PNC to Acquire Multifamily Lender ARCS

The PNC Financial Services Group Inc. (NYSE: PNC) plans to acquire ARCS Commercial Mortgage during the third quarter this year, the companies announced today.

Calabasas Hills, Calif.-based ARCS originated more than $2.1 billion of loans in 2006 and services approximately $13 billion of loans. The company’s 10 origination offices in the United States will retain the ARCS brand as a PNC subsidiary.

Pittsburgh-based PNC will expand its multifamily lending and servicing capabilities through the deal, according to William S. Demchak, PNC’s vice chairman and head of corporate and institutional banking.

“ARCS will provide PNC with expertise and a customer base that complement our own. Together we will offer the full spectrum of financing and servicing options to multifamily owners and investors nationally,” says Demchak.

Financial terms were undisclosed, and the acquisition is pending regulatory and agency approvals. If the deal closes as planned, it is expected to be accretive to earnings within the first year, according to PNC.

PNC will strengthen ARCS’ client offerings and enable the company to provide the broadest possible line of lending products, according to Howard J. Levine, founder and CEO of ARCS.

“PNC’s leadership in commercial real estate finance and its commitment to superior customer service dovetails well with our own,” Levine says.

“PNC values our vision and our continuing quest for innovative lending solutions to meet our customers’ needs,” says Levine.

ARCS is following a trend of once-independent lenders with Fannie Mae Delegated Underwriting and Servicing (DUS) licenses that are now aligning themselves with larger lending groups in order to provide a greater range of products, Levine says.

“The industry has changed dramatically; all the major Fannie Mae DUS lenders have sold out to large corporations,” Levine says. “The borrowers have become a lot more sophisticated and demanding, and they want the lender to have alternative products available.

“Historically, when we had the Fannie Mae DUS license, people were comfortable with the bid and the quote and it satisfied a lot more of our borrowers,” he says. “But today we have to give them conduit quotes, portfolio quotes, short-term financing, bridge financing. So we needed a much larger product line.”

Levine will serve as a senior advisor to PNC after the acquisition but will step down as CEO. Levine says Tim White, now the COO, will become CEO of the ARCS subsidiary.

ARCS ranked 29th among direct lenders by deal volume on National Real Estate Investor’s 16th Annual Top Lenders Survey, published in the May 2007 issue. PNC took the No. 12 spot with $11.6 billion in originations in 2006.

PNC provides diversified financial services including retail and business banking; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management; asset management and global fund services.

Beekman Advisors acted as financial adviser to ARCS on the transaction.

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