Eight years after nearly sinking under the weight of the commercial real estate crisis, BankBoston Corp. is forging full speed ahead into realty lending - but this time with more caution.

The company charged off $1.4 billion of bad real estate loans from 1989 to 1992, during the depth of the market's crisis. Since then, it has reduced its real estate exposure from 25% of its total loan portfolio to 9%.

"We like real estate, we don't love it," said Edward J. Bayone, the company's chief credit officer.

Mr. Bayone said that after the real estate debacle of the late '80s and early '90s, BankBoston reevaluated its approach to the business.

"We saw some very good opportunities, but clearly we had to put in place a series of disciplines to ensure that our lending would be prudent and would weather the future," Mr. Bayone said.

Real estate finance, staffed with 71 employees, is handled within the corporate banking practice. In this last leg of the real estate recovery, group executive David McKown has headed up operations.

One of the most significant changes BankBoston has made since the 1980s is a major cutback in project lending, to 36% of the real estate portfolio in 1997, from 52% in 1994. It also increased its focus on lending to real estate investment trusts, putting 31% of its real estate practice into that industry.

Other changes included refining underwriting standards, instituting strict hold limits, developing a loan distribution capability, and adopting stress testing.

Besides employing better analytical tools, the company decided to focus on lending to real estate investment trusts because the public nature of these companies requires better information and more disciplined practices than in other real estate companies.

"We understand these companies far better than ... we did before," Mr. Bayone said. "The public markets discipline how fast they grow and provide better information."

BankBoston has made a successful foray into REIT lending, ranking fourth in 1997, with $5.7 billion and an 8% market share, according to Loan Pricing Corp.

But maintaining the bank's more cautious approach may prove challenging as the Boston real estate market heats up, fired by the mutual fund and high-tech companies flourishing there.

Fleet Financial Group Inc. is already a formidable real estate competitor, and in the last year Boston has attracted a handful of out-of- state banks, including KeyCorp, Wells Fargo & Co., and Heller Financial. Many of them have set up shop in BankBoston's backyard, while others are targeting Boston from their home bases.

But Mr. Bayone saidthat keeping underwriting standards strong is high on the list of priorities.

"Sometimes you just say no," he said. "Clearly we do see opportunities where the returns are not commensurate with the risk, where we're not convinced that 24 months from now they will be such attractive investments."

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