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Mergers Reshaping Major Players in CRE Lending
www.costar.com | 2013-12-23 16:54
Following the maxim, “If you can’t beat ‘em, join ‘em,” commercial real estate lenders have decided that mergers and acquisitions offer one the fastest ways to expand their CRE loan portfolios just as CRE fundamentals continue to rebound and competition for borrowers heats up.
Bank of the Ozarks Inc. is a great example. The Little Rock, AR-based $4.7 billion bank holding company this week announced its 10th merger in the last three years, agreeing to buy OmniBank, a subsidiary of Bancshares Inc. of Houston.
The deal will add another $120 million in CRE loans to Bank of the Ozarks' portfolio, which has nearly doubled in that three-year timeframe to $2.39 billion, with $459 million of that growth occuring this year.
Also in Texas this week where energy and real estate are leading an economic rebound, East West Bancorp Inc. acquired MetroCorp Bancshares Inc., parent of MetroBank and Metro United Bank.
MetroCorp operates 18 branches under its two subsidiary banks and holds total loans of $1.2 billion, $950 million of which are tied to commercial real estate as of Sept. 30.
“This is a strategic merger that will significantly increase East West’s presence in Houston and allow entry into the Dallas market,” said Dominic Ng, chairman and CEO of East West. “MetroBank and Metro United Bank are both community banks with an attractive base of core retail and commercial customers and strong branch networks.”
Also, last summer, Union Bank acquired PB Capital Corp.’s institutional commercial real estate (CRE) lending division. The acquisition, expands Union Bank’s CRE presence in the U.S. and provides geographic and asset class diversification.
Union Bank’s Real Estate Industries Group will manage from New York City the approximately $3.5 billion in loans outstanding on properties in major metropolitan areas across the U.S. that were previously held by PB Capital’s CRE lending division.
Multifamily Lending Driving Growth
While lenders typically to use M&A deals to expand into new geographies, acquiring financial institutions are also looking to quickly grow their multifamily portfolios.
Pillar Financial, an affiliate of Guggenheim Partners, plans to acquire Cohen Financial a national commercial real estate capital services company and an originator of commercial real estate debt and equity transactions. Pillar Financial offers multifamily and commercial loan products nationally.
The transaction will enable Pillar Financial to expand its product offering, geographic footprint and borrower access. Additionally, Pillar said the deal will enhance its servicing and asset-management capabilities.
Also last month, Capital One Financial Corp. completed its acquisition of Beech Street Capital, a privately held, national originator and servicer of Fannie Mae, Freddie Mac and FHA multifamily commercial real estate loan.
Beech Street originated approximately $4 billion in loans in 2012, making the company the sixth largest agency originator in the country. Beech Street services a loan portfolio of approximately $10 billion and boosts Capital One- into the ranks of the top five multifamily originators nationwide.
“This marks the beginning of an exciting time for Capital One’s commercial real estate business,” said Rick Lyon, head of commercial real estate banking at Capital One. “The combination of Capital One’s multifamily business and Beech Street will significantly expand our reach in the market and enable us to offer a full range of lending solutions and other banking services.”
In other big deals recently, Wilshire Bank, a Los Angeles-based community bank with a focus on commercial real estate lending, completed its acquisition this past month of Saehan Bancorp, a competing California bank serving multi-ethnic borrowers and small businesses. Wilshire serves similar borrowers across most major U.S. markets.
Also earlier last month, United Financial Bancorp and Rockville Financial approved a definitive merger agreement. The merger will combine their operations across neighboring states, in Eastern Connecticut and Western Massachusetts, and increase Rockville’s commercial real estate lending across both states.
Increased Scale, Interest Rtae Risk Seen as M&A Catalysts
Several catalysts are emerging that are prompting an increase in lender merger and acquisition activity, according to Fitch Ratings.
The factors for growth include: a strategic focus on growing loans with a view toward mitigating potential interest rate risk; a perception that sufficient scale is required to manage higher regulatory and compliance costs; and what Fitch calls fatigue among the managements and boards of potential sellers.
