NEW YORK CITY Before an audience of Wall Street analysts and financial journalists at the 21 Club, CharterMac unveiled its plans to expand its services and take more market share in 2006.
After swallowing up several financial services firms in recent years, CharterMac is entering the next phase of its evolution. The search for a new CEO was continuing at press time, after former CEO Stuart Boesky left the firm last year.
Marc D. Schnitzer, president, and Alan P. Hirmes, CFO and COO, presented an ambitious plan for growth beyond the company’s core business of purchasing unrated bonds and tax credit syndication. They were joined by real estate mogul Stephen M. Ross, chairman of the Board of Trustees of CharterMac, who is currently interim CEO. Ross is usually behind the scenes as founder of Related Capital, which gave rise to CharterMac, and is now known as CharterMac Capital.
Ross founded CharterMac’s predecessor in 1972 and has been chairman of CharterMac since the company listed on the American Stock Exchange in 1997. He is the chairman and founder of The Related Cos., L.P., which holds an approximately 13% ownership interest in CharterMac. The Related Cos. is a fully integrated real estate firm with divisions specializing in development, acquisitions, financial services and property management. Ross oversees a real estate portfolio valued in excess of $12 billion.
The biggest news is CharterMac’s entry into the credit enhancement field. Until now, the firm has offered credit enhancement from Fannie Mae and Freddie Mac, but it is about to start its own captive credit enhancer.
The new credit enhancement provider, Centerbrook Financial, LLC, will provide AAA-rated enhancements for affordable housing loans originated by CharterMac. This will mean increased speed and flexibility for borrowers, according to CharterMac.
CenterBrook, which expects to do $1.2 billion in guarantees in the first year, is a joint venture with Ixis Financial Products, Inc. Ixis is a subsidiary of Ixis Capital Markets, formerly CDC Ixis North America group, which is the U.S. subsidiary of Ixis Corporate & Investment Bank, which is based in Paris.
It was expected to receive a AAA rating by Moody’s Investor Services and Standard & Poor’s and to open for business this winter.
It will offer the following services:
• Credit enhancement of bond securitizations for CharterMac
• Credit enhancement of tax credit equity partnerships for CharterMac
• Replacement credit enhancement for 80/20 deals
The other area CharterMac is eyeing for substantial growth is the pension fund advisory business. In 2004, CharterMac made a strategic investment with Capri Capital Advisors, L.P. (CCA), a Chicago-based pension fund advisor. The investment is expected to result in a 49% equity ownership in CCA by this spring.
It also hopes to grow its mortgage banking business by trying to gain market share due to nondiscretionary refinancing and by financing commercial property types other than multifamily housing.
CharterMac has heretofore specialized in direct purchases of unrated multifamily private-activity bonds, but in its presentation, it described that business and the tax credit equity syndication business as “stable businesses” as opposed to the “growth businesses” of credit-enhanced bonds, mortgage banking and pension fund advisory.
The firm estimated it has 10% of the direct bond purchase business, 14% of the tax credit fund business and 12% of the guaranteed tax credit fund business. It said it faced “stiff competition from banks” in regard to the bond purchase business.>
CharterMac has 435 employees in seven offices. It says its bond portfolio has significantly outperformed the commercial mortgage-backed securities market. Credit loss as a percentage of the entire portfolio has averaged 0.077% for the past eight years.
The publicly traded company had a dividend per share of $1.57 in 2004. Its share price was $21.65 as of Jan. 8. According to Morningstar, its 52-week high was $23.75. It trades under the symbol CHC.
It had a total market capitalization of $3.1 billion as of Sept. 30, 2005.n