In the commercial lending business, Berkshire Mortgage Finance (BMF) has found its niche. The Boston-based company offers multiple lending programs for the acquisition and refinancing of multifamily and commercial properties as well as healthcare facilities. Heartland Real Estate Business recently spoke with Vice President Jeff McMcVehil to find out about the company’s past, present and future.

HREB: Tell us a little bit about Berkshire Mortgage Finance and the types of loan programs you offer.

McMcVehil: BMF, originally Krupp Mortgage Company, was started in the mid- to late-‘80s. At that time, we specialized in participating mortgages in conjunction with HUD [Department of Housing and Urban Development] and Fannie Mae deals. The company has steadily grown since that time to when, starting in the ‘90s, Fannie Mae really became our main product line. In the mid-‘90s, we developed a conduit program where we sold $1 billion to $1.5 billion in loans to the capital markets, primarily to Bank of America. In the mid- to late-‘90s, we also added Freddie Mac as one of our major programs and have continued to do a little bit of HUD business all throughout the ‘90s.

We also have our own proprietary mezzanine debt program that we started about a year ago. It allows a borrower to put mezzanine debt behind a Fannie Mae or Freddie Mac first mortgage and enables them to leverage up to 90 percent of the property. It’s designed to be used primarily for rehab deals where adding significant value and physical improvements to the property will result in increased rents.

HREB: Where is your business primarily focused?

McMcVehil: Our business is national. The main office is in Boston, but in the last 5 years, we’ve bought two competitors: the former Patrician Financial Company in Bethesda, Maryland, and Bankers Mutual in Irvine, California. The Boston and Bethesda platforms have a network of smaller offices around the country and some exclusive correspondent relationships in other markets. The Irvine platform will do business anywhere, but most of it tends to be in California.

HREB: Who makes up your client base?

McMcVehil: Our client base is diverse, running from the small ‘Mom and Pops’ all the way up to the largest institutional players — pension fund advisors, major REITs [real estate investment trusts] and the biggest private owners. For example, we’ve done large packages with Archstone, Aimco, Equity Residential and Western National.

HREB: What is BMF’s business strategy? How do you compete in today’s market?

McMcVehil: As you see the commercial real estate finance business become more and more commoditized, with a lot of players offering essentially the same product, it becomes necessary to add value to your customers by virtue of the quality of service you can deliver to them. We really see ourselves as almost an investment banking advisor to our clients, particularly with our bigger, more sophisticated clients, where we can look at their overall business and advise them as to how we might be able to help them from the debt side to meet their goals and to grow as they want to grow.

HREB: What do you look at when you loan money for a property?

McMcVehil: Almost all of what we do is apartment finance, so we look at property location, borrower credit-worthiness, loan-to-value and debt service coverage, and historical operating performance of the property and the market. We also do independent living facilities and a little bit of assisted living, but we don’t do full-fledged nursing homes.

HREB: Why those two areas?

McMcVehil: That’s been our history — it’s what we were founded on. Our private ownership in Boston actually started as apartment owners, and they still own 15,000 to 20,000 units around the country. So that’s really where our expertise is and why we’ve stayed in apartments and the less medically intensive part of the senior housing spectrum.

HREB: Are you cautious about certain types of properties or locations?

McMcVehil: Not in a general sense. We feel that given appropriate underwriting, you can find a way to make a transaction work, even if it’s in a softer market or the property has some physical issues. We can address those through the structure or pricing of the deal, and through the level at which we’ll loan.

HREB: Are there any current trends or changes in real estate and/or commercial lending that are affecting your business?

McMcVehil: We’re definitely seeing a softening of a number of markets nationally. In Northern California and a lot of the other major markets in the country, we’ve seen a softening since September 11 that everyone has seen, and it has resulted in some deteriorating economics for a lot of deals that we look at. The one thing that has saved us and enabled us to keep our level of business pretty high is the fantastic interest rate environment. So even though property incomes are down in a lot of markets around the country, they can possibly maintain the same level of loan proceeds because interest rates have also dropped. I think that’s true in the Midwest as well. In fact, the Midwest has probably fared a little better than some other areas that are a little more dependent on technology employment for their economic base.

HREB: How does business thus far in 2002 compare with 2001?

McMcVehil: We’re running a little behind. 2001 was the blowout year in the history of commercial real estate finance, and we’re probably about 25 percent below that. That’s a result of the softening of markets and the fact that we financed so much last year that it winnows down the field of eligible properties.
HREB: What do you feel are the keys to success in the commercial lending business?

McMcVehil: Service, deliverability and speed. When I say deliverability, I mean when somebody comes to you for a loan, they need to know on the front end what you can do for them and you need to be able to deliver 30 or 60 days down the road. You need to be able to deliver the deal exactly as you quoted it so they can have faith and confidence in your performance and make their business decisions accordingly.

HREB: What do you think sets BMF apart?

McMcVehil: Really, we pride ourselves on just the level of personalized service that we give to our clients and the ability to be like an investment advisor and help them meet their needs and grow as a company. It’s a collaborative effort. On the other end of the equation, we also have very good relationships with the investors to whom we sell our loans — Fannie Mae and Freddie Mac — and because we do a lot of business with them, there’s a familiarity and a level of trust that helps us get things done.

©2002 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.