Minneapolis-based Lutheran Brotherhood has been making commercial loans to borrowers every year for the past 30 years, and has become somewhat of a pioneer in the strategic portfolio management of commercial/multifamily loans - utilizing both private and public investment vehicles to accomplish its goals.

"We have been successful because of quick decision-making skills and a very experienced staff," said Gary Kallsen, vice president of mortgage loans and real estate at the company, which boasts $25 billion in assets. "We are consistent in the dollars available, and we know what we want in the marketplace. If we see that product, we act quickly with an internal approval process. And those that work with us would attest that we try hard to give a decision in 48 hours."

With a solid system of correspondents that has been in place for at least 10 years, Lutheran has been very consistent in the number of dollars that it lends each year, and has sold to the commercial mortgage-backed securities market three times since 1996.

Kallsen, a veteran in the securitization of commercial mortgages, has seen the company's mortgage portfolio grow from $1.7 billion when he started there 10 years ago, to $2.5 billion, a "level we want it to be at," he says.

"We are a good midsize company," Kallsen explains. "About half of our total assets are in life insurance products and services, and the other half is in mutual funds. Our mortgage portfolio is fairly constant."

The Brotherhood lends between $350 million and $500 million yearly, Kallsen says, with a 1999 total of $420 million in loans. Though the company is generaly restricted to selling its mutual funds, life insurance products, health products and array of bank services to Lutherans only, it will "sell loans to anybody."

Kallsen is particularly proud that his company's cash flows for fixed income products, for the first time in six years, aligned with mortgage fixed-return investment, has increased by 20% this year, and hopes that cash flows will pick up by at least $100 million over the next several years.

Following the CMBS Market...Religiously

Lutheran Brotherhood started securitizing its commercial mortgage portfolio in 1995, when Kallsen conducted a whole loan sale of its securities to another life insurance company.

It then sold to the CMBS market in 1996, 1997 and 1998. The 1997 deal was a full public sale with Morgan Stanley Dean Witter as lead manager; the 1996 and 1998 deals were private placements done in conjunction with Newman & Associates, a Northfield, Ill.-based subsidiary of GMAC-RFC.

Kallsen said that the Brotherhood plans to continue lending in the $1 million to $5 million range, despite the fact the company has enough resources to make bigger loans.

"We're a big enough company to do $10 million to $20 million loans, but we stay in the small loan area, doing around 120 loans each year," he noted. "That market has really served us well. We work harder, but we like the quality in that market, and there is a little less competition in that arena as well."

As far as product types are concerned for collateral in CMBS transactions, Kallsen says that his company prefers retail and industrial, "but we do apartment, offices and specialty products sometimes too."

Going forward, Kallsen says he is a proponent of conducting CMBS transactions in the private market, where he says there is more flexibility with structures and ease of execution. He expects at least one CMBS deal for 2000, and possibly more, done as a private placement.

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