Filling a Hole

Article excerpt

Commercial mortgage banking has witnessed a frenzy of consolidation and acquisition activity over the past few years. Some big players are still looking to plug holes in product offerings or geographic reach. Then there is the matter of exit strategies for aging boomer owners.

On the second day of this year, Northmarq Capital Inc., Bloomington, Minnesota, closed a deal it had been working on since the prior year-the acquisition of Baird & Warner Real Estate Capital LLC, Chicago. That was Northmarq's sixth acquisition since 2000, not counting the minority interest it bought in Omaha, Nebraska-based AmeriSphere Multifamily Finance LLC. * Considering how active Northmarq has been even up to somewhat recently, it's surprising that when asked if the commercial real estate finance industry was still consolidating, the company's chief executive officer, Edward Padilla, answered, "no." But, he quickly added, the industry has already "consolidated," strongly accenting the past tense of the verb. * There continues to be some debate as to whether the commercial mortgage banking sector is still undergoing a maturation phase in which smaller, independent shops are being acquired by bigger players-or if this period of consolidation, as Padilla suggests, has finally come to a close. * From the mid-1990s through 2005, a host of small, entrepreneurial mortgage banking firms was acquired by big banks, insurance companies and even other mortgage banking companies. The driving cause of much of this activity was the need by the bigger firms to become stronger in multifamily-and that meant acquiring a company already either a Fannie Mae, Freddie Mac or Department of Housing and Urban Development (HUD) lender. Historically, many of those were independent mortgage banking companies. * That roundelay may have finally come to a halt as deal-making last year slowed to a trickle, with just a handful of major announcements, each engendered by a company-specific necessity.

Diversity 2006

The need to fill a gap of product offerings was the primary reason for one of the biggest sector deals last year-the acquisition of Reilly Mortgage Group, McLean, Virginia, by Wells Fargo & Co., San Francisco.

"We are a full-service financial service corporation and there was a hole; we didn't have access to products such as Freddie, Fannie and FHA [Federal Housing Administration]," says Jim McDevitt, executive vice president and senior managing director of Wells Fargo Commercial Mortgage, Houston. "Reilly provided the multifamily avenues that we didn't have."

A lender can't be in multifamily today without using agencies as part of the process, McDevitt adds. "Yes, CMBS [commercial mortgage-backed securities] is very competitive, but there are some borrowers [that] for varying reasons want all options available to them. There are strengths and weaknesses to all financing programs, so if you are going to deal with sophisticated multifamily borrowers you have to offer all the options available."

Wells Fargo, as McDevitt notes, "got involved" in commercial mortgage banking back in 2001 with the acquisition of Birmingham, Michigan-based Bloomfield Acceptance Co. and its affiliate, Bloomfield Servicing Co. A. year later, Wells Fargo followed that deal with the purchase of Minneapolis-based Towle Financial Services/Midwest Inc.

Asked if Wells Fargo was still in the market for acquisitions in the commercial real estate finance sector, McDevitt didn't answer directly. "There is con-stant pressure to grow and a lot of liquidity in the marketplace," he says. "We will do what we need to do to satisfy our customer needs. I don't think we will ever be where we want to be. Wells Fargo will to continue to improve and try to grow."

Finding partners and filling holes

Probably the most idiosyncratic deal of last year was the acquisition by Toronto-based FirstService Corporation of a majority interest in Chicago-based Cohen Financial LP. …