AMRESCO, a Dallas-based financial services company, had been living high on the hog since it was created in 1987. Revenues were doubling every year from $100 million in 1995 to about $500 million last year. Today, it ranks as the country's leading distressed asset manager, the No. 1 commercial mortgage banker, the No . 2 commercial mortgage servicer, the No. 3 Fannie Mae DUS lender, and the No. 1 producer of VA streamlined refinanced residential mortgages.

Despite all that good stuff, its involvement in commercial mortgage backed securities left it few fans, and its stock plummeted from $36 a share to below $2 in the fall of 1998. It obviously could not warehouse conduit loans so it needed a new paradigm. In February, AMRESCO teamed up with LaSalle National Bank whereby its commercial mortgage loans will be funded by LaSalle and securitized by LaSalle's securities affiliate ABN AMRO Inc.

The new alliance gives the companies an opportunity to leverage balance sheet capabilities as well as an existing infrastructure. The new alliance, says Norm Bobins, president and CEO of LaSalle National Bank, gives his company an opportunity "to position itself as a primary player in the CMBS industry."

LaSalle National Bank in Chicago is a subsidiary of Netherlands-based ABN AMRO Bank N.V., and although it boasts it is a premier real estate lender throughout the Midwest, it basically sat out the conduit business. Last year, it did no securitizations but all that has changed. It is originating loans for its own securitization program as well as funding loans that AMRESCO originates.

LaSalle intended to move toward the conduit market, says Larry Silberman, a senior vice president and director of Real Estate Capital Markets at LaSalle, but the upheaval changed our strategy. As it did for AMRESCO. "I would say that AMRESCO's interest in aligning with us probably wouldn't have happened had it not experienced capital markets upheaval," Silberman says.

In small ways like the AMRESCO-LaSalle partnership and in large ways like increased market share in commercial real estate lending, the tumult in the capital markets last year presented the industry's traditional real estate lenders with an opportunity they could bank on.

Historically, commercial real estate lending resided in the court of insurance companies and commercial banks. Occasionally over the years, market conditions prompted outside financial pretenders into the market and they did their best to steal business. In the 1980s, a lot of commercial lending business was highjacked by the savings and loan industry, but it fell by the wayside with the real estate recession later in the decade. That situation - combined with some backtracking by the banks and insurers - created a vacuum, which was eventually filled by the denizens of Wall Street. Investment banks, which moved swiftly into the field of commercial mortgage backed securities ,really saw what was a short term opportunity - lending market that was starved for capital in the early to mid-1990s.

The CMBS industry sprang to life in the early 1990s with the help of the government's Resolution Trust Corp. Wall Street then began forming conduits to pump more liquidity into the market. In 1990, CMBS production tallied less than $5 billion. By 1998, volume rose to almost $80 billion. Most of that happened before the end of August when trouble in international financial markets, particularly Russia, sent investors running for quality investments and CMBS was one of the markets smacked down. Investment banks pulled back instinctively from CMBS and gave a golden opportunity to commercial banks.

The total volume of CMBS last year was a record $78 billion. Most observers estimate the market will drop to about $58 billion this year. Since almost all the major banks that are involved in conduit lending expect to increase the amount of securitization they will be doing this year, that should mean commercial banks will recapture a good deal of that market. Of the top 21 loan contributors to CMBS transactions last year, six companies, according to Commercial Mortgage Alert, were banks: NationsBank ($2.6 billion), Chase Manhattan ($2 billion), Citicorp ($1.412 billion), Wells Fargo ($1.366 billion), First Union ($1.346 billion) and PNC ($808 million).

Last year, NationsBank and the Bank of America merged. On a combined basis, they did about $55 billion in commercial mortgages. Conduit lending was a healthy but much smaller business. NationsBank did $2.6 billion in securitization while the old BofA did a $3 billion transaction with Lehman Brothers contributing $330.6 million.

Last year, Chase Manhattan Bank was the No. 1 syndicated lender of real estate with a loan volume of $18.7 billion. According to its tally (which differs slightly from Commercial Mortgage Alert), it also did $2.5 billion in conduit lending. Considering both syndicated loans and conduit lending, it's pretty easy to see Chase Manhattan is a major force in commercial real estate lending.

It's also important to note that while many Wall Street firms lost considerable dollars in the CMBS market last year, Chase Manhattan ended up in the black.

Another bank expecting to be very busy this year is First Union. In previous years, it usually partnered in securitizations - last year it did a $3.2 billion deal with Lehman Bros. - but most First Union securitizations will be a solo act in 1999. First Union expects to do at least three transactions in 1999 with a volume goal of $4 billion.

When CMBS fell apart last autumn, a lot of companies, particularly the investment banks, pulled out of the market leaving borrowers in the lurch. Borrowers were in the middle of putting a financing package together when suddenly the lender said it wouldn't commit.

"The banks," says Steve Jones, a managing director at First Union Capital Markets, "really worked the market and said, 'given our capital resources, we've made the conscious decision to hold our position.'"

Jones says that commercial banks with loan origination capabilities and a strong balance sheet have the opportunity now to step in and take more market share. Banks that stayed in the market last autumn picked up new customers.

First Union's tale of opportunity knocks is no different than that of Wells Fargo. Wells Fargo did $1.85 billion in mortgage originations last year, which was up 70% from the year before. It also did two securitizations of which it contributed $1.2 billion in loans (again different from Commerical Mortgage Alert's numbers). The bank already has two securitizations lined up for early '99. Both will be in pooled deals.

While Wells Fargo's consistency in the market last fall was unique compared WITH other CMBS lenders, it is not unusual for the bank. Although its CMBS activity, like others is a relatively new focus, the bank has a long history in real estate.

Although it wasn't a major conduit lender last year, Fleet Financial Group can brag about being one of the nation's top 10 lenders and a top six commercial lender. Conduit lending is clearly in the big bank's game plan. In May 1998, Fleet acquired a 20% interest in New York-based Parallel Capital, a national direct commercial mortgage lender where the primary business is conduit lending. The resulting partnership was designed to provide Fleet's small and middle-market commercial customers with access to a broader array of mortgage products and services. "We expect Parallel to be a partner in a securitization this year," says

Kenneth Witkin, Fleet managing director. "Wall Street has moved to be more of an advisor and be on the distribution side of the business," adds Witkin. "It shares and passes a lot of the profit and securitization through to the banks which don't have capital market distribution ability."

As to the conduit business, Witkin suggests that conduits will ultimately become the purview of banks.

Whether one believes the conduit business will eventually be dominated by commercial banks as opposed to Wall Street investment banks, it should be noted regional banks as well as the big national banks are active commercial real estate lenders if not conduit players. For example, two Cleveland-based banks, Key Corp. and National City Bank both can count a fairly active commercial real estate lending business.

Key Corp. claims to be the sixth largest bank in commercial real estate lending based on its balance sheet.

Last year, it created its first conduit and sold about $600 million in CMBS mortgages. It did not securitize those loans, instead creating a partnership with Prudential Securities whereby Prudential bought pools of Key Corp. whole loans. The company's goal this year is $1.5 billion in CMBS originations.