Community Banks Hustle for Limited Share of Business Loans
By Scott Van Voorhis
The economy’s slow but steady shift from recovery to expansion has been good for banks across the Empire State as they feast on profitable commercial loans after years of relative famine.
A boom in office and residential construction and businesses looking to expand and buy new equipment has kept loan officers busy at banks from Buffalo on down to New York City.
Still, some banks are starting to take a more cautious approach to real estate lending, worried about what might happen when the market turns and some new condominium or apartment tower management find itself scrambling to sell or fill units.
There are also concerns about hedge funds and other nonbank lenders jumping into the market, snagging loans by agreeing to riskier terms hometown banks may have passed on.
That said, banks are continuing to push ahead with plans to keep growing their commercial loan portfolios, filling in gaps in their coverage or focusing more intensely on particular industries with solid growth potential.
“The deal flow is picking up quite substantially,” said Charles “Chip” Russell, head of the commercial real estate group at Harris Beach in Rochester.
Expanding in Saratoga and Albany
Upstate New York typically doesn’t see the low lows and high highs of the market cycle, with the region managing to escape some of the worst excesses of the real estate bubble years. Now, after a slow but steady recovery, some banks upstate are starting to ink more commercial real estate and business loans than they have in several years.
Christopher Dowd, CEO of Balsam Spa National Bank, has boosted commercial lending at the Saratoga area bank by 18 percent so far this year. That compares to a more modest 5 percent gain in 2014 and a similar number in 2013.
The local economy has been fairly steady, with the universities, hospitals and state government offices of nearby Albany a major driver of demand.
“Our region, good or bad, has been somewhat stable,” Dowd said. “We saw some decline in value after the financial crisis, but we did not experience the significant decline as some other parts.”
Along with a growing economy, the bank has also taken steps to strengthen its lending team.
In a key move, Balsam Spa last year hired Greg Anderson, a veteran Key Bank commercial loan officer, to boost its commercial lending operations. The bank also shifted some younger employees from its branches to business development.
The big growth driver right now is commercial real estate projects, with new offices, retail and especially apartments leading the way.
“We went out and obtained some experience in the marketplace,” Dowd said.
The bank is also seeing growth in its commercial and industrial loan portfolio, though at a more modest pace.
Competition is fierce for business loans in Saratoga County, with 21 different banks with a total of nearly 100 branches battling it out for a limited pool of business loans, he noted. Particularly sought-after are deals to provide lines of credit to businesses like mechanical contractors or field distributors.
“All the banks are fighting over that small pie,” Dowd said.
Booming Buffalo and Rochester
Evans Bank in Buffalo has seen its $650 million commercial loan portfolio expand by 10 percent or 11 percent over the past few years. John Eagleton, the bank’s commercial lending chief, is hoping to push that number closer to 15 percent in 2016. The bank is benefiting as Buffalo’s economy makes a comeback.
The city’s medical/research sector is growing, with a number of new buildings being put up, while the owner of the Buffalo Bills and Sabers is talking about putting up a new stadium as part of a larger development.
“Buffalo is having a very nice resurgence right now, no question about it,” Eagleton said.
New apartment construction is also on fire, with a growing number of luxury units being marketed to empty-nesters. Evans Bank has seized the opportunity, financing multifamily projects and other commercial real estate deals.
“We are filling up our bucket on the commercial real estate side,” he said.
Evans has also increased its business lending, with the bank having ramped up its networking efforts with various “centers of influence” in the Greater Buffalo community.
The bank has also set out to double the amount of lending, especially small business loans, done through its branches, according to Eagleton.
Evans has hired a couple of new loan officers and simultaneously training branch managers to take a more active role in boosting loan volume.
The bank wants to increase the number of loans at or below $250,000 as it looks to provide financing to dentist and physician practices and small manufacturing firms, among others.
“I would say this is our second year of seeing rapid (loan) growth,” Eagleton said.