In Fitch's opinion, increased cost structures, growing economies of scale that benefit larger institutions, a desire for growth and intense competition for new loans have spawned an environment expected to promote increased banking M&A.
Fitch considers lenders with high cost structures and lower capital ratios than peers as likely targets of consolidation. And banks with operations in growing geographic markets, a presence in asset classes that performed well through the credit crisis have been the most likely to be acquired.
The merger activity this year is really changing who the largest bank lenders are in commercial real estate arena. One would expect to see the nation’s largest banks such as JPMorgan, Bank of America and Morgan Stanley on the list but large regional and community banks have been able to keep pace largely due to mergers and acquisitions as with Capital One.
Bank, City, State, Increased Amount of CRE Lending Since YE 2012
1. JPMorgan Chase Bank, Columbus, OH, $4.62 bil.
2. Union Bank, San Francisco, CA, $3.39 bil.
3. Bank of America, Charlotte, NC, $2.94 bil.
4. Flushing Bank, New Hyde Park, NY, $2.33 bil.
5. Signature Bank, New York, NY, $1.83 bil.
6. First Republic Bank, San Francisco, CA, $1.48 bil.
7. Capital One, Mclean, VA, $1.34 bil.
8. Morgan Stanley Bank, Salt Lake City, UT, $1.31 bil.
9. New York Community Bank, Westbury, NY, $1.28 bil.
10. People's United Bank, Bridgeport, CT, $1.17 bil.
Source: FDIC
In a white paper published by BankDirectors.com, John Gorman, a partner in the law office of Luse Gorman in Washington, DC, noted that while size and geography matter, investment bankers and attorneys say more investors are beginning to focus on the future earnings potential of M&A deals, a welcome sign for an industry that has been damaged by years of failed banks and lingering asset quality problems.
“Asset quality is not as much of a question mark anymore,’’ Gorman was quoted as saying. “What you see is what you are getting.”
Good organic growth stories are selling for a premium these days. For both buyers and sellers, becoming a bank with strong growth prospects is key to improving value.
Bank of the Ozarks Inc. is a great example. The Little Rock, AR-based $4.7 billion bank holding company this week announced its 10th merger in the last three years, agreeing to buy OmniBank, a subsidiary of Bancshares Inc. of Houston.
The deal will add another $120 million in CRE loans to Bank of the Ozarks' portfolio, which has nearly doubled in that three-year timeframe to $2.39 billion, with $459 million of that growth occuring this year.
Also in Texas this week where energy and real estate are leading an economic rebound, East West Bancorp Inc. acquired MetroCorp Bancshares Inc., parent of MetroBank and Metro United Bank.
MetroCorp operates 18 branches under its two subsidiary banks and holds total loans of $1.2 billion, $950 million of which are tied to commercial real estate as of Sept. 30.
“This is a strategic merger that will significantly increase East West’s presence in Houston and allow entry into the Dallas market,” said Dominic Ng, chairman and CEO of East West. “MetroBank and Metro United Bank are both community banks with an attractive base of core retail and commercial customers and strong branch networks.”
Also, last summer, Union Bank acquired PB Capital Corp.’s institutional commercial real estate (CRE) lending division. The acquisition, expands Union Bank’s CRE presence in the U.S. and provides geographic and asset class diversification.
Union Bank’s Real Estate Industries Group will manage from New York City the approximately $3.5 billion in loans outstanding on properties in major metropolitan areas across the U.S. that were previously held by PB Capital’s CRE lending division.
Multifamily Lending Driving Growth
While lenders typically to use M&A deals to expand into new geographies, acquiring financial institutions are also looking to quickly grow their multifamily portfolios.
Pillar Financial, an affiliate of Guggenheim Partners, plans to acquire Cohen Financial a national commercial real estate capital services company and an originator of commercial real estate debt and equity transactions. Pillar Financial offers multifamily and commercial loan products nationally.
