Low-Key Lender Bridges Gulf By Servicing Real Estate Deals

Staff Reporter

From his penthouse office on Sunset Boulevard, Farhad Ghassemieh, an Iranian expatriate, runs a tiny bank on the outskirts of Beverly Hills that caters solely to real estate entrepreneurs.

The bank has two branches, 30 employees and fewer than 200 checking accounts.

But First Credit Bank represents the latest trend in banking. Small banks that serve niche markets, often with an emphasis on one ethnic group, are reaping significant returns for their investors, whether public or private. For the first half of 2003, First Credit was ranked as the second-best performing bank in California (with under $500 million in assets).

Ghassemieh, 58, set out 20 years ago to create a retail bank catering to L.A.'s burgeoning Iranian community. But he gravitated instead towards real estate. "In Southern California, real estate is the industry," he said.

Since 1983, when the bank first opened, it has gradually carved out a niche lending solely to entrepreneurs who buy properties in distressed situations for prices ranging from $5 million to $20 million.

Today, the bank has $344 million in assets. Less than 35 percent of its clients are Iranian and more than 50 percent are repeat customers.

Keeping a low profile is a priority. (Asked to pose for a photograph, Ghassemieh demurred, complaining that the bank's last mention in the press caused a barrage of phone calls that his small staff couldn't handle.)

"When you buy a big project in Marina del Rey, everyone wants to know who's behind it," said Ghassemieh, (pronounced Gaw-suh-me-uh). "But a $20 million building in the Valley is not newsworthy, though it can be lucrative. Besides, if the seller knew that the buyer was a savvy real estate investor, they would want a higher price."

Enhanced performance

The formula has worked. In the first six months of this year, First Credit had return-on-assets of 3.23 percent, according to Carpenter & Co., an investment banking firm in Irvine that tracks the state's 273 banks.

Other small banks that performed well were also niche-oriented.

The best performer, Fresno-based Murphy Bank with $90 million in assets, posted a 4.29 percent return on assets. Also among the top performers were International City Bank of Long Beach, South Coast Commercial Bank of Irvine, and Stockmans Bank of Commerce of Elk Grove.

According to Carpenter & Co. data, publicly traded banks with assets under $500 million posted the strongest stock market returns among all California-based bank stocks, an average 159 percent gain over the past three years. Among the top performers in that group was Los Angeles-based American Business Bank.

"Banks that understand ethnic or niche markets are among the strongest performers," said Ed Carpenter, the firm's principal. "What's really interesting now is we're seeing incredible returns to small bank investors."

Which is one reason why so many entrepreneurs start banks: if successful, they can be hugely profitable.

Ghassemieh, who lives in Beverly Hills, first came to the U.S. at age 15, when his parents sent him to a military school in Chattanooga, Tenn. He graduated from M.I.T. with an engineering degree and then returned to Iran for several years.

But the 1979 revolution forced his family to flee and ultimately to settle in Los Angeles in the early 1980s. Later, Ghassemieh met a friend who wanted him to invest in a bank in Studio City. "We spent so much time learning and working on the banking industry that we decided to start one on our own," he said.

He called on family, friends and a few American investors and ultimately raised $5 million from 34 investors. His two brothers also are founders of the bank.

With virtually no retail accounts, First Credit operates just two lines of business: selling certificates of deposits of $100,000 or more and processing 100 to 150 real estate loans a year. The bank opened a second office in Irvine a few years ago.

Being small allows First Credit to process loans quickly and charge a premium for it, particularly since large banks shun difficult loans.

"Larger banks don't like to get involved in distressed situations," he said. "People in real estate can get a bargain if they can guarantee to close a transaction in a certain time, especially if it's a distressed situation where someone wants to sell in two weeks as opposed to six."

Many of the bank's real estate clients specialize in converting troubled properties to new uses, often because a previous owner was unable to service the building's debt from current cash flow. A shopping center might become a small office building, or an office building can be converted into lofts.

Hotels, which have been the most difficult to finance in the current market, are First Credit's most common loan vehicle these days, followed by shopping centers and office buildings. Gas stations, which are now in a cycle where it's difficult to obtain financing, could be the bank's next big client base, Ghassemieh said.

Typically, investors purchase, renovate and resell a building within five years.

Ghassemieh shuns attention and does not advertise. With just two receptionists, the bank can only handle a limited amount of volume. Referrals come from existing customers, law firms and architects.

When Los Angeles magazine published a small item about the bank several years ago, First Credit was swamped with calls. "Our switchboard was completely clogged," he said. "No publicity is good publicity for us."

Small Soldiers: Top performing banks in California (under $500 million in assets).

Bank; City; Return onAssets*; Niche

1. Murphy Bank Fresno 4.29% Classic cars and horse trailers

2. First Credit Bank Los Angeles 3.23 Distressed real estate

3. International City Bank Long Beach 2.7 Community bank

4. South Coast Commercial Bank Irvine 2.66 Home loans

5. Stockmans Bank of Commerce Elk Grove 2.57 Livestock, full service

6. First National Bank of North County Carlsbad 2.43 Middle market businesses

7. Inland Empire National Bank Riverside 2.4 Small business

8. Western Sierra Bank** Cameron Park 2.1 Commercial bank

9. Merchants Bank of California Carson 2.04 International trade

10. Auburn Community Bank** Auburn 1.99 Community bank

*Ranked by return on assets for the six months ended June 30.

**Signed an agreement in August to merge. Source: Carpenter & Co.

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