KeyCorp is using a lending platform obtained through its acquisition last year of EverTrust Financial Group Inc. of Everett, Wash., to pitch small commercial real estate loans to individuals.
The Cleveland banking company said that requests it received from its financial advisers for the past few years led it to form Key Commercial Mortgage Direct, the business unit underwriting the loans.
The advisers, including those in KeyCorp’s high-net-worth unit, McDonald Financial Group, started pitching the loans to their customers May 1. Since then Key Commercial Mortgage Direct has funded $70 million of loans. It also has $20 million of commitments and another $20 million of applications. Rob Nall, a senior vice president at KeyCorp and the unit’s director, said the results are in “the middle of our expectations.”
The goal is to originate $500 million of loans worth $600,000 to $6.5 million each over the next 18 months, he said. KeyCorp says community banks are its primary competition for loans in that range, though larger companies like ABN Amro Holding NV’s LaSalle Bank Corp. also make such loans.
Mr. Nall said in an interview last week that KeyBank Real Estate Capital, the third-largest commercial real estate lender, with about $19 billion of annual originations, will not identify properties for customers. However, its financial advisers will help them evaluate properties as investment vehicles and might suggest a property management company, if a customer asks, he said.
The market is not a new one for Mr. Nall; he started the commercial real estate lending group at EverTrust. In the acquisition, KeyCorp got a state-chartered thrift that not only had $770 million of assets, but also generated roughly $500 million of commercial real estate loans a year.
In commercial real estate lending, EverTrust had a “sweet spot” in the $3 million to $5 million range, Mr. Nall said. By removing those loans from the balance sheet in either whole-loan or pool sales, he built “a very large origination engine and also demonstrated … that there is a place” for loans that are not designed to be put in commercial mortgage-backed securities.
For newcomers to the commercial real estate market, one feature of the KeyCorp unit’s loans that makes them more attractive is their structured prepayment schedule, he said; borrowers “know from day one” what the costs will be if they need to prepay. Such a schedule does not work very well for loans much above $5 million, he said.
KeyCorp, like EverTrust, intends to pool the loans and sell them soon after they are originated. Mr. Nall said his company will retain the servicing of loans and therefore will stay directly connected to the borrowers. That feature will also probably appeal to newcomers to such loans, he said.
“If you’re willing to give up some of the touchy-feely banker relationship because you want a rate, and you’re willing to commit to a 10-year term with an onerous prepayment, there’s a huge market for that product. It’s just not my market,” Mr. Nall said.
KeyCorp is testing marketing concepts in a few small markets to new customers. Mr. Nall expects his company to market the loans in all the areas it operates within the next few months.
“We firmly believe this is an excellent lead product to bring customers to the bank and then cross-sell either private or business banking relationships,” he said.
