In this interview with Ken Frieze, Chief Executive Officer of Gordon Brothers, ABL Advisor’s publisher Michael Toglia learns more about the firm’s new partnership with Canada Pension Plan Investment Board (CPP Investments), how the firm has expanded its go-to-market strategy globally to include what Frieze calls the “hat trick” of service offerings, and how the current economic environment will affect the commercial lending sector.

Michael Toglia: Ken, thanks for joining me again. On April 21st, you announced the receipt of $300 million in financing from CPP Investments, increasing the firm’s capital base to over $1 billion. This financing builds on Gordon Brothers’ partnership with Stone Point Capital. Please tell us about these partnerships.

Ken Frieze: We decided to bring on Stone Point Capital as a partner in 2018 to help us grow, and it certainly lived up to every expectation and more. As a financial services-focused investment firm, they understand how to underwrite balance sheets, which is so much of what Gordon Brothers does. We have grown the business quite rapidly together since they made their investment. For the next capital-intensive phase of growth, bringing on CPP Investments, the largest pension authority in Canada, as another institutional partner made a lot of sense.

CPP Investments has $550 billion under management and is looking for firms like Gordon Brothers to invest their capital for the long term. We wanted long-term capital to fuel the growth of our capital business, including lending, investing and sale leasebacks, which is the fastest growing part of our business today.

Toglia: Does it surprise you the capital business has become the fastest growing part of the business?

Frieze: No, the potential has been there all along. For the first time in our history, we have the full trifecta, or “hat trick,” if you will, of appraisal, disposition and capital working together on an integrated basis.

We've been in the lending and investing business for over 20 years and learned from past experiences that what we call “alignment and fluidity” is so essential in our business. These partnerships with Stone Point and CPP Investments allow us to be nimble, move rapidly and serve our clients with customized liquidity solutions on our own integrated platform.

Toglia: Gordon Brothers generated over $700 million in originations globally in 2021. Please tell us about this part of the Gordon Brothers business and your strategy to serve the needs of companies in “special situations.”

Frieze: We work with many companies in special situations; however, we’re also doing growth financings. We’re not competing with Bank of America, Wells Fargo, JPMorgan Chase, PNC or other large banks. We are their partners. We're helping them by adding extra liquidity and going deeper into the loan-to-value ratio so they can structure financing they are most comfortable doing.

In many situations we are the best fit for a borrower because we understand the industry they are in, we can provide the right financing structure, or the borrower knows we understand their business. We can be extremely patient capital because if we ever had to own the collateral, we know what to do with it. Borrowers like that we have the perspective, the patience and an understanding of the sector and the assets.

Toglia: Gordon Brothers has a unique ability to leverage the company’s appraisal and disposition expertise with the underwriting of financing facilities. Why do companies seek this additional service from Gordon Brothers when there seems to be an endless amount of liquidity available from traditional bank and non-bank lenders both domestically and globally?

Frieze: We're growing quite rapidly at time when outstandings are quite low because of the power of bringing capital, appraisal and disposition services together. We can step into difficult situations requiring rapid decision making and deep understanding of the collateral.
 
Toglia: Are you sector agnostic or are you focused primarily in specific sectors?

Frieze: Our heritage is retail, and we do everything under the sun in consumer products, from traditional brick-and-mortar transactions to subscription services to digital commerce.

We also have a leading brand business as we’re brand investors, brand lenders and brand appraisers. We understand the value underlying brands. That's reasonably unique to Gordon Brothers. The newest part of what we're doing is real estate investments: mortgages, bridge financing, pre-construction lending and of course, buying opportunistic real estate. But the big market for us is in the commercial and industrial space.

We cover everything in commercial and industrial globally, which includes hundreds, if not thousands, of subsectors from automotive and transportation to agriculture, to food processing, to aerospace.

Toglia: You talked about global. I'm going to touch on that for a moment. Tell us a bit about the international side and how it plays for Gordon Brothers.

Frieze: Our international business is growing rapidly. We've built it out over the last 25 years, and today we do business in over 40 countries and have over 30 offices around the world.
 
Our business is driven from the three major geographies: North America, the U.K. and Europe, and Asia Pacific. We’ve been in Japan for nearly 15 years and our fastest growing geography is Australia. We’ve also covered Indonesia, Borneo, South Africa, Brazil, the Middle East and a few other countries.

Toglia: Companies in the U.S. and around the world are experiencing supply chain issues, rising interest rates, geopolitical risks, and in the U.S., inflation is rising rapidly. What do you see in terms of demand for appraisal and disposition services over the next year and into perhaps 2024?

Frieze: That’s a very good list, and I also would add the effect of government subsidies and stimulus, which is drying up, to your list. Now is the time for private capital to step in for fading government capital. Both companies and consumers have now spent that pandemic stimulus, which caused great disruptions.
 
On the appraisal side it was challenging during the pandemic as our appraisers could not go to many client locations, but now we're back to doing on-site inspections. Additionally, there weren't a lot of borrowings during that time because there was so much liquidity in the market, and that's changing too. We're seeing more people coming to us for appraisal renewals and new appraisals.

With our dispositions, it's been consistent in the commercial and industrial space. Retail has been slower because retailers were provided Paycheck Protection Program money and were short on inventory because of supply chain issues. Consumers had pent up demand causing wave of profitable quarters for retailers. Even retailers that were struggling pre-pandemic came out strong on the other side.
 
Toglia: Things are going well Ken, but there must be some things that you as the leader of the company are concerned about. Can you share your thoughts?
 
Frieze: We have dealt with many disruptive events during our entire 119-year history. We've seen up and down cycles in individual sectors and the overall economy, and we're prepared for those cycles.

In terms of running a financial services company like Gordon Brothers, having a stable and long-term employee base is critical. We have been very fortunate with average tenure at over a decade.

In addition, having a capital base of over $1 billion brings with it a great deal of responsibility. We have really improved our credit capabilities, and we are a highly disciplined shop when it comes to business origination, credit underwriting, portfolio structuring and, when necessary, workout. We follow best-in-class and best-practice disciplines throughout the process. We've made those upgrades and it helps me sleep better.