MuniMae is buying Fla. firm; $45 million deal places local company in billion-dollar club; 'This is a home run'; Midland Cos. makes loans on behalf of Fannie Mae; Acquisitions


Municipal Mortgage & Equity LLC, a local investment firm specializing in tax-free real estate bonds, will join the billion-dollar club after it finalizes an acquisition deal announced late yesterday.

The publicly held firm, better known as MuniMae, said it is buying Midland Cos., of Clearwater, Fla., in a cash-and-stock deal worth $45 million. When completed by mid-month, the combination will vault MuniMae from a company with $800 million in assets under management to one that tips the scales at $1.7 billion, said Mark K. Joseph, MuniMae's chairman and chief executive officer.

"This will give us a broader reach," Joseph said. "We will see more deals, and we will see better deals -- it gives us a wider set of opportunities."

Said Keith Getter, a managing director with MuniMae's investment banker, Legg Mason Inc.: "This is a home run for the company. It can't do anything but" help fuel growth.

Midland is one of only 26 companies nationwide that are licensed to make loans on behalf of Fannie Mae, the giant that helps keep the mortgage markets moving through its large-scale purchases and sales of mortgage debt.

Midland also is one of only three companies among those 26 that can offer equity- and debt-financing for real estate projects.

Midland manages construction-loan investments on behalf of pension funds, and raises equity from corporations for investments in the federal affordable-housing tax credit program.

MuniMae shareholders should see the amount available for payout as dividends increase next year as a result of the deal. They also can expect to see a jump in the percentage of MuniMae's dividend that is free from federal income taxes, said Michael Falcone, MuniMae's president and chief operating officer.

MuniMae is a financial hybrid, combining the features of a real estate investment trust, a limited partnership and a tax-free bond fund.

The firm originates, invests in and services tax-exempt bonds for apartment housing. It also, at times, takes tiny ownership stakes in some of the multifamily housing projects for which it helps raise money.

And because MuniMae is organized as a limited liability company, it can "pass through" to its stockholders the portion of its cash flow generated from these tax-free investments -- making that portion of the dividend tax-free, too.

That is of potential benefit to investors seeking tax-free income -- often, those in higher tax brackets.

For example, when MuniMae shares are yielding 7.8 percent, investors in top tax brackets would have to find bonds or other taxable investments yielding 12.3 percent to keep the same amount of money in their pocket after paying Uncle Sam.

But since MuniMae is a public company, shareholders also get a shot at capital gains if the company's shares increase in price.

Joseph, the MuniMae CEO, said the company wanted to become one of Fannie Mae's designated loan-makers, but couldn't, since no new licenses are being issued. Instead, after searching through the industry it discovered Midland, which had a partner wishing to retire. After "spending a lot of time getting to know the people," Joseph said he felt that the cultures and values of the two companies were close enough to make them a good fit.

The two businesses are complementary, said Robert J. Banks, Midland's chairman and CEO.

"With the similar business philosophies and cultures between Midland and MuniMae, and with the capital sources now available to us, we anticipate an even greater ability to serve our customers' needs, to provide growth and challenge for our employees, and to enhance shareholder value," he said.

Because of its debt-and-equity capabilities, and its Fannie Mae seal of approval, the Midland deal gives MuniMae entree to deals the local company might otherwise not see, as well as giving it easier access to the capital it needs to grow.

For Midland, which remains largely intact as a subsidiary, the deal gives it access to geographic markets, customers and projects from which it otherwise might be excluded, the companies said.

MuniMae's investment portfolio is secured by 76 housing communities in 18 states and the District of Columbia, and contains nearly 19,000 units.

Midland adds 480 communities with 32,000 units to the combined portfolio.

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