ITLA Capital Corp. of La Jolla, Calif., is an unconventional lender in that it finances films, fast-food restaurants, and "fixer-upper" strip malls.
But the $2 billion-asset parent of Imperial Capital Bank is counting on a less risky business to help drive much of its growth in production.
Since 2002, ITLA has opened 15 loan production offices in cities throughout the country dedicated to making loans of up to $2 million for the purchase or refinancing of small apartment buildings. Business has been so good that it expects originations to double this year, to $300 million, and to double again next year.
George W. Haligowski, ITLA's president and chief executive, said apartment house lending is its fastest-growing business line. Though he does not expect the business to drive earnings growth - loans for small apartment buildings carry small balances and slim margins, because they have little risk - ITLA hopes to use it to get a foothold in other markets, where it can sell its more profitable commercial real estate loans.
In two to three years ITLA would also like to hire commercial lenders to work out of its loan production offices.
"We want to cut our teeth in these markets with apartments loans, which is a much safer product, then after a period of time expand with our CRE product," Mr. Haligowski said
ITLA has a reputation for making the types of loans many banks will not touch.
It has been making entertainment loans since 2002, when it bought the Lew Horwitz Organization, a Century City, Calif., entertainment lender. Imperial Bank also makes commercial real estate loans for the purchase of aging or run-down strip malls, and it finances fast-food restaurants such as Wendy's and Burger King, as well as mini-market gas stations.
"We've very opportunistic - when the right niche comes up, we just take advantage of it," Mr. Haligowski said
Until recently one of its most profitable niches was originating tax refund anticipation loans for Household International Inc. and selling them back to the Prospect Heights, Ill., company. However, Household terminated the relationship in June and said HSBC Holdings PLC, which acquired Household in March 2003, would originate the loans instead.
Mr. Haligowski said few banks are making small apartment building loans on a national scale. A number of banks specialize in apartment lending, but most of them either make large loans or, if they do make small loans, stay close to their home markets. ITLA uses both its own lenders and loan brokers to find qualified loans.
Manuel Ramirez, an analyst in San Francisco with Keefe, Bruyette & Woods Inc., said competition in the apartment lending sector is heating up, because more and more investors are interested in buying these properties, particularly in areas with low vacancy rates.
Nevertheless, he said, ITLA should be able to get enough business in its offices across the country, because its turnaround time for making loans is faster than the industry average, and it hires only bankers who know their markets.
"There are banks that offer the same products, but I think it all comes down to Imperial's good execution, and that they've hired experienced apartment lenders with books of business there," he said.
Mr. Ramirez also said ITLA's strategy of using apartment lending as a springboard to more lucrative strip-mall financing makes sense. Loans for strip malls generate large yields, because they tend to be riskier than other commercial real estate loans, he said.
ITLA recently opened offices in Denver, Memphis, and Boynton Beach, Fla., and it plans to open two to five more next year in cities where it already has loan production offices.
Mr. Haligowski said that if the apartment business continues to perform well ITLA may open even more offices and expand into new markets in 2006.
ITLA got its first apartment portfolio in 2001, when it acquired a real estate investment trust from Imperial Credit Industries of Los Angeles. At the time Imperial Credit (which has no affiliation with ITLA) had $250 million of securitized small apartment loans that had been originated by its Southern Pacific Bank in Torrance.
The California Commissioner of Financial Institutions closed Southern Pacific in 2002, and ITLA acquired both its small apartment loan portfolio and the bankers who originated them. Soon after ITLA opened its first apartment lending office in Santa Monica. Last year it opened offices in markets where Southern Pacific once operated; the new offices were staffed with lenders who had worked with Southern Pacific.
