Banks tighten commercial lending
By Yudislaidy Fernandez
Banks are being even more cautious about commercial lending in South Florida's distressed real estate market, asking borrowers to show financial statements, conducting detailed collateral inspections and reviewing loans more frequently.
Appraisals today are coming in very conservative, in part, because of uncertainty in the marketplace, says Jose Monte, executive vice president and head of commercial lending at U.S. Century Bank.
"This has been the perfect storm," he said. "We don't know how things are going to pan out. Some things are getting better, but some areas are very rough."
The bank is focusing on doing business with established clients with good historic cash flows, Mr. Monte said. Clients who have maintained a steady cash flow in these economic-turbulent years, he said, are seen as more likely to fare well ahead.
But it's a tough time to start a business or fund construction of a project, he noted.
"Typical construction loans, those deals are just not going to happen today unless you have tenants lined up or leases signed," he said.
The fast-growing community bank, with $1.8 billion in total assets, $179 million in equity capital and 25 branches in Miami-Dade and Broward, is focusing more on corporate lending. These are mainly asset-based lending lines tied to inventory and accounts receivable, Mr. Monte said.
As a bank, "there are deals to be hatched," he said. "You just have to make sure you are looking at the right one."
As part of a strengthened due diligence, when issuing a loan U.S. Century is asking to see more financial information, such as banking statements to support liquidity.
"Depending on the loan type, we are focused on making sure the client has global cash flow," he said. The bank is also more conservative with the loan-to-value ratio, with a 75% ratio more common today.
"We've gone more conservative because we've noticed even in deals done last year, values have dropped since then," Mr. Monte said. "Since we don't know how things are going to pan out, we are being proactive and more conservative."
A client seeking financing for what seems like a "clean deal" may have "loans at other banks that could be draining him," Mr. Monte explained. "Eventually that will have an impact."
At a time many property owners and investors are struggling financially, verifying borrowers' creditworthiness and knowing how their other loans are performing is crucial.
"It's important to know how they are doing across town," he said, "not only at your bank."
Jonathan Kingsley, managing director and executive vice president of commercial realty advisory firm Grubb & Ellis, says banks are definitely conducting deeper credit checks.
Personal financial statements are much more important and banks continue to request a higher percentage of equity when seeking a loan.
It's more typical today for banks to require a 50% loan-to-value ratio, when before borrowers could have access to an 80% to 90% loan-to-value ratio, he said. "They are being very careful."
Longtime banker Lyan Fernandez agrees that banks today are becoming less reliant on documentation handed to them and doing more corroboration on their own.
"We are not only accepting rent rolls, we are inspecting the property to make sure the presentation of those documents is correct," said Ms. Fernandez, executive vice president, chief operating officer and a director at TotalBank, a subsidiary of Banco Popular Español. Headquartered in Miami, the expanding bank has more than $2 billion in assets and 15 locations in Miami-Dade.
Lenders are reviewing loans quarterly now rather than yearly, the common practice before, checking if taxes were paid and if insurance is in place, Ms. Fernandez said.
TotalBank has also adopted a more conservative loan-to-value ratio, she said, and is checking that borrowers have a strong cash flow before approving a loan.
Centralizing the lending process is another measure TotalBank has put in place.
The bank now funnels all loans to the commercial real estate closing department, which before only handled commercial loans, with a checklist of what has to be verified, Ms. Fernandez said. The underwriting is also now centralized in the credit department.
"In that respect," she said, "we've also changed a little how we operate."