ATLANTA -- Barnett Banks Inc. said Thursday it had established a joint venture with an Atlanta-based mortgage banker to boost its commercial real estate lending and fee income.
Jacksonville, Fla.-based Barnett said its joint venture with an affiliate of Shoptaw-James Inc. will provide long-term mortgages of up to $3 million on apartment complexes, industrial buildings, and shopping centers throughout the Southeast.
The venture, to be known as Main America Capital Inc., is the latest move by commercial banks into the burgeoning field of real estate securitization traditionally dominated by Wall Street.
|An Expanded Product Line'
Barnett will receive fee income for originating the loans, which will then be securitized by investment banks and sold to institutional investors.
"We see this as a way to better serve our customer base [because we'll be] able to provide them with an ongoing availability of commercial real estate loans," said William R. Nicholson. Barnett's director of commercial real estate.
"It will give our loan officers an expanded product line to go out and present to the real estate development and investment community."
Mr. Nicholson estimated the joint venture could produce more than $250 million in commercial real estate loans next year if it wins approval from the Federal Reserve Board.
He said Barnett and Shoptaw-James will jointly capitalize Main America, but declined to estimate Barnett's contribution.
Diversification a Trend
"It's further evidence of the diversification banks are making to broaden their sources of income," said Benjamin C. Bishop Jr., an analyst with Jacksonville-based Allen C. Ewing & Co.
Barnett, Florida's largest bank, has been struggling to raise its loan volume percentage growth rate from high single digits to the double-digit increases achieved by many of its competitors.
Regulatory restrictions and increased capital requirements have made it more difficult in recent years for banks to originate commercial real estate loans.
Loan securitization, a technique used by the Resolution Trust Corp. to dispose of some its nonperforming assets, allows Barnett to increase its participation in that market without having to put the loans on its own balance sheet.
Way to Avoid Credit Risk
"If we book a Main America loan, in all probability, it would not have been a loan that we would have [normally] put on Barnett's balance sheet, primarily because of term considerations and underwriting criteria," Mr. Nicholson said.
Securitization also allows a bank to avoid credit risk.
"In the worst case, the investor in one of the lower rated tranches in the mortgage-backed pool could end up absorbing a loss," said Mr. Nicholson. "But this will not, under any circumstances, show up as a nonperforming asset on Barnett's balance sheet."