Commercial mortgage lending in Massachusetts plummeted more than $16 billion during the first three quarters of 2008, according to an analysis by Banker & Tradesman.
Between January and September 2008, lenders made just $44.6 billion in commercial real estate mortgages in the Bay State, a 27 percent drop over the same period last year when $61 billion was closed.
More than $13 billion of that loss can be seen in purchase loans: So far this year, $6.1 billion in purchase loans have been made, compared to $19.4 billion through three quarters last year.
Lenders have also been making fewer commercial mortgage loans: 13,141 so far this year, or 22 percent less than last year’s 16,898 loans through three quarters. A fourth of that drop was seen in the nearly 1,000 fewer purchase loans made during that period.
The data covers all loans issued on non-residential Massachusetts properties. The top-25 lenders, ranked by number of loans made, included national and regional banks and a handful of community banks under $1 billion.
They stayed mostly the same year-over-year, with a few notable exceptions, including GreenPoint Mortgage Funding – which was 10th in 2007 but dropped off the list entirely in 2008 – and National City Bank, which fell from 19th in 2007 to 239th this year.
Observers say the lending drop-off can be traced mostly to fewer larger commercial loans being offered, rather than fewer loans overall.
Non-bank investors, who prefer larger loans (generally, more than $5 million), have backed off, they said.
“It’s the largest loans, which [were] backed by commercial mortgage-backed securities and the life insurance industry, that are gone,” said George Fantini, principal at commercial mortgage broker Fantini & Gorga, in Boston. “CMBS is gone, and life insurance companies are more selective about what they do.”
Banknorth Bumps BoA
TD Banknorth was the fourth-largest commercial mortgage lender in Massachusetts through September 2007, ranked by number of loans closed. It closed 436 loans totaling $485 million.
The bank jumped to first place this year, closing 459 loans for $1.3 billion – and knocking lending giant Bank of America from first to second place.
“We are one of the few firms that avoided any subprime [investments or lending],” said David Glidden, chief lending officer for TD Banknorth’s Southern New England region. Portland, Maine-based TD Banknorth had a few investments in subprime securities, but exited all of them in 2005, he said, and has steered clear ever since. Today, the bank has no liquidity problems, Glidden said.
Charlotte, N.C.-based Bank of America closed 444 loans, totaling $2.1 billion, through September 2008. During the same time frame in 2007, it closed 699 loans totaling $4.2 billion.
It has loaned more commercial mortgage dollars this year in Massachusetts than TD Banknorth, even though it has closed fewer actual loans.
Of the state’s top-25 lenders, regional Sovereign Bank and national lender JP Morgan Chase have closed more dollars in commercial mortgage loans on Massachusetts properties than either Bank of America or TD Banknorth this year, even though they made fewer actual loans.
Cue The Tumbleweed
Regardless of whether they can get a commercial mortgage these days, there are probably fewer businesses that actually want one, said Jim Jones, president and owner of bank strategy consulting firm First Wellesley Consulting, in Wellesley.
“The bottom line is, it’s an uneven environment,” he said. “Maybe a business would rather rent or lease in this economy.”
But Stephen K. Mackowitz, head of commercial lending at the state’s largest credit union, $4.4 billion Digital Federal in Marlborough, said 2008 has been Digital’s best commercial lending year ever.
“We’ve done a lot with very strong customers who are looking for bargains,” said Mackowitz, whose employer rose from 35th to 11th place by number of commercial mortgage loans made. It has loaned $173.7 million this year – nearly triple the $58.1 million loaned in 2007.
“People are buying office buildings and industrial parks,” said Mackowitz.
Most of Digital Federal’s current business is coming from existing customers, he said – all of whom have become customers since 2002, when the credit union started doing business lending.
The numbers back the claim: of Digital’s 122 loans through Q3 this year, 105 were refies – comprising $161 million of its $174 million total thus far.
Digital is getting lots of calls from borrowers that large banks have turned down for commercial mortgages, Mackowitz added, but it can’t help many of them, since they often fall short on one or another standard creditworthiness measure.
Over at East Boston Savings Bank, however, Chairman and Chief Executive Officer Richard J. Gavegnano said his bank is benefiting from larger banks’ woes.
“We are in great shape,” he said, particularly due to EBSB’s partial stock offering earlier this year, which raised $100 million.
Unlike larger banks experiencing liquidity problems, $1 billion East Boston Savings has money to lend, Gavegnano said, and is eager to lend it.
“I think commercial lending in Massachusetts is doing fine,” he said. “It’s not where it was [in the early 2000s], but it’s certainly healthier than in many other states.”
Mackowitz sees commercial lending benefiting from the Bay State’s thriving medical and education, which are relatively strong here compared to other industries.
“I think we’re doing better here, because of those industries,” he said.
But Fantini, the commercial mortgage broker, was less optimistic.
“2009 is going to be a year with lots of uncertainty as it relates to new lending,” he said. “Until people figure it out – until lenders are able to get comfortable with [new standards for] pricing of loans and underwriting – there is going to be a pause.”
