Big Banks Are Open to Retail Again
Big banks are getting back into commercial real estate lending, according a recent statement from the ICSC Western Division conference held last week in San Diego, CA. But the rules have changed, and they face a crowded field of new competitors, including private equity pools and community banks, experts say.
“For the past five years, we never even bothered to go to the large banks, because they weren’t financing many deals,” said Bradford Kitchen, president of Alterra Real Estate Advisors, Columbus, Ohio. “In the height of the downturn, they were sending clients to other banks. A lot of smaller banks took business, and some of the bigger banks ruined long-term relationships with clients.”
In 2010 — the last year of the recession, or the first year of recovery, depending on one’s perspective — national banks controlled 9 percent of the lending market and regional/local banks held 11 percent. In contrast, insurance companies had 23 percent of the pie, and commercial-mortgage-backed securities accounted for 44 percent, according to Real Capital Analytics.
“A lot of the banks are shying away from the multifamily segment, where they have been active over the last several years, and starting to go into retail, office and industrial,” said Brandon Harrington, a vice president of capital markets at Walker & Dunlop, Phoenix.
Last year the national banks took 12 percent of the commercial lending market, while regional/local banks held 13 percent, versus 15 percent for insurance companies and 45 percent for CMBS. The most recent numbers — as of September — from Real Capital Analytics show national banks at 13 percent of the commercial market, regional/local banks up at 20 percent, insurers falling off to 7 percent, and CMBS holding steady at 45 percent.
“The landscape has changed,” said Chuck Nwokocha, a senior risk management consultant at Sageworks, Raleigh, N.C. “Banks are competing with nontraditional lenders as well.”
To win business, the national banks are embracing more nonrecourse lending. “The community banks are extremely active and trying to stay relevant,” said Arlon Brown, a senior vice president at Parsons Commercial Group, Framingham, Mass. Where Brown puts together financing depends on the size of the deal. Between $1 million and $10 million, he will consider a community bank, although the major handicap with a small bank is that they typically prefer to lend in five-year increments. A smaller bank may give a 10-year commitment, but that would be subject to review after five years, he says. For a $10 million to $20 million financing, Brown says he would turn to a regional or a national.
“A lot of banks don’t become competitive once the loan amounts pass $10 million, because that’s when the life companies, private equity funds and CMBS funds steal market share,” said Harrington. “Today most shopping center deals are still CMBS and with life companies.”
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