Bridger Commercial Funding LLC, a new commercial mortgage conduit, wants to bring small community banks into an arena dominated by Wall Street.
Founded in April by two veterans of BankAmerica Corp.'s commercial real estate business, Bridger plans to work behind the scenes with local banks nationwide to make the kind of loans historically handled by Wall Street's conduits. The Mill Valley, Calif.-based firm will then aggregate the loans into large, geographically diverse pools that can be securitized.
"We found a real disconnect between what Wall Street was doing and the smaller community banks," said Molly McCabe, who co-founded Bridger with Robert Schoenfeld.
"The smaller community banks did not have access to capital. Wall Street didn't have them on their radar screen," she said.
Conduits originate loans expressly to repackage into commercial- mortgage-backed securities. They are an increasingly significant force in commercial real estate lending.
According to the newsletter Commercial Mortgage Alert, conduits issued $28.9 billion of such securities in the first half, accounting for 66.7% of the market-up from 49.5% in 1997.
Most conduits are run by Wall Street investment banks or large commercial banks. Generally they make fixed-rate, nonrecourse loans of between $1 million and $15 million.
Investment banks were responsible for 58% of conduit issuance in the first half, according to Commercial Mortgage Alert.
Bridger's goal is to help small banks offer the same kind of loans at the same competitive interest rates. The banks could use the loans, without keeping them on their books, to develop or retain relationships with customers.
Bridger will fund the loans and hold them on its balance sheet until they are securitized.
The concept appeals to banks like First State Bank, Kansas City, Kan., with just $48 million of assets.
"This is an opportunity for us to keep the relationship with the borrower as well as establish new relationships we couldn't even get near," said Jenny Neill, a First State vice president. The bank is working on two warehouse loans with Bridger, one for $1.2 million, the other for $800,000.
Early on, conduits bought loans from other financial institutions. But since the mid-1990s they have been making loans directly to borrowers- competing with the banks they sometimes get their loans from.
"If a bank takes a borrower through the process with an investment bank, they may find they can get the first loan through but the second loan will be a direct loan from the investment bank to the borrower," Mr. Schoenfeld said.
Bridger sets itself apart by pledging never to lend directly to borrowers and allowing banks to continue servicing the loans-even after they are securitized.
"As far as the borrower is concerned it's us making that wonderful deal for them," Ms. Neill said.
That is a strong selling point for local financial institutions. "The relationship with the borrower is often much more than one long-term real estate loan," said R. Stephen Hagood, executive vice president and senior loan officer at BankFirst, Knoxville, Tenn., with $701 million of assets.
Bridger is helping BankFirst with a $9 million loan refinancing several industrial properties for a local borrower.
"If it works and the banks can keep their relationships with the borrowers, they'll have an edge in terms of getting smaller local borrowers who might be wary of an anonymous servicer," said Marci Schmerler, a partner at Alston & Bird LLP, an Atlanta law firm.
However, Ms. Schmerler said, with the banks retaining servicing, the loans might be less palatable to some investors in commercial-mortgage- backeds.
"You would have to disclose that the servicing is being done with multitudes of community banks who are unknown and unrated," she said. The typical commercial mortgage securitization has a "master" servicer for the entire loan pool that is rated by one or more of the bond rating agencies.
But Mr. Schoenfeld said that master servicers subcontract servicing to the unrated originators "all the time." He added that Bridger plans to act as a liaison between the banks and the master servicers to make sure servicing is adequate.
Bridger expects to originate between $60 million and $100 million of loans this year. It will contribute the loans to a $1 billion-plus securitization that Prudential Securities plans to bring to market atyearend.
Bridger also has a warehouse credit line of more than $100 million with Prudential.