In weak market, loans still there for commercial projects
By Marilyn Bowden
Executives at local banks say that while underwriting criteria are more stringent, there's still money to lend for income-producing commercial projects.
"We're mainly geared towards looking at commercial income-producing properties," said Clay Wilson, executive vice president of commercial lending at BankUnited, "whether they are apartment buildings, retail shopping, medical office or industrial."
For example, he said, on the office side, "South Florida continues to grow in the area of medical requirements, so that is one profession that in my opinion should be viewed as a growth industry."
In retail, Mr. Wilson said, BankUnited looks for grocery—anchored centers or a project that has been stabilized and also shows some growth.
The commercial sectors, which were held back by rocketing land costs in the earlier years of the decade, now need to catch up to provide services to the growing population, he said, and "well-experienced, well-capitalized developers are going to do very well in this market, especially those who have contacts on the retail or industrial side."
Jay Jacob, a vice president in commercial lending with Community Bank of Broward, said "we are looking at a lot of industrial warehouse projects right now. The acquisition and development market has dried up, and a lot of developers are reluctant to get in to these types of projects."
The retail market is also drying up, he said, because many national retailers are hesitant to get into new spaces.
There's been an uptick in Small Business Administration-funded properties for owner-occupied real estate, Mr. Jacob said. "That allows banks to assist buyers who might not have a lot of capital. They are able to come in with a 10% capital injection rather than 25%."
Union Credit Bank, said William Walker, senior vice president of commercial lending, is looking at several income-producing properties. "Something stabilized would be the best, but it's very competitive out there."
He said it could be anything from a neighborhood strip center to an owner-occupied office. "Anything that has the cash flow and there is a market for, we will look at.
But lenders say getting a loan for any project these days is tougher.
"The underwriting criteria are fairly rigid," Mr. Walker said. "We like a seasoned borrower with a track record, and a project that hopefully is cash-flowing and stabilized or, with a new project coming out of the ground, has appropriate preleasing."
Preleasing requirements in South Florida are generally around 50%, and Mr. Walker said Union Credit also looks at the market and also how long the project has been going on.
"If the likelihood is that it will be completely leased in a short period of time, 50% might work," he said.
"National credit tenants are preferable. We have seen people walking away from purchases and preleases, so we have to be very careful and see whether vacancies are on the rise and if the borrower has the ability to cover any shortfalls."
"We look at the developer first," BankUnited's Mr. Wilson said. "He may have other projects with a risk, so we have to look at everything the developer is involved in. Then we will look at the dynamics of the project itself — preleasing, the reliability of the general contractor and so on.
"Banks across the board are being diligent with our underwriting. Our typical criteria would be 70%-75% loan to value; in the case of existing retail that they be stabilized; and for new construction, a certain level of preleasing to show the viability of the project."
Mr. Jacob said Community Bank of Broward is seeing more deals as a community bank than it did a few years ago.
"Many of the larger lenders have capital issues and are very strict as to what they will lend on," he said. "Our challenge is to filter out the deals that pose too much credit risk."