America bank college loan

Byline: Matt Hudgins

Stockpiles of investment capital and strong interest in refinancing fueled a feverish demand for loans in 2003 as lenders countered tight profit margins by stepping up production. The resulting deluge of deals increased loan volumes for most participants in NREI's annual Lender Survey, none more so than Bank of America, which climbed a notch to secure the No. 1 spot in the direct lender category.

The banking behemoth financed a whopping $29.6 billion in 2003, up $10.7 billion from 2002. GMAC Commercial Holding Corp. took the No. 2 spot on the ranking of direct lenders at $22.5 billion, while Wachovia came in third at $21 billion. In the financial intermediary category, Holiday Fenoglio Fowler arranged $16.2 billion in loans to stay at the No. 2 spot behind Bank of America's $44.4 billion.

Eugene J. Godbold, president of commercial real estate banking at Bank of America, attributes his bank's sharp increase in direct lending last year to a focus on the nation's busiest markets, including Southern California, South Florida, Washington, D.C., and New York. Rather than search for mega-deals, the bank aims for a target range. "Our sweet spot really is $5 million to $200 million in a single transaction," he says.

A Flurry of Deals

The lending environment in 2003 was a stark contrast to the previous year when weak real estate fundamentals and an anemic economic recovery tempered lending volumes. Although real estate fundamentals continued to deteriorate in 2003, a more rapid decrease in interest rates reduced debt costs and boosted cash flow for most properties, says Bill Green, managing director and head of Wachovia's real estate capital markets group. "Every dollar of income was worth more than it had ever been in my career," Green says.

Mortgage bankers originated a total of $37.9 billion in commercial loans in the fourth quarter alone, according to the Mortgage Bankers Association. Volume for the year totaled $116 billion - the first time that number has broken $100 billion, says Doug Duncan, senior vice president and chief economist for the Washington, D.C.-based organization.

Unable to differentiate themselves by pricing, lenders began competing to offer the most attractive loan structures. Scott McMullin, executive managing director at Holiday Fenoglio Fowler, calls the phenomenon "offering flexibility in non-economic terms." Lenders got creative in order to win business, adding prepayment options, fixed rates on interim-term loans and options to resize loans at a later date.

"The fourth quarter of 2003 was as close as you can get to an absolute frenzy in the commercial real estate lending environment," says Ed Padilla, CEO of Bloomington, Minn.-based NorthMarq Capital Inc.

Hot to Hotter in 2004

Wachovia's Green says lending activity will be more aggressive in 2004, in part because compressed profit margins are motivating lenders to do more deals. Which product type is the most appetizing? Godbold says retail has been a favorite with lenders for several years, particularly the traditional grocery- or drugstore-anchored strip center in the suburbs. Although he sees activity in grocery-anchored centers slowing slightly in 2004, Godbold expects retail to remain a hot lending category.

Rising interest rates will cool mortgage refinancing activity slightly, but good opportunities remain, says Duncan of the MBA. Hotel occupancy is beginning to improve with increased business travel, and apartments will improve over the next year and a half as rising interest rates slow the migration to homeownership. The first-quarter apartment vacancy rate registered 6.2%, reports Torto Wheaton.

Large loans have increasingly focused on fixed-rate financing, though a handful of investors are still opting for floating-rate loans near LIBOR (London InterBank Offered Rate), the benchmark for short-term lending. In mid-April, the one-year LIBOR rate was pegged at 1.53%.

The volume of business among mortgage bankers this year is already outpacing 2003 levels. Holiday Fenoglio Fowler arranged a handful of loans in 2003 at or above the $300 million mark, but surpassed that ceiling this year with two $500 million loans and one of the best quarters in the company's history.

NorthMarq and Philadelphia-based Legg Mason Real Estate Services, which merged in November, originated $7.5 billion last year. The company had projected $7 billion this year, assuming the market wouldn't sustain last year's activity level. But NorthMarq's Padilla says a stellar first quarter has improved his outlook for 2004.

"Incredible activity seems to be continuing, and we are well ahead of last year's pace at this point," Padilla says. "Our current production for the year, even with a slowdown, will likely exceed $8 billion."

NREI's Top 40: The Biggest Lenders and Intermediaries

THE FOLLOWING RANKINGS are based on responses to NREI's Top Lender Survey questionnaire and reflect total dollars financed or arranged in commercial real estate during the 2003 calendar year.

