Banks in Massachusetts are still in the commercial real estate lending business, but developers have to make more concessions than ever before to get their projects financed.
With insurance companies and investment banks backing off, well-capitalized depository banks have found their money is in high demand and can make commercial real estate (CRE) loans to their hearts’ content.
Most community banks had higher CRE loan volumes through the first three quarters of this year than they did in the same period last year. Some large banks, like Bank of America or Sovereign Bank, have scaled back their CRE loans and have significantly less volume this year compared to last.
Other banks, like TD Bank, have stepped into that void and prospered. In 2007, TD Bank loaned $389 million in CRE mortgages through the first three quarters, according to The Warren Group, publisher of the Banker & Tradesman. Through the same period in 2008, TD Bank loaned $1.2 billion.
“A lot of the opportunities we’re seeing are refi,” said Doug MacLean, head TD Bank’s New England commercial real estate division. “There has been enormous contraction in the CMBS space, in life insurance, so a lot of those places that have loans coming up are looking for new permanent financing.”
Small Is The New Big
Chuck Withee, executive vice president of Provident Bank in Amesbury, said the right sponsor or investor can make commercial real estate attractive. Provident Bank’s lending standards haven’t changed, but Withee said fewer applicants are qualifying. Still, the bank is gaining volume as other financiers scale back their lending.
“We’re seeing opportunities that might have otherwise gone to the larger banks,” said Withee. “Those opportunities are what keep our volume elevated.”
Developers with good reputations – and plenty of liquidity – are still able to secure loans for new projects. Otherwise, builders better have lessees signed on to their projects before seeking a line of credit.
“We’re looking at a lot of owner-occupied type situations,” said Bill Treddin, senior lender at Bank of Canton. “I would be cautious going into a commercial real estate transaction where the building is vacant. That really goes to the strength of the borrower, and the experience.”
Treddin said that Bank of Canton’s commercial lending portfolio has remained strong this year despite the faltering economy. Through Sept. 30 of last year, Bank of Canton loaned $185 million in commercial real estate. This year, the bank’s portfolio is at $203 million in the same period, according to the FDIC.
Citizens Bank is dealing mostly with existing customers, according to spokesperson Mike Jones, but is “prudently” searching for new customers, too.
“We’re working mostly with companies that have proven track records,” Jones said. “It helps to already have a relationship with us.”
That doesn’t mean that Citizens is only refinancing its pre-existing loans. Jones said that through the first 11 months of the year, new loan originations and closings have held steady when compared to last year. Citizens’ overall volume has decreased since 2007, however, by more than 10 percent.
Just Saying No
In some cases, regardless of the developer, certain projects just aren’t likely to be financed, according to Glenn Welch, president of Hampden Bank in Springfield.
“I think hotels are having a harder and harder time being financed,” said Welch. “I think that that is just an overbuilding phenomenon over the last couple of years.”
Welch said office buildings, specifically medical offices, are still on the table, but things have changed in the way any project will be financed. Developers now have to guarantee build outs, and have more money up front. As recently as last year loans were signed with a loan-to-value of 80 percent. Now, that number is much closer to 70 percent, Welch said.
“A lot of the developers of the last couple of years haven’t had to guarantee [build outs],” Welch said. “There is still money to loan out there, but the underwriting standards have tightened.”
