Countrywide’s Commercial Market Success Not Assured REAL ESTATE By Shelly Garcia I would have thought that the entry of Countrywide Financial Corp. the third largest residential loan originator in the country, into the commercial real estate lending arena would get a lot of attention in the industry. But the Calabasas company’s announcement barely moved the needle in commercial real estate lending circles. Not that the real estate community doesn’t acknowledge Countrywide’s stature as a dominant lender who wouldn’t, especially in the San Fernando Valley where its presence, if for no other reason that its size as a tenant and property owner, is well known. But it turns out commercial real estate lending has little relation to residential lending, and Countrywide has a way to go to build a body of expertise if it is to recreate its success in this new channel. “This is not an easy business to break into,” said Shelley Magoffin, president of Dwyer-Curlett & Co., a commercial mortgage banking firm in L.A. “And as big as they are on the residential side, the businesses are very distinct.” Countrywide earlier this month said it had formed a new division, Countrywide Commercial Real Estate Finance Inc., staffed by a team from Coastal Capital Partners LLC in Sausalito. Four former principals of Coastal Capital, including Stewart Ward, Boyd Fellows, Chris Tokarski and Warren de Haan joined as executive vice presidents along with seven other employees of Coastal. The division, organized as a subsidiary of Countrywide Capital Markets Inc., is expected to originate and bundle loans for sale to the securities markets in much the same fashion that the company operates its residential lending unit, which makes, bundles and then sells its home loans. But there are differences in the potential buyers for these two types of loans, and whereas the home lending market operates with just a few variables, the commercial lending segment is much more complex. “The commercial sector is just not as uniform as the residential sector,” said Cary Bronstein, president of The Bronstein Co. Inc., a Tarzana-based commercial appraisal company. “You have a wide variety of property issues that tend to foster a little more of a niche environment for lending.” Home loans take into consideration the value of the property and the assets and credit-worthiness of the buyer. On the commercial side, there are many more types of loans and many more elements that come to bear. If it’s a shopping center, for instance, the considerations include not just the credit-worthiness of the buyer, but the credit ratings of the tenants and the leases they hold. How long do they run? Are they at market rate or below? Does the buyer have enough liquidity to withstand a downturn in the market? “It’s a completely different type of lender that underwrites a bridge loan versus a permanent loan,” said Gary Mozer, CEO at George Smith Partners Inc., a real estate financing and consulting company in L.A. “So the skill sets are completely different.” Commercial lenders know their properties intimately, physically visiting the sites and examining every last detail. Home lenders review standard tables for comparable sales to assign values. Then too the whole competitive arena is different for commercial lending. Countrywide and others have set up numerous branch locations and broker networks to service the residential mortgage business. Commercial lenders operate through networks of longtime relationships with rating agencies, those who buy loans, etc. None of that means that Countrywide can’t crack the commercial market, only that it has a big job ahead if it is to do that. And the company’s formidable name recognition along with its proven track record in the residential lending business are likely to eventually help in the effort to build a commercial lending presence as well. It’s just that how long it may take and how dominant the company can hope to become are wide open questions. David Blenko, president of Haverford Capital, commercial lenders in El Segundo, pointed out that Countrywide is going up against some powerful names including Goldman Sachs and Wells Fargo, with large distribution networks already in place. “But,” he said, “they’re smart guys, so I’m sure they have a plan.” Glendale Redux It’s hard to know what’s going to happen to the Glendale Town Center project. In the past few weeks, developer Rick Caruso whose company Caruso Affiliated Holdings has been negotiating for the center for years, angrily stormed out of a Glendale City Council meeting only to quietly resume negotiations for the center about a week later. The sticking point is the need to change the zoning on the project site, which currently does not allow for residential use. Depending on how some of the city’s charter and procedures are interpreted, such a change might require unanimous approval of the city council or it might only require that four out of the five council members approve the change. When one interpretation seemed to indicate that the zoning change would not pass, Caruso threw his hands up and seemed to call it quits, but the fact is that the project still has a number of other approvals to go through before the zoning change is considered, and it seems Caruso has decided to continue to move through the process, including getting the environmental impact report certified and the design approved. On April 13, a joint meeting with the Glendale Redevelopment Agency and the City Council will present a comprehensive review of the cost of the project, which has caused a great deal of confusion on the part of city council members and residents. The Glendale Redevelopment Agency’s portion of the project, which includes such items as the land that will be given over to the development, totals $77.1 million. Caruso is expected to foot about $133.5 million of the cost, and contributions by the anchor tenant selected and others are projected to total another $53.6 million. But as different stages of the project were discussed, they each carried different expenses, and the total cost was never presented to the community. “It’s gotten very confusing, and it’s become a very contentious point with the project,” said Jeanne Armstrong, GRA director of development services. Then on April 20 another meeting is scheduled to seek approvals of the EIR and other issues surrounding the development. Senior Reporter Shelly Garcia can be reached at (818) 316-3123 or at [email protected].
