1st Union, Lehman price largest-ever securitization It just had to happen. As commercial mortgage-backed securitizations (CMBS) continue to grow in size, they have now reached yet another milestone. With the November pricing of a joint securitization of loans from First Union Capital Markets Corp., Charlotte, and Lehman Brothers, New York, the CMBS world now has its first true $2.2 billion securitization.
The securities are backed by 422 fixed-rate commercial mortgage loans which were originated or acquired by First Union and Lehman Bros. The underlying properties have geographic diversity in 38 states, with the greatest concentration in Florida (14.2%), New York (11/1%), Texas (10.6%), California (9.4%) and Georgia (5%).
Earlier this year, First Union Capital Markets Corp. and Lehman Brothers completed a $1.3 billion CMBS offering. Both parties to this interesting marriage contributed nearly equally to the loan pool.
Apartment buildings and townhomes represent 30.5% of the securitized loan pool, while retail properties represent 30.4%. Credit lease and office properties each make up about 10.5%; hotels and hospitality 8.7%; and healthcare 4%. Five other property types round out the pool. First Union Commercial Mortgage Servicing, a unit of First Union National Bank, will as the master servicer of the loans.
Up-and-coming CORE is on the fast track to success If you haven't heard of The CORE Network yet, you might want to keep your eyes and ears open, because this up-and-coming real estate organization is on a fast train to a city near you. In fact, you're probably already familiar with some of the members' names, like Bishop Hawk, U.S. Equities, Cassidy & Pinkard, Bullock, Terrell & Mannlley, Swearingen, Stiles and Saywitz.
Seven firms were represented at CORE's first meeting a little over a year ago. By mid-October 1997, however, the network's roster had grown to 45 member firms throughout the country, with several more waiting in the wings.
"The timing for starting the network was almost perfect," said Scott Rickard, who had been executive director of the group for just 60 days when NREI sat down to talk with him during his whistle-stop tour of CORE regional meetings this fall. Because of the atmosphere of aggressive acquisitions, Rickard pointed out, some companies joined CORE who previously probably would not have felt the need to be part of a network.
So far, nearly 700 companies among the Fortune 1000 are represented by members of the network, which offers comprehensive commercial real estate services including tenant representation, leasing and management, investment advisory services, facility management, construction management, development management, finance and investment banking, portfolio management, strategic planning services, research and general real estate brokerage.
One thing that sets CORE apart from other networks, according to Rickard, is the ownership structure, which he compares to the NFL, calling it a "not-for-profit mutual benefit organization." CORE is owned by member affiliates.
"We view ourselves as opportunists," Rickard said. "We're jam-packed with entrepreneurs. It's up to me to harness that talent in the organization. Our No. 1 purpose is to provide leadership in the industry."
Eventually, Rickard said, this aggressive role in the industry will lead to participation in lobbying efforts, although, for now, the Santa Ana, Calif.-based executive director said his first goal will be to get back-office operations up and running.
Technology is another area of aggressive focus for Rickard. In fact, he predicted that, within 90 days of our mid-October meeting, CORE would have a state-of-the-art system up and running to track clients and project assignments as well as an interactive bulletin board.
"Every day we don't have it we lose ground to our competitors," Rickard said.
The network hopes to add more members who are dominant players in their own markets, especially on the West Coast. San Francisco, in particular, is one city where Rickard is actively seeking representation. He also said that the network will eventually go global.
"We need to be proactive to set our own niche," Rickard said. "Right now is one of the most exciting times in history because things are changing so rapidly."
SIOR probes into the future at annual conference Everyone knows the commercial real estate market is good today, but where do we go from here? This is the question that the Society of Industrial and Office Realtors (SIOR) discussed at its recent Fall Professional Conference, held on Nov. 8-10 in New Orleans.
With consolidation of the industry taking the spotlight at the conference, one of the first sessions, called Impact of Merging Real Estate Firms, compared yesterday's service providers to today's and tomorrow's firms. Thomas E. McCormick, industrial specialist at Sacramento, Calif.-based Colliers Iliff Thorn and the newly elected SIOR president, along with Neil Gregory-Eaves, also of Colliers Iliff Thorn, led the discussion, which emphasized how consolidation will affect service providers of the future.
Affiliation with some sort of larger firm or network is becoming more and more necessary for any local firm, said McCormick, because tomorrow's service provider will need global market coverage, larger numbers of transactions and higher total cash volume than today. Global service providers will have the advantages of higher production levels, brand name recognition, better research capabilities because of geographic coverage, more global corporate accounts, and a larger breadth of services, added McCormick.
However, this sort of affiliation will also require better information technology, according to Gregory-Eaves. There will be a need for a global corporate communication platform for both internal and external communication. And there will also be a need for professional development, including foundation-level courses, continuing education and attendance of conferences and special team meetings.
"Like it or not, consolidation is occurring," McCormick said. "And the service providers of the future will be either very large, global, full-service and branded, or they will be very small, specialized and opportunistic."
And when asked what smaller firms can do to become more attractive to the larger companies or networks looking to merge, Gregory-Eaves said, "Local companies could beef up technology so the network doesn't have to spend more for updates."
Of course, choosing the right organization for your firm to join is another issue facing today's smaller companies. One of the choices is a national network, which was the topic of one of SIOR's nearly 40 roundtable discussions: Are the Networks Working?
In this discussion between both network members and nonmembers, concerns were raised that there are "too many chiefs and not enough Indians" and that, in some cases, there is competition between two network offices for the same account. It was also said that there is a problem with network members not using the network to its fullest potential because only about 20% of the network people will ask a client if they have needs in another market; therefore, the incoming referrals from other network offices are low.
However, most of the participants agreed that clients are using network members because of the name recognition and the real or perceived seamlessness of the network.
