Posted: 4:59 pm Mon, July 9, 2012
By Mark?Anderson
Tags: American Bank, Bandana Square, BMO Harris, Bremer Bank, Jim Bifaro, JMB Realty Services, John Besse, lending, Mark Johnson, Melody Rehder, Merchants Bank, MidCountry Bank, Minnwest Bank, Sonja Simondsen, Terry Kriesel, U.S. Bank, Wellington Management
Wellington Management turned to BMO Harris Bank ? the former M&I Bank ? for an $18.6 million refinance and construction loan on its Bandana Square property in St. Paul. The deal marked the return to CRE lending for BMO?s Twin Cities offices, adding to a competitive market. (File photo: Bill Klotz)
Community banks eye CRE market, help keep prices low
The big news from the commercial real estate lending business so far in 2012 is that community banks are back and that the competition is making terms a little sweeter for borrowers.
But lenders also insist they still feel the shadow of the Great Recession.
Area community banks (typically with assets of $2 billion or less) played a key role in financing local CRE development and investment markets in the go-go days before the recession, but they dropped out after the 2008 collapse.
?A lot of them had issues to work through with regulators,? said Sonja Simondsen, finance director with St. Paul-based real estate company Wellington Management.
The key issue: Regulators frowned on the percentage of development and CRE loans those banks carried on their books.
?They?ve worked through those and I think they feel like their financial position puts them in a good position with regulators,? Simondsen said. ??We?re getting the same message now from community banks, regional banks and national banks now: They want to build up their portfolios again and commercial real estate is one of the few areas where they can do that.?
Minnwest Bank, Merchants Bank of Winona and American Bank of St. Paul are all Twin Cities community banks that closed loans with Wellington this year, Simondsen said.
More lenders looking to loan money means increased competition, and that benefits borrowers ? especially on loan pricing.
Interest rates have dropped by at least 1 percentage point since the beginning of the year, said Melody Rehder, a vice president for business banking at Bloomington-based MidCountry Bank, another community bank that?s expanding its CRE lending.
The all-in prices that several lenders cited range from 2.25 percent to 3 percent above Libor for construction loans ? about 2.50 percent to 3.25 percent at today?s 30-day Libor rate, which is a benchmark for many loans.? Five-year fixed rate loans for acquisition or refinancing are pricing between 4 percent and 4.5 percent, several lenders and borrowers said.
Pricing isn?t the only way banks are competing though, said Jim Bifaro, principal of JMB Realty Services, a Minneapolis-based mortgage banking shop.
Bifaro advised on a recent acquisition loan where the appraisal came in below the value the buyer and seller had agreed on. The bank was willing to push its loan-to-value level above the agreed-to 75 percent to complete the deal, Bifaro said.? ?What the banks tell me is they have money sitting around and can?t find a decent yield on anything but real estate loans,? he said.
Community banks are lending more this year and the region?s large banks continue to expand their real estate portfolios.
John Besse, U.S. Bank?s Midwest CRE market leader, said his group?s loan originations are 30 percent higher than a year ago; Terry Kriesel, head of CRE lending at Bremer Bank predicted his volume will exceed 2011?s total, ?and 2011 was a very good year for us.?
Another veteran CRE shop is also returning to the market. ?Mark Johnson leads commercial real estate lending at BMO Harris, the former M&I Bank in Minneapolis, and he said the company will be more active than it was, but its growth will be steady, not aggressive.
?We want to start by meeting the needs of our longstanding customers,? Johnson said.
Wellington financed its largest 2012 project with BMO Harris ? and $18.6 million refinance and construction loan to convert 70,000 square feet at St. Paul?s Bandana Square for an expanded Allina clinic.?? The loan priced at 30-day Libor plus 2.5 percent, Simondsen said.
Lenders say medical facilities like the Allina project and senior housing are active CRE segments, but multifamily deals are obviously driving the market.
Over 14,000 units are either proposed or under construction in the Twin Cities, according to the Finance & Commerce Apartment Development Tracker. Numbers like that make lenders worry about bubbles.
?I?ve got to say I?m looking at these trends and thinking about saturation,? MidCountry?s Rehder said. Many households have left the single-family housing market ? because of a lifestyle choice or the inability to qualify for a mortgage ? and that expanded rental market keeps pushing vacancy rates down.
?But that could flip on us,? Rehder said.? ?Interest rates are low. Prices for homes are low, and that market could turn around quickly.?
Lenders said that better information keeps them better informed about projects that are in the pipeline throughout the metro and in every submarket, Kriesel said. ?In the Twin Cities we have an abundance of current market data, and every bank is aware of how many multifamily units are proposed. Banks are going to be cautious,? before extending credit here, he said. ?I don?t see a substantial risk of over-building.
Borrowers understand the changing market and they?re more prudent, too, U.S. Bank?s Besse said in an email. ?Our clients are pretty disciplined, and they understand the risks in deals they?re pursuing. ? Anything that looks overly aggressive isn?t getting financed.?
Source: http://finance-commerce.com/2012/07/minnesota-banks-get-back-in-the-lending-game/
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