As chaotic as the commercial real estate market is these days, the pre-engagement deal MNC Financial Inc. has with banking titan NationsBank Corp. isn't expected to shake things up much more.
"I don't think it will change things one iota," said J. Joseph Casey, president of Casey & Associates Inc., a commercial real estate brokerage firm in Baltimore.
Charlotte, N.C.-based NationsBank agreed July 16 to invest $200 million in MNC in exchange for a stake in the company and the right to acquire it within five years. But that doesn't change MNC's goal to get non-performing assets -- past-due loans and repossessed real estate -- down to about $1 billion by year's end, spokesman Daniel Finney said.
"If we can continue the trends we've seen so far, we ought to be able to get non-performers down to about a billion, give or take $100 million, by the end of the year," Mr. Finney said.
Plans at MNC, parent company of Maryland National Bank and American Security Bank in Washington, may not change much, but some developers still are worried. MNC and other banks already are taking some controversial actions to shed troubled loans, and some developers fear that pressure to impress NationsBank could lead MNC to squeeze shaky borrowers further.
"They'll do everything possible to effect the merger," said F. Patrick Hughes, president of BTR Realty Inc. in Linthicum, whose major lender is First National Bank of Maryland. "If it's in their best interest to call all the loans in the portfolio to accomplish the NationsBank thing, that's what they'll do."
Some developers also fear that MNC will shed repossessed buildings at fire-sale prices, sparking backbreaking competition late in the recession.
MNC and other lenders had begun to do that in recent months even before the NationsBank deal was set. MNC cut non-performers to just less than $1.4 billion at midyear, $472 million less than in September.
Buildings acquired at such low prices could be leased at low rates by their new owners, hurting developers who have remained solvent. Robert Manekin, senior vice president at Manekin Corp., calls such resales "the aftershock of the real estate earthquake."
Today, MNC appears to be shedding as many troubled assets as possible, as soon as possible, to make the company look good to Nations Bank.
That's probably the smartest strategy, said Raymond C. Nichols, president of BSC Financial Group of Baltimore, a consulting firm that works with Maryland National and other banks on managing and disposing of troubled real estate.
"My guess is that the folks in Charlotte will want them to move quickly," Mr. Nichols said. "I'd want them to keep going and sell these troubled assets, so I won't have to deal with them down the road."
"That's a good interpretation," Mr. Finney said.
Even if they are accelerated, MNC's moves might not hurt developers already battered by bad times.
Office rents are dictated mainly by what tenants are willing to pay, some real estate specialists say. The cheap asset sales by banks don't affect demand, said Ronald Lipman, a consultant with the Lutherville firm Lipman, Frizzell & Mitchell. Ultimately, demand is the key to keeping struggling landlords in business, he said.
In any event, it is not in MNC's interest to dump real estate so fast that it undercuts the market. Why? Because that could hurt other building owners -- and many of them hold loans from MNC.
"The bank is going to behave in a way that's good for the bank," Mr. Lipman said. "Why should they pump more REO [real estate owned by the bank] into the market than it can handle?"
Still, the NationsBank deal carries some risk for the region's commercial real estate market. In fact, by strengthening the capital positions of Maryland National and American Security banks, the cash infusion from NationsBank could make MNC a more active lender.
"It's too early to say," said David Penn, a banking analyst wh follows MNC for Legg Mason Inc. in Baltimore.
"I would expect them to get a little more liberal. . . . They haven' been doing anything [in lending] at all."
Those loans would be far more likely to finance sales of existin commercial projects than to add more speculative office space to a metropolitan market whose vacancy rate passed 20 percent this year.
Mr. Finney said MNC will look at real estate loans on case-by-case basis, insisting that the company has no firm target for the percentage of its portfolio it wants to devote to real estate. But, he said, the bank doesn't want "ever again to repeat the over-concentration in real estate we've already experienced."