In the evolution of almost anything, there always seems to be a stage where the evolving subject develops items or makes use of other items which help them perform some task better. Man, for instance, made tools to make hunting, eating, building and pretty much everything else a little easier. So does this mean the evolution of a financial services firm would involve a process of developing useful tools in order to survive successfully?

Well, it does in the case of West Palm Beach, Fla.-based Ocwen Financial Corp. This commercial real estate financial services firm, which specializes in high-risk, nonperforming mortgages and loans, has put its efforts into developing faster, easier technology.

"The mortgage and real estate industries have placed little emphasis on technology," says John Erbey, chairman of Ocwen Technology Xchange Inc. "And they're business which we believe can benefit greatly by technology."

One way Ocwen has invested in technology is with its acquisition of two high-tech firms, Amos Inc. and DTS Communications Inc.

Amos Inc., which provides residential loan servicing and origination software, was acquired in fourth quarter 1997, and DTS, which provides electronic commerce tools, was acquired in January of this year.

Combining these two firms with its own default management and loss mitigation group, Ocwen formed Ocwen Technology Xchange Inc., a subsidiary designed to provide real estate and mortgage-related software.

Now Ocwen has a client-server, PC-based system through Amos, which provides real-time data to the employee's desktop, and with the DTS purchase, it enables any lender or real estate professional to order, manage and track everything that is needed to close a real estate deal. However, adds Erbey: "What distinguishes DTS from the rest of the market is that it is able to connect with any other database or application that is available. The significance of that is that users of those services and service providers don't have to invest a lot of money into software and hardware to take advantage of the DTS system."

Of course, if you've read any articles about technology in real estate recently, you know that this embrace of technology is not quite the norm. And this is not the only difference between Ocwen other real estate firms.

Ocwen's business philosophy has been to focus on nontraditional assets such as underperforming loans and mortgages. "We think that competition for trophy assets is so intense that it drives returns to the point that the margins don't compensate you for the losses that could incur if and when there is a downturn," says Jordan Paul, executive vice president, Commercial Real Estate. "Conversely, we have found that the discounts that are available for assets with perceived risks provide an excellent risk-adjusted return if you have the expertise to identify and address the problems."

As a result of this philosophy, Ocwen has developed an entire array of businesses that play to its strengths. Included in these businesses are the commercial loan acquisitions, commercial fee for service, distressed property acquisitions, subordinate CMBS, and renovation and mezzanine lending groups.

The commercial loan acquisitions business purchases nonperforming and subperforming real estate loans which it special services as a principal using Ocwen's asset management group.

Because Ocwen is vertically integrated and works as a combination of money partner and real estate partner, there is a high level of commitment to its loan acquisition franchise. "This keeps money from falling between the cracks," says Christian Bezick, senior vice president, Large Commercial Discount Loans. "Ocwen underwrites its large commercial portfolio acquisitions on an asset-by-asset basis, with efficient and sophisticated acquisition models rather than making broad portfolio assumptions as many people do in the industry. The strength of our systems are demonstrated by the fact that we have purchased over $2 billion worth of distressed commercial loans during the past four years and have not lost a cent of principal in any of those transactions."

About 18 months ago, Ocwen began offering its asset managing services to third parties through its Commercial Fee for Service group.

"We have a significant portfolio of third-party business that we manage that comes through public structures such as CMBS and liquidating trusts," adds Bezick.

In the Mezzanine and Renovation Lending group, there are two divisions: the large commercial business, which deals with loans ranging from $5 million to $50 million, and the small commercial business, which provides loans in the range of $400,000 to $5 million.

"The development of our lending program for large commercial real estate was driven by the evolution of our core business competencies," says Richard Bosworth, vice president-Real Estate Lending. "Back in 1994, we realized there was a void within the capital markets to fund the readaptive use and turnaround of distressed real estate, so we evolved from our loan acquisition and asset management group into the actual structuring and origination of new loans for complex real estate projects."

The small commercial lending program can basically be broken down into three components: a permanent program; the Ocwen Advantage program, designed to appeal to borrowers whose credit is not quite worthy but the underlying collateral and debt service coverage warrant the loan; and the Gateway Loan program, which is an interim or bridge loan for properties going through repairs or renovations.

"The overlap with (the large commercial) group would be the fact that once again we are not a conduit lender on paper, but rather a lender to fallout from conduit programs," says Thomas McCarthy, vice president-Small Commercial Finance."What we're finding is that there is a lot of people falling out from traditional financing, and very frequently we are the net to catch them."

The next step for Ocwen after developing a lending program and being a buyer of loans and mortgages was to become a property owner; therefore, it developed its own REIT, Ocwen Asset Investment Corp. (OAC).

"Before forming our REIT, we had experience in owning, repositioning and selling more than 500 commercial properties between the large and small commercial businesses, and that gave us a lot of confidence to move forward with our equity program," says Gregory Breskin, vice president-REIT Investments. "The next natural step was to move further out into the ownership structure."

The REIT pursues very much the same kind of opportunities as the lending program - distressed opportunities that need redevelopment or repositioning - but the REIT will be a principal owner or a joint venture partner.

Formed in May 1997, OAC, a hybrid REIT, focuses on two primary asset classes: real estate acquisitions and subordinate mortgage-backed securities. "These are two products that balance each other very well from an income standpoint," says Paul. "If you had a REIT that did nothing but buy (underperforming) properties that would have a dilutive impact on near-term earnings. We balance it with the subordinate securities, which offers relatively high current returns."

The last incarnation of Ocwen's adaptability is its investment and development in a new restaurant concept, The Player's Grill. This concept was licensed to the National Football Players Association and Orlando, Fla.-based Millennium Entertainment Group, and it will play to the convention-, leisure- and individual-business traveller.

On June 18, Ocwen and partners opened their first restaurant in Orlando. "I think that the important thing that this illustrates is that we are open to ideas," says Paul. "We really consider ourselves as an 'out-of-the- box' real estate investor."