Big consolidations in commercial mortgage banking continue to play out on the industry's center stage, but some experts are wondering if a grand finale may soon be at hand.

A deal pairing NorthMarq Capital with an arm of Legg Mason Real Estate Services closed just over a month ago, the latest in a succession of mergers and acquisitions among some of the nation's largest financial intermediaries that began in earnest about a decade ago.

In another twist, Horsham, Pa.-based GMAC Commercial Holding Corp. says it's for sale, although its motives, unlike those of NorthMarq and Legg Mason, may differ from the usual search for economies of scale and like cultures.

NorthMarq says it bought a “mirror company” when it closed on its latest industry acquisition. But the firm saw more than just a friendly reflection when it took over the commercial real estate mortgage banking and servicing businesses of Legg Mason Real Estate Services (LMRES) on Sept. 30.

When Bloomington, Minn.-based NorthMarq blended its 11 offices in the West and Midwest with LMRES's 17 offices in the East, it not only doubled in size, it created a national platform that it believes will vault the firm into the nation's busiest markets and serve as a reinforced capital-leverage foundation for borrowers.

By The Numbers: The “New” NorthMarq
NorthMarq LMRES* New Entity
Annual Transaction Volume $3.7 billion $2.8 billion $7 billion
Number of Offices 11 17 28
Number of Employees 184 162 350
Largest Transaction of 2003 $110 million $80 million N/A
*Mortgage banking, real estate consulting divisions of Legg Mason Real Estate Services.
Source: Company Info


NREI ranked NorthMarq and LMRES in its 2003 Top 10 list of financial intermediaries. But when the dust settles, the “new” NorthMarq will emerge as the nation's third- or fourth-largest commercial real estate mortgage banking intermediary organization with a bulging commercial loan-servicing portfolio from 50 institutional investors in excess of $21 billion, NorthMarq says (see chart).

“When you're doing that kind of volume, you're going to get more attention,” says NorthMarq CEO Ed Padilla, who heads the combined organization. NorthMarq is taking over LMRES offices in Boston, Miami, New York, Philadelphia, Baltimore, Washington D.C. and Charlotte.

Jack Cohen, CEO of Chicago-based intermediary Cohen Financial, says the NorthMarq deal “marks the tail-end of a trend that started in the early 1990s when Holliday Fenoglio was bought by Amresco and L.J. Melody sold to CB Richard Ellis.”

Indeed, most of the other larger intermediaries have grown by acquisition in recent years, shadowing a similar trend by global insurance and real-estate finance giants as ING Group and AXA.

At press time, GMAC Commercial Holding — which financed $16.3 billion in commercial real estate transactions in 2002 to rank as NREI's No. 3 direct lender and arranged another $4.3 billion to rank No. 4 on the intermediary list — was entertaining suitors.

But General Motors may be selling to shore up its U.S. pension plan, which ended last year underfunded by $19.3 billion, industry observers speculate. GMAC Commercial Holding and its parent, General Motors Acceptance Corp., say they are talking with three unnamed bidders.

Padilla says the idea of joining NothMarq and LMRES has been germinating for a decade. The pair enjoyed an amicable relationship for more than 20 years, comparing notes in peer-group meetings and working jointly on several transactions, he says. Legg Mason once tried to buy NorthMarq, and LMRES and NorthMarq also considered a traditional merger. “We were almost like family,” says Walt D'Alessio, chairman and CEO of Philadelphia-based LMRES. “We knew each other down to our dinner habits.”

NorthMarq, privately held by Marquette Financial Co., has been on an internal growth and acquisition binge since a group led by investor Carl Pohland, the owner of the Minnesota Twins, took over the company in 1998. Formed as Northland Financial in the 1960s, NorthMarq bought San Francisco-based Trowbridge, Kieselhorst & Co. in 2000 and Askew/Reese Investment Co. of Dallas in 2001. The combined companies will put NorthMarq on the short list of more potential borrowers, Padilla says.

D'Allesio adds that the reinforced NorthMarq “will offer better pricing (and) better access to capital sources. We will also have a greater number of lenders.” D'Alessio is now vice chair of NorthMarq and has joined its board of directors. He will continue to serve as non-executive chairman of LMRES. Parent Legg Mason retains the real estate investment advisory segment of LMRES.

NorthMarq's real estate investment banking division will be based in Minneapolis and operate under the NorthMarq Capital moniker. The real estate consulting services operation, to be called NorthMarq Advisors, will be based in Philadelphia. Commercial mortgage servicing will continue to operate out of both Minneapolis and Miami.

While terms of the deal were not disclosed, Legg Mason says it will record a pre-tax gain of $11 million.