Independent Banker - May 2017 - 70

Lender Life
CONSTRUCTION LENDING
A slow build
After taking a hit post-recession, construction and development lending is
accelerating once more, but community banks are proceeding with caution.
By Beth Mattson-Teig
C
onstruction
loans that all but
disappeared in
the wake of the
recession are
now making a comeback, and
community banks are once
again opening the capital
spigot for commercial and
residential building projects.
The sluggish economy
and heavy load of problem
real-estate loans took a toll on
construction and construction
lending. Bankers took a big
step back, and many builders
and developers had their
hands full stabilizing existing
properties where property
values had dropped.
Many of these builders and
developers were working on
refinancing and trying to, over
time, pay off their existing projects
before they started building again.
Construction and development
lending is still well below pre-recession
levels. Yet activity is accelerating
along with a stronger economy
and improving real-estate market.
FDIC-insured commercial banks
and savings institutions reported
$303.1 billion in construction and
development loans on the books as
of third quarter 2016. Although that
is about one-third the volume that
existed at the peak of the market in
2006 and 2007, volume has increased
by about $100 billion over the past
three years, according to the FDIC.
" We are very active in the construction
loan arena, " says Kent A.
Nelson, executive vice president at
Brighton Bank, a $165 million-asset
community bank in Salt Lake City,
Utah. " It is a major part of our new
loan production. " Last year, Brighton
Bank made nearly $25 million in both
commercial and residential construction
loans, and about half the bank's
loan volume over the past two years
has been generated by commercial
and residential construction and
development loans.
Brighton Bank is actively lending
on both commercial and multifamily
construction projects, including property
repositioning and renovation
with loan amounts up to $3 million.
" A lot of our commercial construction
opportunities in the last few years
have come in the multifamily arena,
because that market has been the
hottest in our area, " says Nelson. For
example, Brighton Bank is proving a
$1.5 million construction loan on the
renovation of a 16-unit apartment
70 ICBA IndependentBanker May 2017
complex. The developer expects to
double the rents when the property
improvements are completed.
Proceeding with caution
However, even as banks are increasing
construction lending, they are
keenly aware of potential risks ahead
and lessons learned in the past recession.
The previous real-estate crisis
resulted in a spike in commercial
real-estate loan delinquencies.
FirstBank Florida also restarted
its construction lending in 2015. The
bank provided about $5 million on
construction loans last year and anticipates
a bigger increase for 2017. " We
just feel that it is prudent practice to
be a little bit more conservative on
the construction side, " says Mahesh
Pattabhiraman, senior vice president
and commercial banking group head
ILL USTRATION: MICK WIGGINS/GETTY IMAGES
Independent Banker - May 2017

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