WMF leads the game in commercial mortgage

If timing is everything, this financial group is structured with the precision of a Swiss watch.

As time moves forward to Washington Mortgage Financial Group's initial public offering (IPO) later this year, the Vienna, Va.-based independent commercial mortgage leader has positioned itself to move to the top in 1997 and beyond. Over the last five years, President and CEO Shekar Narasimhan has focused the growth of The WMF Group to become the largest originator of FHA-insured Fannie Mae multifamily and healthcare loans in the nation.

Historically, commercial mortgage bankers have originated a significant portion of commercial and multifamily real estate loans encompassing a wide spectrum of assets including multifamily, office, industrial, retail and hospitality. The WMF Group is acknowledged by two divisions, Washington Mortgage and WMF Huntoon Paige, which is the FHA division of the group.

At present, WMF has generated more than $7 billion in total portfolio value and has grown 80% in 1997 due to a REIT offering in 1996 with NHP Inc., the nation's second-largest multifamily owner. WMF originated loans of more than $1.13 billion in 1996, and its loan origination strategy moves the firm into stronger positioning for the near future. Going public this year will escalate the marketing of WMF's services.

"We intend to expand our range of multifamily into the institutional market and serve more of the larger private and public owners -- mainly with principally secured debt financing while delivering more corporate financing type of products with much greater flexibility," says Narasimhan. "We have been working on a variety of products that will continue to strengthen our relationship with our clients and those include doing our own securitization, which would give us the ability to act as a principal, both from the point-of-view of the loan-making to the distribution of the securities."

As a result of acquisitions and internal growth, WMF has increased its loan originations from nearly $240 million in 1992 to approximately $1.1 billion in 1996, or a compound annual growth rate of 46.9% with a servicing portfolio value of $3 billion in 1992 to $6.2 billion in 1996 for a compound growth rate of 20%. In 1996 alone, WMF increased its portfolio with two major commercial acquisitions. First of all, WMF purchased Proctor and Associates, which included American Capital Resources (ACR), and added $1.1 billion in loan servicing to the group. Secondly, in April 1997, WMF acquired Askew Investment Co., the third-largest commercial mortgage company in the Dallas-Ft. Worth market, and added another $425 million to its servicing portfolio. The markets that are favorable to FHA loans are part of the focus of WMF Huntoon Paige on a national basis.

"Obviously, the advantages of having a parent like we have is that, in the ACR acquisition that occurred last year, it was important to have someone that was willing to invest capital in the business to acquire a pipeline, to furnish offices and to expand our retail presence," says Jim Clouser, president of WMF Huntoon Paige. "Our business is largely based on the location of the FHA offices and the markets they encompass; we would like to do more business in these user-friendly markets where these offices are located, such as North Carolina and Jacksonville, Fla. Presently, we have a small project processing FHA-loan program that started in June 1997 for loans under $1 million and are mainly for the refinancing of loans and represents more responsibility for the underwriting to the lender."

WMF's focus into 1998 is to expand its services to specific product types and see what comes to the commercial real estate table, along with using innovative ideas to construct loans for its clientele. As for WMF's IPO later this year, the firm will be the first publicly traded commercial mortgage finance company in history.

"It's a combination of the financing activity and where as a lender you can win deals by coming up with innovative structures that best meet a borrower's needs as opposed to simply participating in the mature market, where you're just competing with REITs," says Mike Ketcham, executive vice president and CFO of The WMF Group. "There is no other company like WMF in the public market that is purely dedicated to the commercial mortgage finance business, and we're going out there to create the industry benchmarks so people can evaluate how our business really works. We are going to try to create an environment which is large, but consistent in earnings."

"We have designed products in the commercial sector that allow somebody to buy a property, invest in its rehabilitation and repositioning, as well as take the permanent loan and invest equity with a larger net operating income and then take a larger loan on a permanent loan basis," says Narasimhan. "We are extremely keen to expand our presence in the commercial mortgage finance arena, and we bring the discipline on the credit and real estate side with a creativity on how to design products that serve those various submarkets."

WMF has developed new products that target affordable housing and make available strategic planning for development and rehabilitation projects.

In December 1996, WMF structured a $100 million revolving credit facility for Berkshire Realty Co. Inc., a publicly traded REIT, and provided tremendous benefits to Berkshire's shareholders by locking in $50 million of fixed-rate financing for 10 years at very favorable rates and reduced their costs of borrowing under revolving credit lines.

Most recently, WMF Huntoon Paige closed a FHA-insured $85.6 million construction/permanent loan to finance a low equity cooperative under HUD guidelines with the funds being provided by the AFL-CIO Investment Trust. The transaction was the first of its kind under Section 220, a unique urban renewal program that has only been used in the past for rental properties and reflects the commitment of WMF to affordable housing projects. The deal was a 40-year, self-liquidating loan at 8% during construction and 7.75% for the permanent loan.

"We do a lot of new products; we do forward commitments for people building tax credit new construction and a significant amount of tax-exempt bond credit enhancements for rehabilitation projects," says Narasimhan. "Presently, we are working on a series of demonstrations involving properties that are currently subsidized by HUD, as well as market-to-market Section 8 with both individual and portfolio deals. What we have brought to the table is that everyday we challenge ourselves to serve the needs of a particular customer."

The vision of WMF goes back to when the firm tackled the private multifamily securities market when the Resolution Trust Corp. (RTC) decided to go to auction. WMF is headed for secure and innovative territories, and the leaders of this financial group support and develop their entire organization as one team effort.

"With some organizations, when you walk into them you see a cultural change and others you may see stability; we have built an organization that understands it is a dynamic, fundamentally restructuring business with several hundred mortgage bankers," says Narasimhan. "We are now in an arena where it takes a lot of capital to do things well and, suddenly efficiency, the cost of production and the cost of delivering product menus really matters because the margins are thinning and are extremely competitive. We looked at our strategic plan for the next five years and decided we must be significant, we must be large, we must be diversified from a product base and geographically and continue to develop products that serve clients' needs immediately, but also serve clients' needs that they have not thought of yet."

"Fundamentally, this business is becoming more institutional and is rapidly changing from a single-asset, whole loan business to a multiple-asset and corporate finance business," says Narasimhan. "We can walk a client through a loan of less than $1 million and watch that client grow in time and nurture him or her for life. We have made it our business to be committed to the growth and financing of conventional affordable housing."

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