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By Joe Boomgaard | MiBiz
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ANN ARBOR — Over the next five years, a substantial number of commercial real estate loans will be up for renewal, and unless the market changes drastically, businesses could be in for a shock when it comes time to renew.

That looming need for commercial mortgage solutions has been the driving force in United Structure Finance Co. “growing into our name” and creating a separate division for commercial real estate transactions that normally would be referred to outside consultants, Mike Chatas, president and co-founder of the division of United Bank & Trust of Ann Arbor, told MiBiz.

The company recently brought on a new VP, Jeffrey Kleinschmidt, to lead the capital market solutions program, which it plans to offer across Michigan and the Midwest. The new service will allow USFC to finance diverse transactions for passive income deals from $500,000 to $50 million, including multi-family housing, senior housing, retail, office, medical office, industrial, self-storage and hospitality projects — most of which would not qualify for SBA and potentially USDA loans.

“We can put commercial real estate transactions together that we were passing on and referring on out-of-house,” Chatas said. “This helps us to fill a void …and allows us to be able to provide solutions for clients instead of turning them away.”

He said not only does the additional service allow the bank to provide a broader array of services for existing clients, but it also helps the parent bank diversify its revenue stream.

“There’s still a capital liquidity crisis going on, and being able to transact more off-balance-sheet transactions allows us to utilize our balance sheet for more core clients in the sweet spot of the bank,” Chatas said. “Why tie up our balance sheet with transactions when someone could get a more favorable solution with something Jeff has to offer and create lending capacity so we can focus on other types of transactions.”

The company realizes the division could start slowly and sees it more as preparing for a coming wave of commercial transactions that will need to take place.

“Here’s the thing — if you try to tool up and get into this business (when the market emerges), it’s too late. There’s over $1 trillion of commercial real estate over the next five years that will be ballooning and has to be renewed. We don’t think those lenders will automatically go ahead and renew those loans with their present balances,” Chatas said. “There’s an opportunity for us. Will it be slow before it picks up? Yes, but we’ll be in a position to be up and running long before other financial institutions get it.”

Kleinschmidt said while other big national banks play in this market, most community banks do not get involved with those types of off-balance-sheet transactions. The capital market solutions program is typically for well performing, lower loan-to-value properties. USFC serves as a correspondent lender for various lenders, including life insurance companies, government agencies like HUD and Fannie Mae, and special real estate financing companies or investment banks. As a correspondent lender, USFC represents those agencies in the marketplace and tries to find business opportunities for them. USFC gets a fee for matching the lender and client and structuring the transaction.

By leveraging the bank’s contacts with businesses and service providers — CPAs, commercial brokers and attorneys — as well as its relationships with other community banks, United Structured Finance’s goal with the program is to even out the cyclical nature of the financial industry. Although the bank has been successful in SBA and USDA lending in the past, those types of loans take place in a crowded, competitive market as more community banks get involved, Chatas said. United wants to insulate itself from “shocks in the secondary market” like it experienced in the current financial crisis.

“Being able to diversify our revenue streams and be prepared to make money in any type of environment is good for a financial company,” he said.
United also runs the risk of its reputation by aligning itself with outside lenders if, for example, the cultures didn’t correspond, but Chatas said that’s where Kleinschmidt’s relationships will help United select which agencies it works with.

Because the lending agencies USFC will represent are nationwide lenders, the company will not be limited in the geography where it will be able to work. United Structured Finance tried, but ultimately suspended an earlier attempt to break into the West Michigan market with traditional structured financing options for small businesses. The financial crisis forced the company back to its core business in Lenawee and Washtenaw counties, said Kenny Leonard, VP of United Structured Finance, who had worked in small business lending in West and Southwest Michigan.

“(The capital market solutions program) brings us an automatic entry into West Michigan,” Leonard told MiBiz, noting that United is willing to partner with other community banks on these deals.

After about a month offering the service, Kleinschmidt said he’s already seen a handful of deals come his way because of referrals based on past relationships.

“What we’ve found, with this credit environment, is that these types of loans are more difficult to place,” Kleinschmidt said. “We want to start before companies or the market gets there. Leveraging our relationships and contacts allows us to get an edge.

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TAGS:

• ann arbor
• finance
• jeffrey kleinschmidt
• kenny leonard
• mike chatas
• united bank & trust
• united structure finance