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.
During the marketing of the loans, CIT Group and Mr. Galligan started talking and an agreement was reached to do a lift-out of his entire team. Paul McDonnell, head of the Property Finance Group at Bank of Ireland, told The Mortgage Observer that Mr. Galligan and his team had worked professionally throughout the closure of the business. He also underscored the success the portfolio had achieved.
“We had a very good experience with Matt—he did a fantastic job for us,” Mr. McDonnell said. “I think that the best way to confirm that was the success that we had with our book over there. And when we had to sell it—and we had to sell it in terms of broader issues—we achieved a very strong price for it. A lot of that I would put down to Matt’s management of the business.”
An announcement went out over the wires at the beginning of November 2011. CIT Group Inc. president Nelson Chai heralded the arrival of Mr. Galligan and his team as indicative of CIT’s focus on opportunities for growth. “The deep relationships and industry expertise of our team will enable us to capitalize on market conditions while pursuing a conservative approach in middle market commercial real estate financing,” Mr. Chai said in a prepared statement at the time. He added the launch highlighted a “focus on growth opportunities and efforts to source and build assets at CIT Bank.”
The road to CIT Real Estate Finance—his fifth start-up, no less—has taken Mr. Galligan through a long list of familiar bank names. He grew up in Wallingford, Conn. and attended college in Worcester, Mass. at the College of the Holy Cross. He and his wife, whom he met at Chase, have two sons and live on 41st Street, an easy walk to his new office.
Personal projects include golf, travel and reading (on a recent trip to Aguadilla on Puerto Rico’s western coast, he worked his way through His Way: The Unauthorized Biography of Frank Sinatra, by Kitty Kelley). He meditates twice a day.
Professionally, he got his start in the Chase global credit training program. While finishing up the program, he met and started doing some analytical work for William McCahill, who retired last October from Capital One, where he was an executive vice president. The two became mentor and mentee.
Reached at his home, Mr. McCahill told The Mortgage Observer that he saw at the time “a fantastic young guy—very bright and energetic.” After ten years at Chase, where he left as a vice president and team leader in the Real Estate Department, Mr. Galligan went to the Bank of Boston. There, he created and managed its real estate distribution process—structuring, arranging and placing multi-bank syndications.
Recruited to run its syndications desk, he rejoined Mr. McCahill at Fleet in 1996.
“He became what I would label the high priest of the syndications world,” Mr. McCahill said of his friend. “He was by far I think the most respected banker in putting major syndicated deals together. That reputation really put Fleet into the big leagues, so we were able to do $200 million and $300 million deals because we knew Matt and his group could sell them down very quickly.”
When asked about the title later, in CIT Group’s offices, Mr. Galligan shunned the credit. “He’s being very modest,” he explained. “He’s really who put Fleet into the big leagues here in the city.”
But structuring syndicated loans was definitely an area of focus, and one that provided him with a plethora of contacts. “I syndicated debt for 15 years, and that’s how I established a lot of my contacts here in New York because I was here for 10 and then I went to Boston for 20, but I was constantly on the phone with bankers in New York,” he explained. “And I got into that business when it was developing so I was one of the early guys and I’ve gotten to know an awful lot of people as a result of it.”
At CIT Group’s midtown offices, homage is paid to one of the bank’s primary business areas. The bank is a leading aircraft lessor and dozens of aircraft models line cabinets and walls on the route back to the area where Mr. Galligan and his team sit. By industry, commercial and regional airlines comprise the largest chunk of the assets in its portfolio, at 25.9 percent. And as December 31, 2011, transportation finance was a $13.3 billion portion of the bank’s business. Student lending—originations ceased by April 2008—still made up 18.5 percent of its assets at the time, followed by manufacturing at 12.9 percent.
Its total assets, as of December 31, 2011, were $45.3 billion and total loans decreased from $21.9 billion to $19.9 billion over the fourth quarter of 2011, mainly due to the termination of student loan originations and the transfer of $2.2 billion of student loans to held-for-sale status.
Mr. Davis, at Guggenheim Partners, said that a part of this new chapter for CIT Group “is a return of CIT to being a more active lender after having reduced its loan and lease portfolio by about 50 percent from where it was pre-crisis.”
So with its focus on top-tier sponsors and developers in major cities, what kind of loans might come out of CIT Real Estate Finance?
“Well, first of all, what we’re looking for is not necessarily the largest developer,” Galligan said when asked that question. “We’re looking for one that’s kind of best-in-class. We typically would like developers that are building very close to the urban core because we think that there’s less risk being associated with the marketplace because there are much higher barriers to entry.”
One recent project the bank financed is Edgewater Harbor, a 24-acre mixed use industrial complex that is being converted into 495 residential units and 100,000 square feet of retail and restaurants. The project is being undertaken by National Resources, whose president, Joseph Cotter, called Mr. Galligan “the right blend of the traditional relationship banker and a market savvy New York real estate lender.”
Relationships and character seem to be key themes, in fact. In addition to terms like “best in class” and “urban core,” Galligan referenced “the three Cs” in talking about what he looks for in a borrower—character, capacity and capital.
“The driver there is character,” he said, “if the people are going to do the right thing when it’s easy to walk away and leave us with a property and perhaps a loss.”
As to how well capitalized a borrower needs to be, he indicated that it depends on the project. “There’s no specific dollar limit on it,” he said. “It’s pertinent to the project. We’re generally getting 30 percent or more equity in the deal up front and very often they’re using third party sources of capital—private equity money or one of the other sources out there—so it’s not necessarily all their capital. And it varies by transaction as well—the larger transactions, if you’re doing a $100 million deal you might want $50 million in capital where if you’re doing $25 million deals you might want $8 million.”
As CIT Real Estate Finance forges ahead, and looks to carve out its place alongside the bank’s other businesses, Mr. Galligan seemed calm about his latest startup, and having taken on something new, though familiar.
“I really like the early stages—particularly of developing a business,” he explained. “One of my key strengths is that I’m able to get people to really give their all to what they do and that’s one reason I try to be enthusiastic—if I’m giving my all to this, then perhaps it’s also what they do.”
Follow Carl Gaines via RSS.