The transaction will enable Pillar Financial to expand its product offering, geographic footprint and borrower access. Additionally, Pillar said the deal will enhance its servicing and asset-management capabilities.
Also last month, Capital One Financial Corp. completed its acquisition of Beech Street Capital, a privately held, national originator and servicer of Fannie Mae, Freddie Mac and FHA multifamily commercial real estate loan.
Beech Street originated approximately $4 billion in loans in 2012, making the company the sixth largest agency originator in the country. Beech Street services a loan portfolio of approximately $10 billion and boosts Capital One- into the ranks of the top five multifamily originators nationwide.
“This marks the beginning of an exciting time for Capital One’s commercial real estate business,” said Rick Lyon, head of commercial real estate banking at Capital One. “The combination of Capital One’s multifamily business and Beech Street will significantly expand our reach in the market and enable us to offer a full range of lending solutions and other banking services.”
In other big deals recently, Wilshire Bank, a Los Angeles-based community bank with a focus on commercial real estate lending, completed its acquisition this past month of Saehan Bancorp, a competing California bank serving multi-ethnic borrowers and small businesses. Wilshire serves similar borrowers across most major U.S. markets.
Also earlier last month, United Financial Bancorp and Rockville Financial approved a definitive merger agreement. The merger will combine their operations across neighboring states, in Eastern Connecticut and Western Massachusetts, and increase Rockville’s commercial real estate lending across both states.
Increased Scale, Interest Rtae Risk Seen as M&A Catalysts
Several catalysts are emerging that are prompting an increase in lender merger and acquisition activity, according to Fitch Ratings.
The factors for growth include: a strategic focus on growing loans with a view toward mitigating potential interest rate risk; a perception that sufficient scale is required to manage higher regulatory and compliance costs; and what Fitch calls fatigue among the managements and boards of potential sellers.
In Fitch's opinion, increased cost structures, growing economies of scale that benefit larger institutions, a desire for growth and intense competition for new loans have spawned an environment expected to promote increased banking M&A.
Fitch considers lenders with high cost structures and lower capital ratios than peers as likely targets of consolidation. And banks with operations in growing geographic markets, a presence in asset classes that performed well through the credit crisis have been the most likely to be acquired.
The merger activity this year is really changing who the largest bank lenders are in commercial real estate arena. One would expect to see the nation’s largest banks such as JPMorgan, Bank of America and Morgan Stanley on the list but large regional and community banks have been able to keep pace largely due to mergers and acquisitions as with Capital One.
Bank, City, State, Increased Amount of CRE Lending Since YE 2012
1. JPMorgan Chase Bank, Columbus, OH, $4.62 bil.
2. Union Bank, San Francisco, CA, $3.39 bil.
3. Bank of America, Charlotte, NC, $2.94 bil.
4. Flushing Bank, New Hyde Park, NY, $2.33 bil.
5. Signature Bank, New York, NY, $1.83 bil.
6. First Republic Bank, San Francisco, CA, $1.48 bil.
7. Capital One, Mclean, VA, $1.34 bil.
8. Morgan Stanley Bank, Salt Lake City, UT, $1.31 bil.
9. New York Community Bank, Westbury, NY, $1.28 bil.
10. People's United Bank, Bridgeport, CT, $1.17 bil.
Source: FDIC
In a white paper published by BankDirectors.com, John Gorman, a partner in the law office of Luse Gorman in Washington, DC, noted that while size and geography matter, investment bankers and attorneys say more investors are beginning to focus on the future earnings potential of M&A deals, a welcome sign for an industry that has been damaged by years of failed banks and lingering asset quality problems.
“Asset quality is not as much of a question mark anymore,’’ Gorman was quoted as saying. “What you see is what you are getting.”
Good organic growth stories are selling for a premium these days. For both buyers and sellers, becoming a bank with strong growth prospects is key to improving value.
