PNC Financial To Acquire ARCS Mortgage

CALABASAS HILLS, CA-ARCS Commercial Mortgage, one of the country's leading multifamily lending specialists, has agreed to be acquired by Pittsburgh-based PNC Financial Services Group Inc., one of the nation's largest diversified financial services organizations. It's a deal that Howard Levine, founder and CEO of ARCS, describes to GlobeSt.com as a sign of changing times in the multifamily sector of commercial real estate finance.

Levine tells GlobeSt.com that although ARCS has been very profitable, "the future of this business is in the hands of larger, well-capitalized major corporations." Levine points out that ARCS is the latest in a group of multifamily DUS lending specialists that have been acquired by larger institutions in order to remain competitive in light of the greater demands being placed upon them by customers.

"Virtually every DUS lender is now a part of a larger financial institution, and for us to compete with them, we need to have the products and the capitalization that they have," Levine tells GlobeSt.com. He points out that in the years since ARCS was founded in 1995, customers seeking multifamily financing "have become a lot more sophisticated and a lot more demanding," which in turn has led multifamily lenders to align themselves with larger institutions to offer more types of products from more capital sources.

Financial terms of the deal between privately held ARCS and publicly traded PNC were not disclosed. The companies expect the deal to close in the third quarter of this year, subject to customary regulatory approvals.

ARCS, which has been the nation's No. 1 Fannie Mae DUS lender year in and year out, operates 10 origination offices in the US. It originated more than $2.1 billion of loans in 2006 and services approximately $13 billion of loans.

ARCS was established when Levine and a group of investors bought the commercial mortgage division of ARCS from the Bank of New York Co. The firm's loan volume has grown steadily every year since then, and its servicing portfolio now extends to more than 1,800 properties in 40 states.

Although the company has grown rapidly, it emphasizes in its web site description that "the goal was never size, but extraordinary service." Levine comments that PNC's commitment to service, which "dovetails with our own," was one of the factors that led to the acquisition agreement.

ARCS is also an active FHA lender, a Freddie Mac lender in select regions and a conduit lender. It offers bridge and mezzanine financing through its affiliate, Topanga Funding LLC, as well as several other sources.

PNC is one of the nation's largest diversified financial services organizations providing retail and business banking, specialized services for corporations and government entities, real estate finance and asset-based lending, asset management and global fund services. William Demchak, PNC vice chairman and head of corporate and institutional banking, says that the PNC's acquisition of the Calabasas-based firm will complement the expertise and customer base of the Pittsburgh-based company, especially in the multifamily arena.

Demchak cites the significance of multifamily housing finance as "one of the largest lending sectors in commercial real estate," accounting for about 30% of the annual volume. Levine tells GlobeSt.com that he is bullish on the near-term outlook for the multifamily lending sector, pointing out that 2007 thus far has been a robust year and that he expects it to remain so.

Levine's outlook is based in part on the slowdown in the single-family home market, which traditionally boosts the multifamily market. In addition, he points out, "More and more people are choosing multifamily as a lifestyle decision rather than as a necessity, so I'm pretty bullish on the immediate future."