Greenwich Capital is enjoying the best of both worlds - the strength and stability of an established investment banking firm along with the emerging growth potential from its fledgling Commercial Assets Group.
William Rainer and Edwin Netzger founded the Greenwich, Conn.-based investment banking firm in 1981. The company was later purchased by Long Term Credit Bank of Japan in 1988. At that time, Commercial Assets Group did not exist because the firm did not possess the appropriate licensing to operateas a principal or issuer of commercial mortgage-backed securities. But that outlook changed three years ago when the company was acquired by the London-based NatWest Group.
Today, Greenwich Capital, as it is known in the United States, is part of Greenwich NatWest, the global debt markets investment banking arm of the NatWest Group. With a AA/Aa2 rating, NatWest Group is one of the largest and most strongly capitalized financial services groups in the world. It provides a comprehensive range of innovative debt origination, structuring and distribution services to corporate, government and institutional clients throughout the world.
NatWest's purchase of Greenwich Capital in fourth-quarter 1996 provided the appropriate licensing - and the capital base - necessary for Greenwich Capital to move into the CMBS arena. Paul Nidenberg and Greg Jacobs were two industry veterans who were brought on board in mid-1997 to establish the Commercial Assets Group.
Building a foundation The Commercial Assets Group operates as a lending principal and is comprised of experts in real estate lending, investment banking, structured finance, credit ratings and debt securitization. The focus is on program lending, which includes small fixed-rate loan production, and custom lending whereare often shorter term - two to three years - and floating rate in nature. The group also lends through short-term credit facilities, essentially providing a credit line to a particular entity, such as a private equity fund.
"When we established this group, we decided to be more of a niche player vs. a broad-based provider of real estate financing," says Jacobs, a managing director at Greenwich Capital and group co-head of the Commercial Assets Group. "The reason is because the real estate market is a very broad arena, and to have a start-up in that arena it is best to pick places of entry," he says. The conduit arena is one point of entry, where both Nidenberg and Jacobs have a lengthy track record dating back to 1985. The group began originating on a program basis and implementing custom financing in 1997. "We continued in 1998 to build our origination network platform, and we continue to add originators to that network," Jacobs says.
Since the group was founded, it has continued to define its debt financing niche. "A number of the larger investment and commercial banks that participate in the CMBS market also offer equity," says Nidenberg, also a managing director at Greenwich Capital and group co-head of the Commercial Assets Group. Some lenders try to provide all types of capital to the real estate industry. "We were not looking to go into equity. We wanted to stick to debt," says Nidenberg. "But we also realize that borrowers don't always have all the equity necessary to get the loan they desire," he adds. So Greenwich Capital decided to pursue partnerships with institutions that provide complementary sources of capital.
One such player is Los Angeles-based Starwood Financial Trust. Equity-oriented Starwood is on the opposite end of the spectrum from Greenwich's Commercial Assets Group. Starwood needed someone to work with to put together mortgages to compete with those firms that were offering both debt and equity financing.
The group provides large chunks of low-cost capital that are high grade, safer positions with a lower spread. Greenwich Capital has established a $650 million revolving credit facility with Starwood, which allows the REIT to borrow capital secured by mortgages. The partnership allows both entities to become more competitive, but remain focused on their individual niches.
Focusing on strengths Greenwich is a company that plays to its strengths. One strength is its seasoned personnel. Nidenberg and Jacobs have worked together in the CMBS market since its inception in 1985. The group also relies on its experienced staff of 38 in its; Irvine, Calif.; and Greenwich offices. "I think that experience base lets us be more creative in the matching up of capital markets and borrower needs than most firms," says Nidenberg.
Another attribute is the group's ability to move quickly on deals. "We tend to be relatively mobile compared to other firms. We can move quickly and we can garner our resources," says Nidenberg. For example, in a recent Centre Solutions deal, the borrower had only 29 days to close. Greenwich Capital completed $140 million in financing for 11 properties within just 26 days from the initial discussion to funding. "That's just another advantage of having seasoned people," says Nidenberg. Veterans understand how to get rid of the irrelevant issues, focus on pertinent issues and execute in a compressed time frame, he adds.
In recent months, clients have migrated to Greenwich Capital because the company recognizes the steady source of capital in both good and bad times, Jacobs says. That is one of the advantages of having a AA-rated parent company. Last fall, the turmoil in the CMBS market revealed the stability of Greenwich Capital. The Group was able to continue lending due to capital provided by its parent company, U.K.-based NatWest. "We had no liquidity questions or funding problems during fourth-quarter 1998," says Jacobs. "So while our competitors were curtailing their lending, we were not."
Greenwich Capital's ability to distribute securities is an additional strength. "Ultimately, when we make all of these loans, we use some type of exit strategy that usually includes securitization," says Jacobs. The company has an experienced mortgage sales force with expertise in the asset-backed arena. Greenwich Capital has an established track record of completing many private placements, and placing derivative-type securities, which are an important cornerstone of getting securitizations done, he adds.
A growing future Greenwich Capital plans to grow its Commercial Assets Group through partnerships and "risk sharing" with other institutions. The firm also expects to increase the frequency of its conduit securitization deals. In July, the group conducted a major transaction that involved the securitization of its fixed-rate conduit product. The group did the $875 million deal in conjunction with Prudential Securities, with Greenwich contributing approximately $530 million of collateral. "Generally we will partner with another Street firm to do a joint issuance," says Jacobs.
In the future, Greenwich Capital hopes to conduct three to four conduit securitizations per year to the tune of $1.5 billion to $2 billion. Rising interest rates made 1999 a slower year. However, the group is devoting more internal resources to the conduit loan area, which should increase production capacity in the future. Additionally, Greenwich Capital plans to contribute between $250 million and $750 million of its loans to a securitization at one time.
The group's total loan production in 1998 topped $2 billion. An increase in treasury rates and wider spreads on loan originations are reasons that figure is somewhat lower. This year, Greenwich Capital expects to complete $2 billion to $3 billion in loan production. "That obviously is down from what we thought in the beginning of 1999," says Jacobs.
In addition, there are concerns for another fourth-quarter disruption in financing, including backlash from Y2K fears. However, Jacobs is optimistic about financing opportunities in 2000. "The real estate financing industry is quite strong, with ample capital and ample innovation," he says.