Now these are just a sample of what was discussed at the conference, but if you would like see what SIOR is all about, the 1998 SIOR Spring Convention will be held on April 23-26 at the Westin La Paloma, Tuscon, Ariz. For more information, call Susan Mann at (202) 737-8794.
Banking on its recognized expertise in consulting with some of the leading institutions in the country, Heitman Properties is launching a new venture to compete for third-party real estate services. The new division, called STRATA Real Estate Services and officially launched on Nov. 3, will be run by David Latvaaho, STRATA's president and former president and national director of leasing for Heitman Properties, based in Chicago.
The division will have four business development directors, to be announced shortly, which will be exclusive to STRATA to grow the business. In an exclusive interview, NREI talked with Latvaaho about the new company.
NREI: Are you starting with an existing book of business?
Latvaaho: We are, which we are going to be announcing in short order with a major assignment in Houston, two major assignments in New York (Manhattan), a major assignment in Los Angeles. It will be very significant from the get-go.
STRATA is really a division within Heitman Properties, that will be exclusively dedicated to pursuing third-party management, leasing, construction as well as transaction management and the corporate and financial end with our institutional clients as well. Now for us it's a chance to showcase a really fine organization to go after third-party business that can compete in a much broader market.
There is over 750 million sq. ft. of office space today that is under third-party management in the U.S. The market is dominated pretty much by the service firms that are brokerage houses. The difference that we bring is an owner's mentality, because we're used to servicing and being a fiduciary. We think like owners and we act like owners and we manage the asset in a much more strategic way.
NREI: Who will be your clients?
Latvaaho: I think the REITs are ultimately going to need help in this area in managing their portfolios, because I think essentially they are new to this business. If you look at the average REIT, it's very young, and they have to grow this management group, and I think they are going to have a difficult time doing that, which I think presents a great opportunity for us as owners of real estate, as they are, and I think they would be reluctant to give that to a service firm.
We're going to focus on clients where we have relationships, either new clients or existing clients -- developers, institutions, public and private REITs, some of the real estate advisory firms, and some of the consultants. We'll also deal with the Wall Street firms and look at the opportunity to work with some of the investment houses that control portfolios and buy real estate on behalf of their investors that don't have any inhouse capabilities. Then there's an area for us on the corporate side, with Fortune 1000 companies to do some of this work for them on the facilities side. And we'll look at joint venture possibilities with all of the above. And I'm also going to work with a number of brokerage houses who do tenant representation exclusively. We're not in the brokerage business and don't want to be.
NREI's October newsletter article reviewed investment sales using the Commercial Investment Real Estate Institute (CIREI) called Downtowns respond to supply & demand, CIREI says, had two errors. In a sentence that investors were combing the nation for product, the fact that top office buildings (pg. 10) was noted instead of top suburban office buildings was in error. Also, a note that the nation was hammered in the late 1990s with a reccession (pg. 12) was an error, it should have read early 1990s.
We all make mistakes, right? Well, we made several doozies in our annual Lender Survey (October 1997 NREI). The following are additions to the Lender Survey which were inadvertently left out of the original listing:
Carey Winston/Barrueta 6700 Rockledge Drive, Suite 400-A Bethesda, Md. 20817 301-571-0900; FAX: 301-571-0915 www.careywinstonco.com Regs./Branches: Washington, D.C.; Vienna, Va.; Laurel, Md.; Bethesda, Md. Contacts: Thomas L. Nordlinger, Pres. & CEO; Nathan Isikoff, Chairman; James Ventura, Sr. VP, Managing Director of Finance Amt. Arranged/Committed in 1996: $400,000,000 Commitment by Region: Mostly in Mid-Atlantic Lending Goal 1997: $500,000,000
Cohen Financial 2 N. Lasalle Street, Suite 800, Chicago, IL 60602 312-346-5680; FAX: 312-346-6669 Regs./Branches: Chicago; Madison, WI; Los Angeles Contacts: Jack M. Cohen, Pres.; Bruce R. Cohen, Managing Dir. Merchant Banking; Rick Tannenbaum, Managing Dir. Service; Mike Baucus, Managing Dir. Transaction; John Vander Zwaag, Managing Dir. Amt. Arranged/Committed in 1996: $1,200,000,000 Lending Goal 1997: $1,500,000,000
Credit Suisse First Boston 11 Madison Avenue, New York, NY 10010 212-325-2131; FAX: 212-325-8185 Regs./Branches: New York; Los Angeles; London; Moscow; and offices worldwide Contacts: Andrew Stone, Managing Dir.; William V. Adamski, Director; Mark L. Finerman, Director Amt. Arranged/Committed in 1996: $12,732,000,000 Lending Goal 1997: $12,000,000,000
Deutsche Morgan Grenfell 31 W. 52nd Street, New York, NY 10019 212-469-7602; FAX: 212-469-8578 Regs./Branches: San Francisco; Chicago Contacts: James Howard, CFO/Transatlantic; Joel Horne, Director/Deutsche Morgan Grenfell Amt. Arranged/Committed in 1996: $400,000,000 Lending Goal 1997: $3,000,000,000
First Union Capital Markets One First Union Center, 6th Floor, Charlotte, NC 28207 1-888-217-9084; FAX: 704-383-6205 Regs./Branches: Jacksonville, FL; Miami; Atlanta; Charlotte; Richmond & Tysons Corner, VA; Philadelphia; Newark, NJ; Stamford, CT; Chicago; Houston; Irvine, CA Contacts: Mike Greco, Managing Dir./Real Estate Capital Markets Group; Larry Brown, Managing Dir./Commercial Real Estate Finance; Steve Jones, Director/Direct Origination & Client Manager Amt. Arranged/Committed in 1996: $3,250,000,000 Lending Goal 1997: $4,000,000,000