Hard Lessons in Commercial Real Estate

William A. Hodges knows from experience how fast the commercial real estate market can turn.

In 1990 he ran the real estate group of NCNB Corp., NationsBank's predecessor. A year later, after an industrywide real estate collapse, he was busy picking up the pieces as head of the bank's real estate loan workout group.

Now he's at the helm of a real estate finance unit again as head of NationsBank Global Finance's newly formed Real Estate Group.

Real estate has bounced back as a big business for banks, with NationsBank leading the pack. And like many of the bankers who have returned to the high-yielding market, Mr. Hodges says he's learned from past mistakes.

NationsBank, he said, plans to "develop a management approach to the business that we believe will smooth out the impact ... of the market's cyclical nature."

The new group, announced Monday, combines all real estate activities conducted by the bank's Global Finance business.

According to Mr. Hodges, the group will provide financing for the acquisition, development, and construction of real estate properties; originate, structure and underwrite transactions, including providing securitization or private placement, as well as intermediate first-mortgage loans on all stabilized commercial property types; and provide loans for single-family construction in all NationsBank markets.

In his new role, Mr. Hodges will coordinate NationsBank's divisions of real estate banking, real estate finance, mortgage-backed trading, real estate syndications, and mortgage finance. Current heads of those departments will remain in place, Mr. Hodges said in a telephone interview.

NationsBank brought the divisions together as part of an effort to develop a long-term business plan, said Mr. Hodges.

Supply and demand for commercial real estate are better balanced now than in the late 1980s, said Mr. Hodges. "We don't see anything immediately interdicting the flow of capital into the real estate product."

But the bank isn't taking anything for granted. "We're being disciplined and careful about managing our franchise across the markets," said Mr. Hodges.

That includes both maintaining the quality of its underwriting, and "building up our distribution capacity through syndication, mortgage- backed securities, or other channels, to relieve pressure from our own balance sheet," said Mr. Hodges.

So far this year, NationsBank has securitized $1.6 billion and syndicated $3.2 billion in real estate loans.

Mr. Hodges considers the markets for apartments, budget and full-service hotels, and office real estate the most stable. "Retail is probably the one segment with the most question marks around it," he said.

Midwestern commercial real estate markets also get a good prognosis. "They tend not to be as glamorous as the Atlantas and the Orlandos," he said, "but they're not subject to the boom and bust cycles."'

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