KeyCorp's desire to be a one-stop shop for its property developer clients inspired its deal, announced last week, to buy Newport Mortgage Co., a Dallas apartment lender.
KeyCorp is authorized to originate and service apartment loans for Fannie Mae. Newport, which KeyCorp agreed to buy for undisclosed terms, brings to the table a longstanding relationship with the other main source of multifamily mortgage funds, Freddie Mac.
Transfer of the authorization to originate and service Freddie Mac loans is subject to Freddie's approval, but Jeffrey S. Juster, Newport's president and chief executive, said he is confident Freddie will permit it. KeyCorp said it plans to name Mr. Juster head of agency lending after it completes the acquisition next month.
KeyCorp's commercial real estate specialists take the one-stop-shop concept seriously.
When it makes a construction loan, for example, the Cleveland banking company likes to know that it will be the lender that replaces the loan with a permanent one, said John Case, national manager of Key Commercial Mortgage. Sometimes, as a precondition to financing construction, Key will require right of first refusal on the permanent loan, or an exit fee if the developer goes elsewhere, he said.
"We like to do repeat business," Mr. Case said. "We don't look for one-off opportunities."
With one-stop shopping in mind, the company's low-income housing tax credit, mezzanine, and equity groups, which had previously been part of its McDonald Investments unit, were recently placed under the commercial real estate group.
In the multifamily business, it is important to offer both Fannie and Freddie's product lines. Fannie and Freddie often seem interchangeable; last year several top home lenders promised all or most of their volume to one or the other in exchange for better pricing. But the two government-sponsored loan buyers' practices are substantially different in the multifamily arena, experts said.
Fannie delegates the job of underwriting to its apartment lenders in return for sharing some of the losses if defaults occur. An authorized lender can make a loan with the full confidence that Fannie will buy it, which speeds approvals and enables the lender to do business anywhere in the country.
By contrast, Freddie reviews every loan before buying it, and confines its correspondents to their geographic areas. Unlike Fannie, which securitizes most of its multifamily loans, Freddie buys apartment mortgages primarily for its portfolio. Both offer rate locks, but Freddie's is considered better than Fannie's, several multifamily lenders said.
For some loans, Mr. Juster said, Fannie may offer better pricing than Freddie, and vice versa for others.
Key also offers permanent financing for commercial buildings through its conduit program as well as mezzanine debt, equity placement, and interest rate caps for developers who take out floating-rate loans. Mr. Case said building up its permanent loan capability helps Key get achieve its goal of getting more income from fees rather than net interest margin.
And the ability to get all these types of financing from one source is valuable to developers, Mr. Case said, because they can save money on items such as credit reviews. "There's a cost to shopping around," he said.