Meanwhile, Russell, head of the commercial real estate group at Harris Beach in Rochester, said banks in and around the city in Western New York are also beefing up their commercial loan portfolios.
Banks have inked new loan deals on plant expansions by local manufacturers and new apartment buildings as well as mixed-use projects, which are seen as prime financing opportunities given the mix of income streams.
“‘Mixed-use’ is sort of the term of the day,” Russell said. “It seems to satisfy both planning boards and bankers.”
Big hometown corporations like Xerox and Bausch & Lomb have gotten leaner over the years, but are still major employers.
Top lenders in the area include Canandaigua National Bank, M&T Bank, First Niagara, Five Star Bank and Tompkins Bank of Castile.
Good Times in Metro New York
Bolstered by the buoyant New York City area economy, a number of local lending institutions have bulked up on business loans.
Astoria Bank, which has dozens of branches spread across Queens, Brooklyn and Long Island, is building up its commercial loan portfolio, noted bank analyst Collyn Gilbert, a managing director at Keefe, Bruyette & Woods.
And Sterling National Bank has proven to be standout in the commercial lending arena, Gilbert said.
“They have been doing a very good job of hiring teams and bringing on portfolios in the business lending area,” she said.
Sterling boosted its commercial loan portfolio by a whopping 24.7 percent through the first half of 2015 compared to the year before, an increase of $914 million.
“We continue to experience strong organic loan growth across multiple asset classes,” Jack Kopnisky, Sterling’s president and CEO, said in a press statement.
Based in Montebello and with offices in New York City, the bank has also launched a pair of new, commercial lending groups.
The bank recently launched a commercial lending team to provide “senior-secured financing to middle market health care companies on a national scale.” The bank hired a trio of executives with deep health care lending experience to run the new team. Dan Chapa will oversee the group as senior managing director, while Steven Goldsmith and Carl Schmitt will serve as managing director and senior portfolio manager, respectively.
Sterling also recently hired two more veteran lenders to oversee its newly launched syndication banking team, which “will focus on arranging and syndicating bank loans for commercial banking and specialty lending clients,” according to a release put out by the bank.
Jim Gelwicks, senior managing director, was head of capital markets with Healthcare Finance Group, while Yan Cheng, senior vice president, was previously senior vice president of capital markets at the same firm, where he helped establish a syndication platform.
“We’re excited to continue building our syndication competency led by two seasoned professionals who have decades of success leading sell-side syndication transactions,” Thomas Geisel, Sterling’s president of specialty finance, said in a press statement.
Still, even as they bolster their bottom lines with rising numbers of commercial loans, bank executives across the state are also looking cautiously ahead in knowledge that the good times won’t last forever.
Competition for business loans is also growing fiercer, with some banks willing to accept minimal returns if there is potential to cross-sell other services, like insurance or retirement benefits, said Eagleton of Evans Bank.
He hasn’t seen signs yet that banks are lowering standards to get deals.
“We are not seeing a lot of stretching on the credit side,” Eagleton said.
Others say they see signs that the real estate market could be nearing a peak, or even that’s it’s already reached it.
Keefe, Bruyette & Woods’ Gilbert said some of her banks are casting nervous glances back to the peak before the last bust. She believes, though, that better banking practices this time will mean less damage if there is a slowdown.
“Some of my more disciplined banks have drawn a correlation similar to what they saw in ’06 and ’07,” said Keefe. “The difference is there is a lot more equity being put in these deals and not as much leverage as we had back then.”
One veteran commercial finance lawyer said lenders have been becoming much more cautious about backing speculative, high-end condo projects in and around New York City for some months now.
“There are a lot of yellow lights right now,” he said.
Another sign of concern is the emergence of non-bank lenders from out of town trying to snag deals in New York City.
“I am seeing more of that,” the real estate lawyer said. “Maybe the New Yorkers with their feet on the ground are saying these deals are too rich.” ■