The recently merged California Federal issued $500 million in preferred stock last week through a newly created unit, Preferred Capital Corp.

The issue is the first real estate investment trust-preferred security marketed to high-yield investors. A REIT preferred is a structure in which a bank or thrift issues equity through a tax-advantaged real estate investment trust. The strategy enables financial institutions to raise regulatory capital inexpensively.

The deal initially began as a $200 million issue, but was increased to $500 million after overwhelming demand, said Jon Winkelried, managing director at Goldman Sachs & Co., which co-led the deal with Smith Barney Inc.

The new California Federal, Los Angeles, is a recent combination of First Nationwide and the old California Federal Bancorp. The company is rated Ba2 by Moody's and BB by Standard & Poor's.

Others said the issue could pave the way for more REIT preferred deals, which ebbed last year after the Federal Reserve approved the easier-to- issue trust-preferred security.

"I would say the idea of the REIT preferred is still alive and well," said investment banker Karen Edwards of Friedman, Billings & Ramsey & Co. "I think some companies are hesitating with the trust-referred securities because they are unsure what tax action may be taken by Congress."

Analysts said they expect California Federal to use the funding for future acquisitions of smaller savings and loans or mortgage origination companies.

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