ARCS Commercial Mortgage was started in 1971 as a residential mortgage company and was reconstructed in 1995 exclusively as a mortgage banker under its new ownership.
"The bank decided to exit the residential mortgage business as a national company," said Howard Levine, president and CEO of the Calabasas Hills, Calif.-based company. "I decided there were significant opportunities emerging in the commercial field, so we bought the commercial servicing portfolio of the old company and started a new one."
The full-service commercial mortgage banker started out with a mere 20 employees, and has grown into a 12-branch company with 95 employees. But the company had to work to become a success.
"Because my own personal background was with the residential business for 40 years, we had a hard time trying to convince the industry that I had the experience necessary to grow a commercial mortgage banking company," says Levine. "We weren't just readily accepted by peers and customers."
ARCS received this acceptance by hiring experienced commercial people and demonstrated to the communities it served that ARCS, did, in fact, have the necessary expertise. The company's savvy new business style was faster and me creative than the old ways of doing business, and this helped as well.
Another challenge for ARCS was that in the beginning, like all other newly-formed companies, they were overpromising and underdelivering. "When we recognized that speed and commitment were equally as important," says Levine, "we made sure that we did what we said we were going to do." Gradually, the industry realized that ARCS performed better than the present-day industry standards due to the company's speed and competitive pricing.
The third challenge ARCS faced was being a new kid on the block. Since it was an unknown entity, hiring sales staff and opening offices was hard to do. But with the faith of the employees from the old ARCS company, the new company grew.
In its first full year in 1995, ARCS was identified as the largest originator in the country of Fannie Mae DUS loans. According to Levine, there are only 25 companies in existence to have won that license. That same year, ARCS did about $60 million in business, which was increased to $500 million in 1996. That second year also saw the addition of Steve Fain and Joe Torrance who headed up the affordable housing division. ARCS is the only lender that has a separate affordable housing division.
By 1997, the company had closed mortgages for 147 properties that netted $750 million in business, and this year, ARCS is going to double the business to $1.5 billion by expanding offices, living off of its reputation and being competitively priced.
Levine credits some of this success to the company policy. "As compared to our competition, we invested in brick-and-mortar and established our own branches and our own personnel and we have invested in state-of-the -art technology," adds Levine.
But most of ARCS' success comes from its dedicated employees. "The most important ingredient for a business to succeed is staffing it with the most capable people in the industry," says Levine. "We are fussy hirers, but once we hire someone, we reward that employee better than our competition."
Another reason for the company's success is that once ARCS closes a loan, it services the loan for the life of the loan. According to Levine, people would rather this than send their payment to remote locations. Because of this, the company's servicing policy is high. In 1998, it totaled more than $3 billion with more than 700 loans.
"Our servicing portfolio is the amount of loans that people send payments for," says Levine. "Part of our direction was that we opted to be a true mortgage banker rather than a broker, and we service the loans for the institutional investor."
ARCS is currently servicing loans in 34 states and was ranked as the No. 1 Fannie Mae DUS multifamily loan originator in America in 1996 and 1997. The loans include a more than $110 million portfolio for one borrower in Chicago, a $108 billion loan in Palo Alto, Calif., which was Fannie Mae's largest loan ever securitized, a $210 million loan for a customer in less than 30 days and a $110 million credit facility for a large national developer. In its office division, ARCS' projects include the WorldCom West Coast Internet headquarters building in San Jose, the downtown Los Angeles theater and a 103-year-old apartment rehabilitation in Indianapolis.
ARCS already has branches in Arlington, Va., San Diego, San Francisco, Burbank and Calabasas Hills, Calif., Chicago, Dallas, Jacksonville, Fla., Nashville, Philadelphia, Portland, Ore., and Princeton, N.J., is hoping to open at least three more branches and is expecting to open an FHA multifamily division in 1999. It also moved to a state-of-the-art facility in 1998 with a building that was designed to meet the most demanding technological needs.
Other 1999 goals include coming up with a small loan program for non-residential properties that goes along with its experimental program with Fannie Mae to develop smaller loans from $750,000 to $2 million because, Levine says, that market is underdeveloped, especially in California. ARCS is also going wholesale with the conduit program, which used to only operate in the retail program.
Levine says ARCS will increase its production in 1999 by 25% between $1.8 and $2 billion.