Slowly, workers are beginning to raise signs announcing bank lending on commercial, industrial and development projects around town.
First Independent Bank announces its construction financing of Cottage Row at Midtown. Meadows Banks announces its financing of projects such as the Desert Wind residential neighborhood and the redevelopment of the former Heritage Bank building.
But the backstory behind most of those signs involves fierce competition as banks battle for the business of a relatively small number of borrowers.
“There isn’t a lot of deal flow,” says Mike Pollock, senior vice president and regional real estate lending manager for Nevada State Bank in northern Nevada. “A lot of people are trying to figure out what is going on with this economy.”
Some are waiting to see how the Tesla battery plant plays out — how much is hype, how much is reality? — while others have been sitting tight to see the results of the statewide vote on a margins tax.
“Overall, there seems to be more conversations and discussion, but the volume actually getting over the finish line is only marginally up at best,” says Mike Hix, senior vice president and branch manager for First Independent Bank in Reno.
Rob Humphreys, senior vice president and commercial banking manager at Umpqua Bank in Reno, says many potential borrowers have been kicking the tires, running the numbers, and then getting cold feet from worries that the economy might turn down again. The Tesla decision to build its gigafactory at Tahoe Reno Industrial Center may allay some of those concerns.
Another factor: While some high-profile real estate sales have been completed lately, Humphreys notes that most have involved institutional buyers who use big lenders located outside of the market.
Out of the 35 commercial real estate deals that closed in Washoe County during September, only 12 involved a loan by a commercial bank, according to data collected by Ticor Title of Nevada.
Nevada State Development Corp., which works with commercial banks to make Small Business Administration loans for commercial real estate and equipment, says its lending activity in northern Nevada was essentially flat in the fiscal year that ended Sept. 30.
In that 12-month period, NSDC approved 29 SBA loans in northern Nevada, which compares with 27 in the previous fiscal year.
Reno-based Heritage Bank of Nevada was the most active lender in the state in the SBA program with 12 loans totaling $6.8 million.
Among the drags on the lending market is growing tightness in the inventory of commercial and industrial buildings for sale, says Tom Traficanti, executive vice president and chief credit officer for Heritage Bank.
Many of the distressed properties that were selling at bargain prices are off the market, Traficanti says, and the buildings that are available often need major renovation or have other problems.
Some potential borrowers, meanwhile, simply don’t have the capacity or the heart to borrow again after they dug themselves out of the recession’s wreckage.
“A lot of people got very, very hurt in the recession,” Pollock says.
One upshot: Wary of debt, buyers increasingly look to pay cash for commercial and industrial real estate.
Traficanti says that creates a double-edged problem for local lenders. They don’t get a chance to compete for a new loan on the property, and the seller will take the cash to pay off the existing loan.
The strong competition means that bankers emphasize the speed of their decision-making and the quality of their service as they woo potential borrowers.
“Our money is just as green as the money of the guy across the street,” Pollock says.
But Hix notes that the experiences of banks and their regulators during the recession also translate into more careful and time-consuming analysis before loans are approved.
The combination of tough competition and new regulatory requirements is challenging to bankers who need to book loans to generate profits for their companies.
“This is the toughest environment I’ve seen in my 25 years as a commercial real estate lender,” Pollock says.
