When PNC Financial Services Group, Inc., completed its acquisition of ARCS Commercial Mortgage in July, it set an aggressive course for 2008.
The acquisition married PNC MultiFamily Capital’s strong Freddie Mac and Federal Housing Administration (FHA) presence with ARCS’ Fannie Mae expertise, rounding out the company’s agency lending programs.
The acquisition also broadened PNC’s affordable housing reach, helping it to become a national lender. For instance, while both companies are Freddie Mac Program Plus lenders, PNC’s license covers California and Hawaii, and ARCS’ license covers New York, New Jersey, and Connecticut, “markets that we were not penetrating all that effectively before,” said Tom Booher, executive vice president of PNC MultiFamily Capital.
What’s more, PNC expects to move to fully delegated status under Freddie Mac’s Targeted Affordable Housing program in the first quarter of 2008. Going to fully delegated status would allow the company to originate Freddie Mac affordable loans more quickly and with more certainty than it could provide under the current “prior approval” process.
New products that combine each company’s strengths already are hitting the streets. In the fall, the company began offering a financing package combining ARCS’ agency products with PNC’s balance-sheet operations. The company has originated several new construction deals on the East Coast, with ARCS’ New Jersey office providing the agency permanent loan and PNC providing the construction financing.
The combined entity has some big plans for 2008. The company is aiming to process nearly $550 million in agency business alone in 2008, continuing an agency production surge that began in the second half of 2007 due to the disappearance of rival conduit lenders. PNC also is aiming to do $100 million in FHA business in 2008, led by an expected uptick in deals that preserve Sec. 8 housing.
Additionally, PNC MultiFamily Capital’s balance-sheet business is looking to process more than $100 million in 9 percent low-income housing tax credit deals. PNC offers a proprietary product for such deals, where it provides construction and permanent financing. It keeps the construction loan on its books while securitizing the permanent loan or selling it to one of the government-sponsored enterprises.
The company also expects to process another $100 million in private-placement bond transactions, a new business line rolled out in 2007. “We think that we’re going to be able to do more of that business next year,” Booher said. “We’re working on a couple of enhancements that will couple our construction capabilities with it. Stay tuned for more developments on that front.”
Seniors housing, which constituted almost half of the company’s business in 2007, will continue to be a focus at PNC in 2008. The company expects that segment to grow in 2008, citing the number of state housing finance agencies that have made seniors housing a priority in their 2008 qualified allocation plans. “There’s a tremendous need in an awful lot of markets, especially the more urban markets, for affordable seniors developments,” Booher said. “More allocating agencies seem to be focused on seniors housing.”
PNC MultiFamily Capital has also grown its tax credit syndication business steadily over the past few years, and expects to be one of the top four syndicators in the country once the 2007 numbers are compiled.
Timing is everything
The ARCS acquisition proved incredibly timely. Conduit lenders, who had stolen significant market share away from agency lenders throughout 2006 and early 2007, were suddenly vulnerable once the market for commercial mortgage-backed securities went south halfway through the year.
“Frankly, we see ourselves as the beneficiary of that given that we’ve got the agency executions now to focus on,” Booher said, “The resurgence of the agencies in the last half of the year has been fantastic for us.”
In all, the company feels that its integration of agency lending business, balance-sheet products, and tax credit equity makes it stand out among its peers. “If we’re providing construction financing, a Fannie Mae forward commitment, and the tax credit equity on a deal, it’s just one underwriting process, one checklist, one point of contact through the closing process,” said Booher.