In only two years, this Boston-based bank's real estate department has become a major player.

Matthew Galligan didn't have to walk very far when he moved his corporate finance team from Bank of Boston to Fleet Bank about nine months ago. In fact he only had to walk across the street in downtown Boston.

But that short move signaled the more dramatic growth of Fleet Bank's real estate operations, which have changed significantly in the last two years to reflect the newfound popularity of real estate financing within America's sixth-largest commercial bank.

The charge for Galligan and his troops was to maximize Fleet's opportunities in the loan syndication business, and so far it has paid nice dividends. To date, Fleet has distributed $770 million in sold and closed loans, and with another $1.1 billion of sold loans in the pipeline, business is looking pretty bright.

Add to that the fact that Fleet is seriously considering forming a big conduit in partnership with a Wall Street investment banking firm, and you have a recipe for continued success.

"Fleet had one person involved in the real estate distribution business before," says Galligan, whose formal title is managing director of Fleet's Real Estate Corporate Finance group. "I came with three others which allowed us to gain the critical mass to deal with a very significant pipeline of deals to be distributed. It's pretty hard to get that kind of critical mass without having some experience and a lot of resources. It's terribly labor intensive."

Galligan joined a bank on the move. Fleet's franchise "footprint" covers New Jersey to Maine, with franchise markets in metropolitan New York, upstate New York, Southern New England and Northern New England. A network of 15 offices ties it all together. Real estate contributes some $7 billion in assets out of the bank's total $82 billion in assets, and $2 billion of that money is invested in metropolitan New York.

Kenneth Witkin, head of Fleet's Commercial Real Estate division, says the bank considered real estate a cornerstone of its future operations, primarily because both Fleet's CEO and chief administrative officer came up through the real estate side of the business. "Real estate has always been a business that Fleet has always been comfortable with," says Witkin.

"We took a relook at our entire commercial real estate business about two years ago and tried to see how was the best way to face off against the markets we're in and the national markets. That was before we even dealt with the issue of a corporate finance group," says Witkin.

The upshot of that relook was the creation of distinctly separate specialty divisions within Fleet's real estate group, including a specialty lending group, a shopping center team, portfolio finance and corporate finance. This year, Witkin has created two new groups, one to focus on publicly traded national single-family home builders, and the other on pension funds and insurance company business.

"The real differentiation we have in the market is, there are some banks who only do project finance, and there are some banks, like the major money centers, who no longer want to do project finance, they only want to do syndicated loans. Or conduits where they keep no risk. Fleet is, frankly, quite similar to Nations(Bank) where we do it all. Literally our goal is to provide financial expertise across all different disciplines of financing."

And the focus of Fleet's commercial real estate business is on the best developers/clients in those markets. "Our clients have access to liquidity and are constantly churning their own portfolios. That effectively confirms for us that the people we're doing business with are the right people," says Witkin.

It may still be early to tell what impact Galligan's group will have at Fleet, but the bank is totally behind the effort.

"The Corporate Finance group provided us the ability to use our balance sheet and underwrite larger transactions," says Witkin. "It helped the risk management and fee parts of our business because we're able to spread our risk on the larger loans across other interested investors as well as fee generation from it."

Just last month, when Burton Resnick of New York's Jack Resnick & Sons wanted to finance the construction of his new 550-unit "80/20" apartment complex on Manhattan's West Side, Fleet jumped in with a unique $120 million letter of credit by bringing in five banks. Fleet's letter provides credit enhancement for a bond issue underwritten by the New York State Housing Finance Agency.

This is the latest example of how Fleet intends to use its creative side to do financing deals. "The real estate syndicated loan product will continue to be the hottest growth area for us," says Witkin. "It generates fee income, it diversifies our portfolio, it balances our portfolio, and we can serve the needs of our highly valued customers."

Conduit, here we come Sometime in the next year, Fleet will launch its own conduit program with a major Wall Street investment house. Certainly it has the origination pipeline already in place to do the job. Fleet does about $2 billion in new commercial loan originations per year (and is on target to do $2 billion+ in 1997).

Fleet can also tap into its clients for conduit product. "Most of our best clients, within their portfolios, have product that lends itself to conduit financing," says Witkin. "What you're finding is a greater acceptance of conduit financing from the better borrowers who are looking in their portfolios and might have a shopping center and they want to put 10-year paper against it. They'll go to a conduit because the spreads now are becoming much more competitive than they were before."

But the conduit field is already crowded, with major players including NationsBank, First Union and Donaldson Lufkin Jenrette's Column Financial.

"It's very competitive. We believe that eventually that business will migrate to the banks," says Galligan. "Our markets are such that we believe there is a fair amount of product that can be yielded by what we call the franchise businesses, the businesses that are right within our franchise."

The ties that bind? Despite pending legislation in Congress that could erode the barriers that exist between commercial banks and investment banks, Galligan sees the two sides moving to combine their strengths.

"There's a convergence between investment banking and commercial banking. We're in the middle of that and it will have a dramatic impact upon the products and services we can offer our clients," says Galligan.

"If you look at securitization today, there's more money in distribution than there is in origination. Wall Street can't compete with somebody who's out in the hinterlands that's running a low-cost operation. They've really used a broker network to get the product in. I don't see Wall Street playing a long-term role on the origination side. I do think Wall Street is here to stay on the real estate side," says Galligan.

Witkin agrees. "What you're buying from Wall Street today is distribution. We provide origination. There is something like $6 billion to $7 billion of new conduit product coming to the market soon, and all of it is alliances with investment banks and banks, which is probably the direction we will be going in, no different than everyone else. Wall Street created the business, and now what seems to be happening is the different parts of the conduit business are now settling into the requisite strengths of each group," says Witkin.