COVER STORY, AUGUST 2010

Q&A On Topic: Commercial Lending

Heartland Real Estate Business spoke with Dan Hampton, senior vice president and segment head of commercial real estate with Harris Bank’s Chicago office, to gain insight into the 2010 commercial lending outlook.

HREB: What type of activity is your commercial lending practice currently engaged in?

Hampton: Harris Bank covers the full range of commercial real estate lending, treasury management and depository services.

HREB: What type of properties are you currently considering as viable targets for loans (government/municipal, education, multifamily, office, industrial, etc.)?

Hampton: Our commercial real estate team at Harris has a wide variety of viable targets, which include multifamily, medical office, student housing, bulk distribution and public/governmental projects for middle market real estate companies. We also provide lending, treasury management and depository service to public and private real estate investment trust (REIT) and related companies.

HREB: What is the status of the capital pipeline? Is there improvement, if so, how much? If not, when do you expect to see changes?

Hampton: Our REIT business has a robust pipeline, and momentum continues to be strong. We have seen recent improvement in the middle market real estate pipeline, largely as a result of dislocation in the market and the reduced appetite that some of our competitors now have for commercial real estate. At present, we are selectively approaching the market with a relationship focus to capture increased market share with companies who fit our risk appetite. Some property classes will see continued deterioration throughout 2010 and into 2011, so we view the opportunity as one of selective growth. 

HREB: Has the federal government’s bailout had the desired impact on the flow of capital in the commercial real estate industry? Please elaborate as to reasons why it has or hasn’t been effective.

Hampton: I don’t see any clear impact on the commercial real estate industry. The CMBS markets are still dysfunctional, although some recent improvement is evident. Significant maturing loans during the next 4 to 5 years with distressed property valuations and cash flow streams will tax the capacity of traditional balance sheet lenders. Unless the CMBS markets are resurrected substantially, and soon, a real funding gap will materialize. I don’t see any real focus by the government on this issue, within the bailout context or otherwise.

HREB: What loan products are currently viable and available sources of debt financing for borrowers? What are borrowers currently looking for from commercial lenders (refinancing, workouts, new loans, etc.)?

Hampton: I think for well-located and stabilized projects within selective property classes such as medical office and multifamily, there are quite a few financing options available. Specifically for the multifamily segment, we have the GSA lenders, life companies and traditional bank term products available. At Harris, we focus on staying close to our commercial real estate clients to help them with financial solutions and guide them through this time in the cycle. In some cases (like our REIT business) that means we are providing capital, equity and treasury management services that enable growth. In others, we may be assisting our clients with an appropriate work-out plan. I think clients today are looking for a bank that is stable, one that is well capitalized and looks at the commercial real estate business objectively. We’re accessible, we’re easy to do business with, and we take an advisory approach with all of our clients, providing value added guidance and subject matter knowledge for our clients. Our vision is to define great customer experience, and we take our clients’ feedback very seriously.

HREB: What is your general outlook for the capital markets in 2010 as they impact the commercial real estate industry?

Hampton: As I said earlier, the CMBS market has shown some life recently, but it needs to be resurrected to a functional state. Otherwise a funding gap looms that will continue to delay the overall recovery within the industry. The public REITS have been very successful in raising equity during the past year plus and seem to be poised for growth, taking advantage of the market opportunities. We also continue to see private equity opportunity firms enter the market with equity raises that will enable those firms to also take advantage of market opportunities.

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