner for 15 years and runs his own mortgage banking firm in Sausalito. "He's a conservative, straight-forward guy who likes to have fun with friends. He's made our industry fun." 

Satisfied clients heap praise on him. 

"If we had a hall of fame of people who were key in getting us to where we are today, he'd be there," says Mark Whiting, president and CEO of TriNet Corporate Realty Trust Inc., a real estate investment trust based in San Francisco. Penner helped finance the company's successful initial public offering in 1993. 

But so powerful has Penner become that people seem hesitant to criticize him. For example, a Capital America employee interviewed for this article called back in a panic about a word used to describe Penner's high-profile client marketing. The word: ploy. 

No one seems to question his eagerness to compete. 

George Wissing, an all-state basketball player and high school buddy now employed at Capital America, says "To this day he still believes he can beat me in basketball." 

Left-coast lifestyle 

So why has the Wall Street whiz kid -- now approaching middle age -- chosen the Left Coast to launch his new career? 

Penner points out that he has spent half of the past 15 years in California -- and he likes it. 

He first landed here when he took a job in Orange County at a savings and loan after graduating from New York University. He later moved to Homestead Savings in Burlingame, before joining Drexler Burnham Lambert Inc. on Wall Street. In the early 1990s, he returned to San Francisco to set up his own firm, Magellan Financial Services. 

Penner, who has taken up residence with his wife in an exclusive Marin hamlet, said the decision to build his business from San Francisco was more about lifestyle than anything else. And besides, it gives him more time to focus on family, and to pursue his other passions -- golf, the outdoors and pick-up hoops. 

"San Francisco offers an incredible balance and well-roundedness -- an approach to life that is very difficult to find elsewhere," he says. "Our corporate headquarters didn't need to be in New York." 

He still faces tough tests. One is finding the human capital to make his vision become reality. Capital America is 400 employees strong -- roughly a quarter are in San Francisco -- and growing fast. Hiring personnel to expand has been difficult. 

He also finds himself operating in a more competitive marketplace -- a marketplace he helped create -- at a time when many in the industry think the real estate cycle has peaked. 

"Today's spreads are narrower than they were before, and (Capital America) is having to move out on the risk spectrum," remarks TriNet's Whiting. "How they will execute in these new lines of business remains to be seen." 

Penner says he's up to the task. 

"Even in times of tight money, there's always financing available for the right ideas with credible people who have a good track record," he says. 

And, he emphasizes, he could leave it all behind tomorrow if it wasn't fun. Which is why these days, he seems equally committed to both his career and personal life. 

Perhaps that's why he admits, almost sheepishly, that his only true hero isn't Gandhi or Einstein, not even Gates or Milken, but a fictional character born of Hollywood: Humphrey Bogart's Rick from "Casablanca." 

"He personified everything I think I would want to be. He was powerful, understated, generous, tough, a people-person, but also human. And he ran a bar."