FORMER NOMURA BANKER PENNER MAPPING THIRD REAL ESTATE COMEBACK

Ethan Penner, the former head of mortgage finance at Nomura Securities International Inc. and once among Wall Street's highest paid executives, is planning his next act.

Dubbed the "rock and roll banker" for hosting an annual bash where entertainers such as Elton John and Don Henley performed for clients, Penner said he sees an opportunity in real estate money management.

"There is a tremendous amount of money that wants to be exposed to real estate, and there aren't enough managers," Penner said at a New York conference.

Penner, who made $1 billion of loans a month at Nomura and earned about $120 million over his last three years with the firm, has had some missteps since he left the Japanese investment bank in 1998. A business he started to help property owners defer taxes by reinvesting capital gains from sales into new real estate was shut down in early 2000. He also made some losing venture capital investments and was vice chairman for financial services for eTime Capital Inc., an online collection service backed by the Mayfield Fund that went bankrupt.

"It was a vintage problem," Penner said of his venture capital investments. " Vintage 1998 deals were all bad."

He has had more luck as a restaurateur. Ana Mandara, a French- Vietnamese-style restaurant he, actor Don Johnson and other investors started in San Francisco, remains open.

Last Comeback

Penner's most recent real estate comeback began in March when he joined commercial real estate broker and manager Kennedy-Wilson Inc. as president. He left six months later.

The Beverly Hills, California-based company's shares didn't benefit from Penner's hiring and fell 20 percent by the end of July. It was then that Penner realized he couldn't build the type of business he envisioned at a public company when the stock market was sliding.

"What had attracted me by July had become a liability," he said. Kennedy-Wilson Chief Executive William McMorrow didn't return requests for comment left with his office.

Now based in San Diego, the native New Yorker remains linked in investors' minds with Nomura.

Penner started the firm's real estate lending business in 1992 when the U.S. property market was mired in a slump and few banks were willing to lend to developers. He convinced Nomura that real estate was better credit than other investors believed and that loans would be repaid as the economy improved. With Penner leading the way, Nomura would also lend more relative to a project's value than other financial institutions, gaining the loyalty of borrowers.

Rare Combination

"It was a rare coming together of institutional capital with an entrepreneurial mindset," said Penner, who was 32 at the time. "We were all pretty young and allowed to be somewhat of a bunch of rebels and push conventional wisdom."

Penner was right, and real estate snapped back. Nomura provided more than $30 billion in financing to developers and investors. Nomura would then package the loans as securities and sell them to investors as commercial mortgage-backed securities, a business Penner helped pioneer.

"There was a credit crunch and Penner was solving it," said John Levy, head of a real-estate investment banking firm John B. Levy & Co.

Trouble came in 1998 when Russia defaulted on its debt, causing investors to flee to the safety of U.S. Treasury securities. That made it hard for Nomura to package and sell its mortgages at a profit.

In October 1998, one month after Penner left, Nomura disclosed a half-year loss of $1.16 billion, about 70 percent of it related to the mortgage business.

Too Young

"We were all just too young," Penner said. Things "probably came undone because of that inexperience."

Still, Nomura's losses were "largely temporary," he said, because the company was just following accounting rules that made it value the assets at the market rate. When the market turned around, the assets rose in value, he said.

"The good thing is that over time the strategy" was borne out, he said.

Now, Penner said the opportunity lies in making real estate investments, not mortgages.

"With Warren Buffett saying to expect 6 percent annual returns for the next 20 years in stocks, a 6, 7 or 8 percent current coupon before price appreciation in real estate looks pretty good," he said.