In one of the biggest construction loans of the decade in New England, Fleet National Bank is arranging a $260 million loan for a 1.3 million- square-foot shopping mall in downtown Providence, R.I.
The unit of Fleet Financial Group Inc. has fully underwritten the five- year term loan to Commonwealth Development Corp., which is building Providence Place Mall, and Dresdner Bank is expected to take a $130 million piece of the loan.
The credit is the latest in a stream of deals that signal Fleet's revival of its real estate lending practice. The meltdown of the New England real estate market had badly damaged both Bank of New England Corp. and Shawmut National Corp., and both have since been acquired by Fleet.
Though the Boston-based banking company has continued to lend on real estate since the lean years of the early 1990s, its real estate clout grew significantly last October when it snared John Regan, Kip Sanford, and Matthew Galligan from Bank of Boston's real estate investment banking division to begin building a capital markets effort of its own.
Through its real estate corporate finance group, now staffed with 14 professionals, Fleet advises transactions, supplies mezzanine financing, and buys commercial-backed mortgage securities. Conduits and synthetic leases are also on the business plan.
"Our real estate corporate finance objectives are to create sophisticated real estate products for our clients," Mr. Galligan said, adding that he aims to offer them "the entire array of distribution and investment products."
In contrast to the 1980s, when construction was often 100% financed with a bank loan, the Commonwealth loan is for only 60% of the $430 million project cost.
Nomura Asset Capital Corp. is supplying $65 million of mezzanine financing, and the developer is putting in $5 million of cash equity. Tenant contributions account for the remaining $100 million of the financing package.
Nomura has also committed itself to a $260 million takeout loan once the property is built.
The credit has no options for extension. Marketing will be in late June- early July, closing a month thereafter.
"Fleet has always been a good real estate lender, and its willingness to be creative and solve problems for borrowers is evidenced by the commitment they made to us here," said Dan Lugosch, founder and managing partner of Commonwealth Development.
The project, scheduled to be completed in August 1998, will be located across from Fleet's former headquarters.
Mr. Lugosch said that about 60% of the project is preleased and anchors include Nordstrom, Lord & Taylor, and Filene's Basement.
Mr. Galligan spent 10 years at BankBoston, and before that he had spent 10 years in real estate financing at Chase Manhattan Bank.
Under Mr. Galligan's command, the group has closed more than $800 million of syndications, with another $1 billion worth being syndicated.
Among Fleet's most recent deals are a $120 million credit enhancement for construction bonds used to finance an apartment tower developed by Burton Resnick in New York City; a $55 million credit facility for the Museum Towers apartments in Cambridge, Mass.; a $60 million secured credit line for Lexington Properties, a New York real estate investment trust; and a $40 million loan to the Copley Plaza Hotel in Boston.
"Over the years, Fleet has had a tradition in commercial real estate as a bank lender," said Gerard Cassidy, an analyst at Tucker Anthony, "and similar to other banks, they were caught in the downward spiral."
"I believe very strongly that the current management learned their lessons in the last downturn," he said, "and they will be doing more conservative, well-structured deals that should enable them to get through any downturn without having material problems. The capital markets group makes sense to me."
Mitch Roschelle, a partner on the real estate team at Coopers & Lybrand LLP, noted that "historically a commercial bank's role in real estate was project finance but now real estate is a capital markets animal."
"Wall Street is playing an increasing role," he added, "and any bank that wants to play in the real estate sandbox has got to have a real estate finance function that sits in the capital markets group. If you only have a handful of products, you're dead. Borrowers today want relationships with people who have the flexibility to execute in different ways."