Listings are presented in three parts. The first listing includes firms financing direct loans, credit lines, CMBS lending and other forms of direct investment to the industry. The second listing ranks financial intermediaries, including mortgage brokers and financial firms that arranged or facilitated transactions during 2003. In instances where companies utilized their own balance sheet to close loans, or a line of credit to warehouse loans prior to securitization or sale in the secondary market, that volume was not considered production on an intermediary basis. For example, conduit lending and agency lending constituted direct lending for the purposes of this survey. The third listing includes government-sponsored enterprises Fannie Mae and Freddie Mac.

While NREI made every attempt to ensure the final survey was comprehensive, some companies chose not to participate.

Direct Lenders

1. Bank of America/Banc of America Securities LLC 100 North Tryon St. Charlotte, NC 28255 E-mail: commercialrealestate@bankofamerica.com Web site: www.bofa.com Officers: Eugene J. Godbold, President, Commercial Real Estate Banking; Ron D. Sturzenegger, Managing Director/Group Head of Real Estate & Lodging Investment Banking; George G. Ellison, Managing Director/Group Head of Global Structured Finance/ABS & MBS Finance Financed in 2003: $29.6 billion

2. GMAC Commercial Mortgage Corp. 200 Witmer Rd. Horsham, PA 19044 Phone: (215) 328-4622 Officers: Robert D. Feller, CEO; Scot B. Barker, President/COO; Thomas P. MacManus, President, North American Operations; Barry Alan Moore, EVP Financed in 2003: $22.5 billion

3. Wachovia 301 South College St. Charlotte, NC 28288 Phone: (704) 383-6315 Fax: (704) 374-6345 E-mail: brett.smith@wachovia.com Web site: www.wachovia.com Officers: Bill Green, Managing Director; Mike Slocum, EVP; Brett Smith, Managing Director; Jim Pierpoint, VP Financed in 2003: $21 billion

4. Morgan Stanley 1221 Avenue of the Americas New York, NY 10020 Phone: (212) 762-6601 Fax: (212) 507-4139 E-mail: james.flaum@morganstanley.com Officers: John Westerfield, Managing Director; James Flaum, Managing Director; Steven Stern, Managing Director Financed in 2003: $12 billion

5. KeyBank Real Estate Capital 127 Public Square Cleveland, OH 44114 Phone: (888) KEY-2221 Officers: George E. Emmons Jr., EVP/National Manager; John E. Case, EVP/National Sales Manager; E.J. Burke, EVP/Director Commercial Mortgage Lending; Laurie Masters, VP/Marketing Director Financed in 2003: $11.8 billion

6. Lehman Brothers 399 Park Ave., 8th floor New York, NY 10022 Phone: (212) 526-7000 Officers: Ken Cohen, Managing Director Financed in 2003: $9.6 billion

7. CSFB/Column Financial 3414 Peachtree Rd. Atlanta, GA 30326 Phone: (404) 239-5300 Fax: (404) 239-0419 Web site: www.columnfinancial.com Officers: Robert Brennan, Managing Director; Kieran Quinn, Chairman; Greg Golden, President Financed in 2003: $8.4 billion

8. Prudential Mortgage Capital Co. 100 Mulberry St., 8GC4 Newark, NJ 07102 Phone: (888) 263-6800 Fax: (973) 367-8210 E-mail: pru_mortgage_capital@prudential.com Web site: www.prudential.com/mortgagecapital Officers: David A. Twardock, President; Ann Hambly, President, Prudential Asset Resource; David M. Durning, Managing Director, Originations; Amy E. Rubin, Director, Marketing Financed in 2003: $5.6 billion

9. CIBC World Markets 622 Third Ave., 8th Floor New York, NY 10017 Phone: (212) 667-5601 Fax: (212) 667-5600 E-mail: michael.higgins@us.cibc.com Web site: www.cibcwm.com/ref Officers: Michael Higgins, Managing Director; Barrie Wood, Managing Director Financed in 2003: $5.5 billion

10. Goldman, Sachs & Co. 85 Broad St. New York, NY 10004 Phone: (212) 902-1000 Fax: (212) 902-3000 Financed in 2003: $4.8 billion