When Bank of Ireland was ordered by regulators to make drastic cuts in the midst of the debt crisis that was roiling Europe it meant letting go of a portfolio of well-performing U.S. real estate loans.
It was a development that Matt Galligan described over lunch one drizzly and dreary afternoon as “heartbreaking.” At the time, Mr. Galligan was Bank of Ireland’s managing director and head of U.S. Property Finance, having joined in 2007 to start the group. Some four years later he was helping to wind it down.
“They did not want to sell that portfolio,” he said. “But it was the only opportunity that they had to repatriate capital.”
After an experience like this, many people might balk at the thought of once again starting something new. But Mr. Galligan, and the bulk of his Bank of Ireland team, is doing just that—launching a real estate finance division at CIT Group on the heels of its emergence from bankruptcy protection.
Analysts are taking note of the move. Guggenheim Partners’ Jeffrey Davis said that, along with a refocusing along its core businesses—these include transportation and equipment leasing as well as financing—the arrival of Mr. Galligan and his colleagues is a positive sign.
“CIT wouldn’t have hired them if they weren’t committed to the business,” Mr. Davis said over the phone recently. “I think from 10,000 feet it looks to be a really good fit for CIT. If you’re an investor I think you like it because it provides diversification. Secondly, as I understand the situation, we have a lot of commercial real estate mortgages that are financed elsewhere that are looking for new balance sheets.”
Back at lunch, Mr. Galligan said that he had just returned the previous day from a scouting trip of sorts. “We were in northern Vermont yesterday looking at an office deal coming out of the CMBS market,” he said, adding that the team has a “good feel for what’s in their wheelhouse.” And they should. That wheelhouse includes much of the same geographic targets that made up Bank of Ireland’s portfolio—gateway cities such as New York, Boston and Washington, DC.
Asked whether the move into commercial real estate finance was by its nature at odds with any effort to fine-tune the company’s core, Mr. Galligan referenced the gap that the lack of real estate product left in CIT’s roster of businesses. “I think the executives here looked at the businesses that we did have and across each line of business we were a senior secured lender,” he said. “The only product type that we were not playing in—and it was a vast hole—was this real estate product type.” Since Bank of Ireland’s team was essentially taken as a whole and dropped in to fill that vast hole, it becomes a much less risky move. Plus, as Mr. Galligan added, the company figured that “if it could be done on a moderately leveraged basis in both the middle market and in the larger trophy assets, then they were interested in being in the business.”
The move came about as the Bank of Ireland portfolio was being shopped around. CIT looked at the portfolio and passed. It ultimately went to Wells Fargo for roughly $1.2 billion. It sold at a premium. Wells later bought Bank of Ireland’s Burdale Financial Holdings Limited and Burdale Capital Finance’s portfolio of loans, about $1 billion outstanding in the U.S. and United Kingdom.