Lyan Fernandez is the COO at Miami-based TotalBank, an affiliate of Banco Popular with around $2 billion in assets. With the impact of the housing crash still lingering, banks like TotalBank are now reevaluating the way they manage risk, especially when it comes to commercial real estate. Fernandez talked to The Real Deal about what kind of deals are getting loans, how owner-occupied deals are increasing and the way banks are adapting to the regulatory overhaul.
What is the financing situation like for real estate deals?
For commercial banks, we’re really looking for smaller deals, for diversification. We have a mandate from our regulators that we can’t be very concentrated in commercial real estate. For example, owner-occupied investments, even though it’s commercial real estate, is not considered high-risk. So, that is an area that commercial banks, from large to small, are going after.
What other kinds of deals are seeing financing today?
Beyond that, anything like healthcare, government infrastructure, charter schools, mature, established retail centers and multi-family. For retail centers and multi-family … the risk is diversified because you have diversified sources of repayment — which makes it appealing to the banks. What we’re seeing right now is that the market is in the hands of professionals, whereas during the bubble you saw a lot of inexperienced investors trying to make it. Now you have professional borrowers that won’t get into something that is speculative or doesn’t make any sense — it’s back to basics.
Can you expand on multi-family and retail deals being less risky?
It’s not a single tenant situation. In retail centers, you want some good anchors with a chunk of diversified business so your source of repayment won’t be compromised by one tenant. In multi-family, it’s the same thing — your sources of repayment are diversified by the number of tenants.
What are banks most concerned about right now?
I think what banks are concerned about is that we haven’t really hit the bottom on values. You don’t want to be lending at values that are not going to be there six months to a year from now. I think we are probably at the bottom of the market — I’m starting to see distressed sales not necessarily dictating the value of non-distressed assets, which was happening for a long period of time. I think appraisers are starting to separate the wheat from the chaff.
We know that banks have been “extending and pretending” with borrowers on loans — what else has changed in this relationship?
You’ll also find that banks these days do a lot more verification than they did before. Now, in almost every instance, you get confirmation from all the tenants as to what they’re actually paying. A lot of borrowers are not used to getting asked as many questions — but it’s been happening enough that professional borrowers are saying ‘do what you need to do.’ People are cooperating with the banks to get the deal done.