Magazine article American Banker

Bank of Boston Exec Bullish on Commercial Realty Pools

Magazine article American Banker

Bank of Boston Exec Bullish on Commercial Realty Pools

Article excerpt

By creating a pool of commercial mortgages that will be convened to bonds, Denise Delaney, division executive of the Bank of Boston's new Real Estate Capital Markets group, is keeping both her bank and herself on the cutting edge of real estate finance.

"This is going to be a very big business, and if we don't stay in front, we'll lose our customer base," said Ms. Delaney, a former Bankers Trust New York Corp. official who joined Bank of Boston in 1989.

Next year, Ms. Delaney, a division executive since 1991, expects to originate, underwrite, and sell to Goldman, Sachs & Co. about 100 mortgages, totalling $250 million, at par. Each mortgage will be in the $750,000-to-$10 million range. Ms. Delaney's group will service the mortgages, which will be made on multifamily, retail, and industrial properties.

Goldman, for its pan, expects to market about $500 million in such bonds in 1995 as pan of a new business line. It says it expects to eventually have three other banks supplying mortgages to its program.

Barnett Banks Inc. and NationsBank Corp. are among the commercial banks forming conduits similar to Bank of Boston's. Further competition is expected from insurance and securities companies.

Commercial mortgage conduits are similar to the more familiar residential mortgage-backed securities programs of the Federal National Mortgage Association, the Government National Mortgage Association and the Federal Home Loan Mortgage Corp.

A Refinancing Dilemma

Bankers hope such conduits will be the answer to a problem pondered in real estate circles since 1990: How to refinance the $300-to-$500 billion in commercial mortgages that are maturing between 1994 and 1996.

Eventually, most long-term commercial mortgages are expected to wind up in securities. For the Bank of Boston, moving from traditional, asset-holding mortgage business into this new arena will not mean major changes in its portfolio, said Ms. Delaney.

"I would say that assuming the bank stays the same size, our originations will roughly double over the next five years," she says. "Our real estate business won't change as a percentage of total assets, though the percentage of originations to held assets will." Ms. Delaney declined to be specific about the proportion of originated to held assets. Bank of Boston's 1993 mortgage underwritings were $1.8 billion, $1.2 billion of which were new originations, she said.

Strategically, the conduit business will allow Bank of Boston to match its maturities by limiting originations for its own account to 3-to-5 year terms, and securitizing long-term debt, while reducing its outstanding portfolio of loans.

An added plus: Fewer mortgages on the books means lower required risk-based capital. …

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