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VOL. 125 | NO. 242 | Tuesday, December 14, 2010


Lending Slows to a Crawl

JEFF IRELAND | Special to The Daily News

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According to commercial lending figures over the past two years, things are not going very well in the industry.

For the 12-month period from November 2009 to October 2010, Shelby County banks made 228 commercial mortgages, a 21 percent decline from 288 for the previous period, according to real estate information company Chandler Reports, www.chandlerreports.com.

“Overall, there hasn’t been much new activity,” said Rick Hall, executive vice president at Renasant Bank in Memphis. “We have moved some activity from other banks over to our bank, but there hasn’t been much growth experienced.”

Renasant Bank made just four mortgages over the most recent 12-month period that averaged $790,750, compared to two over the previous 12-month period that totaled almost exactly the same amount.

First Tennessee Bank NA was the top lender for the most recent period in terms of total loan amount. The Memphis bank made 11 commercial mortgages averaging $938,891 and totaling $10.3 million.

It was followed by First Commercial Bank (nine, $836,882, $7.5 million) and Wells Fargo Ltd. (two, $2.8 million, $5.6 million).

Regions Bank had the highest number of commercial mortgages with 17, while INSOUTH Bank had the highest average at $3.1 million.

“We’re cautiously optimistic,” Hall said. “The activity out of Washington has hurt things. All banks and developers are concerned.”

One positive trend did emerge from the recent data. Although fewer mortgages were made from period ended October 2010 than the previous 12 months, the average was $981,067, a nearly $400,000 improvement.

The fact that interest rates are at historical lows is another reason why some in the industry believe things could turn around.

“Many of our lenders are life insurance companies, institutional lenders and Freddie Mac,” said Rick Wood, executive vice president of the commercial and multifamily department at Financial Federal. “There has been a renewed interest in lending money, starting maybe in the second quarter of 2010. Loan-value ratios have risen to a level where refinancing and acquisition financing make more sense now than in 2009.”

Financial Federal made four mortgages in each of the last two 12-month periods, but the average amount of money went up a little over $200,000 from November 2009 to October 2010.

Tom Portis, the Memphis division president at BancorpSouth, said his bank has seen some potential business come in the door recently from customers looking to buy land.

“We’ve seen a little more interest, but there are not a lot of buyers right now,” Portis said. “We’ve had some people looking to buy raw land and commercial properties that are income-producing. There have been some contracts that we’re looking to finance. It’s still somewhat flat, but things are getting a little better.”

The numbers for BancorpSouth back up Portis’ assertion. After making seven mortgages that averaged $492,876 from November 2008 to October 2009, BancorpSouth increased that figure to 12 over the most recent 12-month period, although the average was about $170,000 lower.

Andy Gibbs is the senior vice president at Mercer Capital, a bank consulting firm in Memphis. He has been keeping a close eye on the market during the economic downturn and has noticed that many companies have been tightening the purse strings as profits have shrunk.

During 2008 and 2009 a lot of businesses were focused more in decreasing debt rather than taking on more in the form of loans. He believes that could benefit the commercial lending industry in the coming months.

“A lot of companies are still paying down loans and not really looking at expansion and things like that which trigger the demand for loans,” Gibbs said. “Some of our clients are seeing and hearing about people looking for loans though.”

Gibbs still describes the market as “pretty tight” and says there is not a lot of overall growth. Nevertheless, he said, those companies that have shown the ability to reduce debt should be in a good position heading into the future.

“When the borrower can post some good statements, it makes it easier to get things done,” Gibbs said. “Some people can show real progress. It was harder to do that six or 12 months ago. Bankers are more comfortable now when companies can show some tangible proof.”

It seems clear that some companies are getting in a better position to acquire commercial loans. But as that happens, it’s likely that interest rates will increase.

“It’s pretty clear we have been heading for an increase in interest rates,” Wood said. “I’m fearful that’s on the horizon. There’s just too much inflationary pressure for it not to happen.”

PROPERTY SALES 36 154 6,546
MORTGAGES 34 94 4,129
BUILDING PERMITS 201 554 15,915
BANKRUPTCIES 43 126 3,396