Bank Mergers Impact Commercial Real Estate

Hartford?The latest round of bank mergers put the commercial real estate market at a reduced advantage. It causes the number of sources fighting to serve borrowers to shrink, with each competitor by its larger size made better able to withstand competition.

At $70 billion, the merger between Citicorp and Travelers Group is believed to be the biggest ever. Although the impact on the real estate divisions remains to be determined, the Travelers Real Estate Group has been an active lender and investor when it can get an appropriate risk-adjusted return, but it has purposely avoided setting any targets for debt and equity business, chief real estate officer Susan Lewis told CPN in February. A spokesperson for Travelers said the company held $691 million in mortgage loans and $95 million worth of commercial property at the end of 1997, a decline from year-end 1996, when the firm held $1 billion in loans and $157 million in property. Travelers is also the parent company of Salomon Smith Barney, which lead managed $1.9 billion in REIT equity last year, co-managed $11.6 billion and ranked as the fourth-largest investment bank in terms of real estate-related M&A deals. Representatives of Citicorp and its real estate group did not return calls, and no current information on the bank was available at press time.

That announcement was followed by those between Banc One Corp. and First Chicago NBD Corp. and between BankAmerica Corp. and NationsBank Corp. While Banc One/First Chicago was much smaller at $29 billion, BankAmerica/NationsBank nearly matches the earlier deal at $60 billion in swapped stock. It also would create a commercial real estate giant, with a combined mortgage origination volume last year of about $11.3 billion.

"It combines two organizations that have been active in the real estate market," said NationsBanc Montgomery Securities L.L.C. managing director James Naumann. "We're very, very excited about future opportunities."

Both banks have been very active in loan origination and related services. NationsBank's real estate banking group originated just under $7 billion last year, while its capital markets division arranged, structured and placed $9 billion worth of product. In addition, its commercial conduit has grown to nearly $2 billion. BankAmerica, for its part, had a commercial mortgage volume of $4.3 billion last year, with commercial mortgage services origination of $600 million and $4.2 billion worth of syndication.

Both also incorporated investment banking services last year, NationsBank with the acquisition of Montgomery Securities and BankAmerica with Robertson Stephens. NationsBank has worked to integrate those services to provide a multi-service equity/debt lender, according to Naumann. In the first quarter of 1998, it closed seven equity transactions as a result of relationships the bank previously held, in addition to Montgomery Securities' own equity transactions.

?Craig Bloomfield, Senior Editor & Suzann D. Silverman, Editor-in-Chief