Banks Again Compete For Realty Loans
By Marilyn Bowden
With funds in their coffers again, local banks are competing to lend for commercial real estate.
"We’ve come full circle," said real estate attorney Ross Manella, a partner at the law firm of Hinshaw & Culbertson. "Banks are calling to let me know they have a lot of money available.
"Lenders got rid of a lot of bad-performing loans, and are very anxious for new loans. They are very aggressive."
In some situations lenders are vying for deals, he said; there is competition for good loans in areas such as healthcare, office and multi-family residential.
Last year Ocean Bank closed over half a billion dollars in new loans, the majority of which were commercial real estate loans, said Sam Monti, the bank’s executive vice president and chief credit officer. He said that new production was primarily centered on retail shopping centers, multifamily apartment buildings and hotel financing.
"As with many other South Florida banks, much of the commercial real estate business resulted from re-financing of properties as borrowers took advantage of lower interest rates," Mr. Monti said. "However, the new loan activity was also a result of financing purchases of properties, many of which traded hands among individual investors, but others emanating from banks as they sold off properties acquired through foreclosures or short sales."
In mid-2012, he said, Ocean Bank began lending construction loans for a few hotels and a couple of small, single-family tract development projects at infill sites.
"Ocean Bank has approved several more construction deals so far in 2013," Mr. Monti said.
FirstBank Florida, the local arm of FirstBank Puerto Rico, is "cautiously but actively" pursuing lending in the commercial real estate arena, said Rick Sanchez, senior vice president in charge of commercial lending.
"We recognize we are in an era when commercial real estate is attractive," he said. "We do feel it is part of this area’s main business, so we can’t close the door to it."
The most favored property type, Mr. Sanchez said, is multifamily residential, followed by apartments and then owner-occupied warehouses.
"With a lot more caution and stricter standards," he said, "we will look at retail and, last and least attractive, office space."
Most banks are trying to eliminate the speculative end of real estate, Mr. Sanchez said — a caveat that would normally make condos too risky. But condo developers today are financing most of the cost of construction by requiring large deposits from buyers, so the extent of bank debt is very limited.
Because there is so much competition among banks for good loans, Mr. Sanchez said, "we are seeing very aggressive terms, though not all banks are jumping at them. Some borrowers want terms that were not too popular previously, such as maturities of more than five years. They had been three to five years, but some now going to 10 years."
With rates extremely low, he said, "the whole business of commercial real estate is haunted by the fact that long-term rates are based on the US Treasury rate, which is artificially low. That’s why they want longer maturities, because if the government rate goes up, their own will be fixed for the next five to 10 years.
"So everyone has to be careful both with the interest rate scenario and the type of products we are financing. At FirstBank, we feel we are giving rates that are attractive and fair to both the borrowers and ourselves."
Wells Fargo never stopped lending in the commercial real estate sector, said Patrick Ramge, head of Commercial Real Estate in the Southeast.
"What we’ve seen over the past year in South Florida is a significant amount of ground-up development for multifamily — rental and some for-sale condos," he said, "as well as redevelopment of ground-up retail.
"We believe the industrial market will continue to be very strong, with the expansion of the Panama Canal and the port."
South Florida fell further than some other parts of the country during the downturn, Mr. Ramge said, but it has also rebounded faster than some areas. "We think we will see continued slow and steady growth."
However, bankers say they continue to vet borrowers carefully.
"We have a pretty steadfast lending philosophy," Mr. Ramge said. "We sure we’re lending to the right people who have been through a cycle or two and have done a particular product type several times. We would not lend for a first shopping center to someone who historically was an office developer."
"We are a relationship bank," FirstBank’s Mr. Sanchez said. "We want customers who do all their banking with us. We’re not interested in quasi-brokerage transactions."
Mr. Monti said a Federal Reserve’s report released last week noted that Florida’s real estate market was a "pocket of strength" and the recovery in home construction was gaining momentum — all of which, he said, "bodes well for the commercial real estate projects and the banks that finance them."
Even insurance companies are getting in on the act, Mr. Manella said. "The rate is good, and there is no personal guarantee required, so although borrowing from them is a hassle, sometimes the rate warrants it."To read the entire issue of Miami Today online, subscribe to e-MIAMI TODAY, an exact digital replica of the printed edition.