Competitive realty lending market reality for bankers
Dr. Troy Aland, a Reno dentist, needed more space for his fast-growing practice.
Along with his wife, Lisa, who works as the business manager of Aland Family Dentistry, Aland decided last year that the combination of low interest rates and attractive prices on office properties created an opportunity to buy a 3,600-square-foot facility at 85 Continental Drive in Reno.
Aland wasn’t alone in deciding to buy, as business owners who opted to purchase their space during 2013 proved to be an important source of business loans for the region’s banks.
And Aland Family Dentistry wasn’t alone in benefitting from vigorous competition from bankers who wanted to team with Nevada State Development Corp. on an SBA 504 loan to finance the purchase.
Don’t expect much to change in the new year.
Colliers International, a real estate brokerage, says 64 office buildings in the Reno-Sparks market sold during the nine months of 2013, and demand remains strong despite tightening supplies of specialized space such as medical or veterinarian offices.
SBA-guaranteed lending known as the “504 Loan Program” accounted for much of the activity.
The nonprofit Nevada State Development Corp., which teams with commercial lenders to provide 504 loans for business real estate and equipment, says it was involved in 30 loans under the 504 program in northern Nevada during the fiscal year that ended Sept. 30.
Those loans, which involved six banks in the area, totaled about $42 million.
Lenders, who need to book a lot of loans in this low-rate environment to replace older high-rate loans that are being paid off, are hustling to make commercial real estate loans, and competition is fierce.
Lisa Aland says Aland Family Dentistry fielded numerous offers from potential lenders — “The local banks were able to see our potential,” she says — before deciding on Nevada State Bank and Nevada State Development Corp.
The price competition the Alands experienced is worrisome to some bankers.
“The pricing is not always as logical and rational as we would expect it to be,” says Arvind Menon, chief executive officer of Meadows Bank.
His bank, which entered the Reno market in 2012, seeks to keep out of price wars and instead looks to win borrowers through good service and fast decision-making.
“We win our fair share of the market,” says Menon, who expects the improvement in business lending in the Reno area in 2014 be somewhat better than the rebound in Las Vegas.
Tom Traficanti, executive vice president and chief credit officer of Reno-based Heritage Bank of Nevada, says the strength of lending for office-building purchases may be difficult to sustain into 2014.
Many of distressed properties that were available at attractive prices are off the market, he says, and the upward creep of interest rates chills some deals.
But Heritage Bank continues to see growing interest from businesspeople who want to buy their light industrial or office-flex space, he says.
Potential borrowers also are talking to their bankers about loans and leases for new equipment, says Jana Benton, small business sales manager for Nevada State Bank in northern Nevada.
In some instances, Benton says, business owners are looking to expand their production. But more commonly, they’re looking to replace worn-out equipment.
“They were putting it off during the recession,” she says. “But now the useful life of that equipment is gone.”
Consumers are picking up the pace, too.
An analysis of recent data from northern Nevada credit unions by the Credit Union League of Nevada finds:
Consumers are stepping up their borrowing from credit unions. In the 12 months ended Sept. 30, loans at credit unions in the region were up 4.26 percent.
Consumers apparently are spending more and saving less. The loan-to-shares ratio at credit unions in the region stood at 60.6 percent at the end of the third quarter, compared with 58.75 percent a year earlier.
Loan delinquencies and charge-offs continue to fall as consumers in the region get their mojo back.
Despite ongoing difficulties, Northern Nevada’s office real estate market will endure, experts predict
IGT’s decision to list its 1.2 million sq. ft. campus for lease this month and the recent $3.8 million sale of Harley Davidson’s 3-story financial services building in Carson City are the latest examples of companies no longer needing larger-scale office properties to maintain productivity levels and meet customer needs.