Chris Thorn

Collateral Mortgage Capital is poised to have a big year in 2003. The Birmingham, Alabama-based company experienced a record year for 2002, with loan production exceeding $1 billion for the first time. Also, the company’s servicing portfolio ended the year at $3.8 billion. But that was last year, and the markets will be a little tougher in 2003.

“2003 is going to be a very competitive and challenging year. There is no doubt that sluggish economic conditions are impacting commercial real estate markets,” says Dave Roberts, president of Collateral. “However, I am cautiously optimistic that we are well-positioned to have another excellent year.” If January’s numbers are any indication, Roberts optimism is warranted. The company did more than $290 million in January, the best month of closings ever for the company.

“We are seeing the benefits of our expanded investor base,” Roberts says, referring to recent steps the company has taken to strengthen its market position. The company expanded its Senior and Affordable Housing divisions, opened new office locations in Minneapolis and Milwaukee and hired knowledgeable staff to run them. One of the new guys is John Davis, the executive managing director and national finance director for Collateral Mortgage Capital’s production teams around the country.

“John Davis is one of the truly great professionals in our industry,” Roberts says. “He has over thirty year’s experience, wonderful relationships on both the borrower and investor sides and a vast understanding of the commercial mortgage banking business.” Heartland Real Estate Business (HREB) recently spoke with Davis about Collateral, the company’s plans for the Midwest and what to expect in 2003.

HREB: Where did you work prior to joining Collateral?

Davis: Immediately before joining Collateral in December 2002, I was a managing director with L.J. Melody & Company. I oversaw five other offices: Minneapolis; Milwaukee; Indianapolis; Phoenix; and Salt Lake City. Prior to joining Melody in 1999, I was president of Eberhardt Company, a regional mortgage banking firm.

HREB: What brought you to Collateral?

Davis: The company has shown tremendous growth over the past few years, and that growth is projected to continue. Collateral is also very supportive and nurturing of its employees, and it gives a lot back to the community. That is an important part of the business model. In my position, I will have the opportunity to lead the production offices and, with the help of my partners, expand to 12 or 15 offices from our current eight offices.

HREB: Describe Collateral’s activity in the Midwest?

Davis: You have to start 2 years ago when Collateral merged with a Kansas City-based company, Charter American. The merger gave Collateral a large home servicing portfolio that was primarily insurance company-oriented. As a result, Collateral also gained a lot of insurance company relationships. Prior to that, Collateral was an agency-oriented company. Charter was a Fannie Mae DUS lender and a Freddie Mac program plus lender.

Subsequent to Charter American merging with Collateral, Tom Turner joined the company as chairman. Ted Schmidt joined Collateral in Columbus as principal and director, and is now combining the agency business, the Fannie Mae DUS business, the Freddie Mac business and the insurance business in that office. In addition, we have opened the Minneapolis office, where I am based. Nine associates, five officers and four analysts have joined Collateral in the Milwaukee office.

Currently, Collateral operates four offices in the Midwest: Kansas City, Columbus, Minneapolis and Milwaukee. There is room for one more office in the Midwest. That location will be driven by opportunity and the availability of the right individual to head it up.

HREB: What are Collateral’s plans for the Midwest markets?

Davis: We aim to make all four offices into full-service offices — containing both the agency related business, focusing on multifamily and manufactured housing, as well as the insurance company business, focusing on all products types. In Kansas City, Minneapolis and Milwaukee, the thrust will be to bring more agency business to those markets with extensive insurance relationships. In Columbus, where it is more agency based, we will bring in more insurance company relationships. Having full-service capabilities in all of our offices will be very important to insurance company lenders. Through crossover in market areas, we will develop a network to better service our clients.

HREB: What steps has Collateral taken to position itself as a power player in the Midwest?

Davis: In addition to acquiring Charter American in Kansas City, we have attracted the dominant players in Milwaukee. In Columbus, we have a highly regarded professional team run by Ted Schimdt. In regards to Minneapolis, I have been in this business for 30 years, and I have two strong real estate professionals that have joined me here: Chris Perry and Dave Rasmussen. We will bring the agency business to the area and expand our marketshare in the Twin Cities.

HREB: How important are Collateral’s new staff members?

Davis: I was very pleased Perry and Rasmussen joined me in Minneapolis. They will jump start us here in Minneapolis. In Milwaukee, the new nine-member team will become the dominant firm and greatly enhance Collateral’s production in 2003.

HREB: What type of year do you see for the real estate market in 2003?

Davis: I see a challenging year ahead. There will be an abundance of capital available juxtaposed against a limited amount of product. We will also see soft real estate markets.

It is ironic that in 2002, at least in the first three quarters, the commercial real estate market was achieving record levels. There was limited amount of product, soft markets and this record debt level. There are three main reasons for that, including the historically low interest rates, an abundance of capital, and the creative and flexible financing programs that are available, such as structured finance. Those levels will continue in 2003. At the end of 2003, and certainly in 2004, the industry will benefit from a greater number of loan maturities, which will lead to refinance business.

HREB: How do you decide which property types to finance?

Davis: Property type financing is driven by our borrowers’ needs on one hand and our lenders’ investment appetites on the other. Any specific client could have a need for an industrial loan or to refinance a multifamily property. So we try to be generalists, while being experts in each property type and offering a number of capital services to our clients.

Historically, Collateral has concentrated on multifamily, industrial, office and retail property types. The company has also been one of the largest lenders for manufactured housing. It is a niche play, but a very large play for us.

In the past, we have financed multifamily properties the most, but with the insurance company representation we now have, that will become more balanced. Also, multifamily, for the past 2 years, has been the favored property type of investors. Recently the underwriting for those properties has become more stringent. In order of property types we prefer to finance, multifamily would be first, followed by industrial, office and retail.

With our structured finance, a troubled property in a state of transition can be financed. Since real estate markets have softened and occupancy levels have dropped, properties need to be refinanced and borrowers have needed capital services beyond first mortgaged debt. That is where structured finance comes into play.

HREB: Does Collateral currently have any large deals in the works?

Davis: In the first quarter of 2003, Collateral will close a refinance deal in excess of $200 million. Last year, the Kansas City office arranged a $110 million loan.

HREB: What do you see for Collateral in 2003?

Davis: In the Midwest, I see attracting additional capital sources to our respective markets and branding the Collateral name in our new markets, Minneapolis and Milwaukee. Overall, the company is spending large amounts of money and time expanding its technology platform. That will enhance our ability to service our clients in 2003.


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