RBC Opening Office for Real Estate Loans

Orange County Business Journal, Feb 26-Mar 4, 2007 by Tolkoff, Sarah

FINANCE: Bank makes West Coast push with mortgages sold as bonds

The investment banking arm of Royal Bank of Canada is setting up shop in Newport Beach's Fashion Island next month.

RBC Capital Markets plans to hire about five local workers for the office, which is set to be the West Coast hub for its real estate mortgage capital division.

The Toronto-based bank is betting on Orange County's growing commercial real estate market. It plans to lend to building buyers here and then sell the mortgages to investors as bonds.

"I'd like to see the West Coast do over a billion dollars (in loans) over the next 12 months," said Dan Smith, managing director of RBC Capital Markets' real estate mortgage capital division in Dallas. "It's an aggressive goal, but it's reachable."

Commercial mortgages sold as bonds have more than doubled since 2004 to about $200 billion last year, according to the Commercial Mortgage securities Association, a trade group.

RBC makes loans to buyers of apartments, stores, malls and shopping centers, office buildings, self-storage complexes, hotels and industrial buildings.

The loans range from $5 million to more than $100 million and have fixed or floating interest rates. They can be for five, seven or 10 years.

RBC pools the loans with those from other banks and sells them to investors.

RBC draws on its own deposits to make loans.

"We make our money through origination fees plus fees (from) arbitrage when we sell the loan," Smith said. "We also make money by the interest rate paid by the borrower."

RBC Centura is the U.S. banking division based in Raleigh, N.C. Branches are in the Southeastern part of the country. The bank is the sixth largest in North America by assets, which totaled about $397 billion last year.

The real estate mortgage capital division has been growing since opening its first office in Dallas in September.

That unit has sold about $1.2 billion worth of commercial mortgage bonds in just a few months. Smith said.

RBC opened an office in Chicago in January and another is set for Phoenix later this year.

Smith didn't say how big the Fashion Island office will be. It's expected to open sometime in April, he said.

Plans are to hire from the county's pool of mortgage executives.

"There's a wealth of talent in Southern California," Smith said. "To us, it's important to have local expertise. They can provide better, quicker and more dependable service."

RBC hopes to work with big local property owners, such as The Irvine Company, he said.

About 80% of business could come from local real estate brokers, Smith said.

"We would want to do loans through large owners of office and retail space," he said.

Loans for retail buildings will take the biggest chunk of RBCs loan portfolio, followed by apartments and then office, according to Smith.

Self-storage space is set to make up about 10% of its loans, he said.

RBC already has a deal with Newport Beach-based Buchanan Street Partners' Buchanan Storage Capital, which arranges financing for self-storage acquisitions.

According to the deal, which was announced in November, RBC has agreed to finance self-storage acquisitions through Buchanan.

Buchanan's also agreed to provide RBC first dibs on selling its mortgages as securities.