Wednesday, 12 October 2016 00:00

Market Updates


  • Growth is slower than anticipated

  • The labor market is steady

  • Job growth performing well regardless of news reports

Apartment Market

  • Vacancy rates are falling

  • The data says construction is outpacing demand

  • There are record high rents across the country & not slowing down

  • There are far more “A” properties being built than “B/C” properties

  • Strong markets include Atlanta, Seattle, Bay Area, Washington D.C., Houston

Office Market

  • Not as robust as it should be, but still performing well

  • There has been a decline in vacancies

  • Rent growth is strong

  • Renewed attraction to urban areas

  • Companies are bringing suburb offices back to the cities


  • Multi-speed recovery

  • Internet making the retail brick & mortar market hard

  • Discount stores are performing well (T.J. Maxx, Trader Joes)


  • Improving

  • E-commerce is booming

  • Rent is growing

  • Distribution markets are hot, hot right now

Capital Markets

  • Outstanding debt growth

  • Commercial banking very strong

  • More regulation than ever before

  • Now very global including China, Japan, etc.

Published in Lending
Thursday, 28 January 2016 00:00

Sound Credit Considerations

Choosing Your Credit Culture

Credit Culture and Corporate Culture are very closely tied.  As both evolve they must continually be well established, communicated, and enforced.  In properly doing so your organization’s credit risk appetite should be made to align with your organization’s values.

Your Front Line

Relationship Managers are your front line of defense.  If these folks appreciate what’s needed to appropriately mitigate risk and have the knowledge of your organization’s standards, the appropriate credit culture can be maintained more effectively from the beginning.  Reward these Relationship Managers that are structuring deals and embracing your culture in-front of their peers.


Strength in Numbers

The CEO and Executive Management set the tone and must be comfortable reiterating who your lending institution is and who they are not.  As with any standards, consistent communication in repetition is critical.  Remember, there is no better support for a decision than providing facts.  Clearly define the risk appetite and hold each other accountable to live up to that and not be situationally swayed.  With it being at the top of the cycle you are potentially getting requests to change hold limits, but hold strong.  Track exceptions through reports evaluating any changes since origination.


Vintage Analysis

It’s useful to understand your loan performance over the life of a loan and not just at a single juncture.  In case your loans default at a higher than expected rate you should leave some buffer between the interest rate and your expected loss.

As part of proper portfolio management to analyze how loans perform with age here are some questions to consider:

  • Is there heavy origination in a specific segment?
  • Has risk changed?
  • Are there greater exception levels?
  • Are you making more exceptions?  


The New Frontier

While there are a lot of shiny objects out there, focus on lending segments in which core competencies exist.  If interest arises in a particular sector outside of core competency then write-up a white paper on what variables your organization would like to be able to see as a ‘sector example’ and this can be a reference to any on the front lines.  If this is a new sector, can you simplify the fundamental risk?  If not, then it is most likely not understood well enough to be confident in the loan.  Two or more in your organization should be able to have a high level understanding of this new sector.  Also, it’s a good method to have a bucket where you reevaluate and assess new sector loans 12 months after origination.  Ensure they are performing the way you desire.



Published in Lending
Monday, 07 December 2015 00:00

A Lender’s Pursuit

Understand all risks involved with the deals you are pursuing.

Are your controls to measure risk as robust as they should be in today's environment?

When the lending environment changes you need to be ready.

Prepare for the next cycle by being aware of the following:

Identify your borderline credits.

How many do you have that are performing but sensitive to economic hiccups. When hiccups occur what loan types in your portfolio leave the largest amount of exposure?

Loan segmentation should regularly be applied based upon your comfort level and that of your institution. If the need is there to re-align your credits then move those not meeting risk levels to increased rates.

Plan for interest rates and cap rates to change.

Make sure to apply stress testing to portions of your portfolio for scenarios of interest rates and cap rates increasing. Underwrite for a higher interest rate to better understand your risks.

To neutralize both variables it is suggested to run a Debt Yield: Debt Yield = Net Operating Income/ Loan Amount. Based on these results determine if there is still positive cash flow.

Understand the ‘deal creep’ that can occur.

Enlist the process of looking at potential clients in terms from your first meeting to what the terms are when/if they close. How many exceptions are being made to get the deal done? Is your institution consistently comfortable with that amount? At what point are you willing to walk away from the deal?

Set exposure limits and do not exceed those limits. Internally, it would be good to post green, yellow, and red lighted loans taking place each month to lenders in your institution to assist them with determinations.

The ‘What’ and ‘Where’ matters for diversification.

Think about how economic downturns can affect certain concentrations by different factors. For example, if a majority of your deals are in the same geographic area and that area is highly volatile to economic downturn it would be wise to focus some of your efforts in a drastically different geography to off-set.

Also, if your portfolio is highly concentrated with retail it is important to understand your tenants and their volatility. Understand your exposure of getting that one big deal versus having several smaller, more diversified deals.

Transparency and measurement are a must.


Published in Lending