Big Deals Turn Lenders Into Major Owners

Big deals attract--and may deserve--big words to describe them.

In recent real estate conferences, speakers have repeatedly used such phrases as “securitization of real estate” and “industrialization of real estate” in defining the changing role of major firms from lenders to owners.

Realtors and mortgage brokers talk plainer than that, but when some of the nation’s most prominent corporations buy highly-visible major properties, the commonly used phrases of “big deal” and “major transaction” apparently fall short of the best description.

In addition to the vast sums of money involved, the unusually large deals recorded last year solidify an industry trend among financial giants and institutions--their changeover from the traditional financing of real estate developments to ownership of classy properties.

The institutionalization of real estate is best described by real estate activity in 1984, when three transactions of more than $1 billion and eight of $400 million, or more, took place. That qualifies as being secured.

Stephen Roulac, a San Francisco-based realty consultant who tracks such activity, said there were only six deals in 1983 which approached the $400-million figure.

His research also shows that 19 transactions of $200 million or more took place last year, compared to nine in 1983.

Such large amounts of money are important beyond their sheer size because they stress the significant trend sweeping through the industry.

” . . . these megadeals are part of the accelerating institutionalization of the real estate industry, which reflects a growing shift from real estate lending to ownerships of prime properties by major financial institutions such as large insurance companies, the top banks and pension funds,” Roulac said.

“Prices for prime properties, whether they be residential, commercial or whatever, serve as a barometer of real estate in general. In the short term, such megadeals serve to test where the real estate equity market is headed; specifically, if prices for prime properties will continue to climb or if prices are leveling off. Based on the largest transactions of the past year, it appears that prices . . . are continuing to climb.”

Principals in last years largest megadeal were the Federal National Mortgage Assn.--Fannie Mae--and Financial Corp. of America. Fannie Mae exchanged $1.2-billion in mortgage-based securities to the corporation for a pool of variable-rate mortgages.

The two other whoppers, each at $1 billion, involved JMB Realty Corp. buying 17 million square feet of office, commercial and mixed-use properties from Aetna Life & Casualty while Merrill Lynch sold its New York City headquarters and leases to Olympia & York for an equity position and a long-term lease on One Liberty Plaza, also in the Big Apple.

Other blue-chip players included such insurance firms as CIGNA (affiliate of Connecticut General), Equitable, Metropolitan and Prudential and such major syndicators as First Winthrop Corp., Integrated Resources and JMB Realty Corp.

Realtors, take note, Roulac added, because few traditional real estate brokers were involved in the megadeals.

For instance, the investment banking firm of Goldman Sachs served as broker on five 1984 transactions, each one exceeding $288 million. Other investment bankers involved included Eastdil Realty, Morgan Stanley and Salomon Brothers.

A Merrill Lynch syndication totaling $416 million topped the field in public offerings, and First Winthrop Corp.’s $433-million fund headed the list of private syndications. Both were new records.

The immensity of last year’s unprecedented transactions suggests that another blanket of security may be anticipated this year.