Bank of Boston Corp. and Goldman Sachs & Co. have formed a commercial mortgage conduit through which they will jointly originate, securitize, and resell mortgage loans.
Under the alliance, Goldman will buy loan pools originated by the Bank of Boston and then structure them into securities for resale through private placements.
Officials said the program puts the bank on the cutting edge of real estate finance.
Now that life insurance companies have pulled back on long-term commercial mortgages, the bank will sell commercial mortgage-backed securities to the insurance companies and other investors with an appetite for high-yielding, liquid securities.
Denise Delaney, the division executive at Bank of Boston responsible for the program, said it would enable the bank to provide a service usually offered by mortgage brokers and investment banks.
In effect, she said, the bank will now offer one-stop shopping for its real estate customers.
"We don't believe a commercial bank should be putting short-term depositor money into long-term real estate assets, yet borrowers want it," she said.
The bank would collect origination and servicing fees as well as some interest income for the period before loans are sold to investors, she said.
The loans on retail and apartment properties would be originated in the six New England states, New York, North Carolina, South Carolina, Florida, and Georgia.
The new conduit business is expected to produce about $500 million in mortgage-loan securitization over the next year.
Besides buying loans from Bank of Boston, Goldman plans to buy loans from other financial institutions to maintain desired volume levels, diversification, and pricing efficiencies, according to the companies.
Other Wall Street firms and commercial lenders have forged similar alliances, which take advantage of banks' strength in direct funding and brokerage firms' skills in packaging, distributing, and trading securities.
Early this year, Smith Barney Inc. and Remsen Partners Ltd. - a real estate funding firm - joined in an exclusive alliance similar to the GoldmanBank of Boston agreement.
