CRE Lending in Florida Evolves in Response to the Pandemic

Commercial real estate lending is still quite active in the South Florida market, but terms have changed as lenders take a more conservative approach, says Jordan Simler, who heads up Valley Bank’s South Florida CRE lending efforts.

Valley Bank did $412 million in loans for area CRE projects last year, and has loaned $160 million since the start of 2020, with its funding spanning a wide range of sectors. As examples, its work over the past 18 months has included a $7.8 million refinancing of Delray Beach’s Peachtree Plaza, a $10.5 million loan for a new Plantation self-storage facility, and a number of sizable loans to condo homeowners associations making upgrades to their facilities.

So what do CRE lending deals look like these days, what segments are the most active, and how does South Florida compare to the rest of the state? GlobeSt.com asked Simler these questions and others as the market continues to cope with the pandemic.

GlobeSt.com: How is CRE lending going in the South Florida market? Are loans still getting done?

Simler: We are continuing to see deals, except in the most hard-hit sectors like hotels. That said, there are fewer active lenders, and we are seeing them being pickier with deals they do, focusing on working with customers they have long standing relationships with.

Certainly, today’s loan terms reflect concerns about risk in this economy. As an example, we are seeing loan-to-cost ratios for new construction projects being dialed back from traditional highs of 75% down to 60 or 65%.

Every situation and client is different, but we are often looking to get more equity in the past, say, 5 to 10% more than a year ago. Also, we are doing more research on deals than ever before, and in some cases, we might seek personal guarantees where we might not have in the past.

GlobeSt.com: What niches are you seeing as active vs. not?

Simler: There are some tried-and-true niches for us that continue to be active, such as self-storage, grocery-anchored shopping centers, industrial, multifamily, and renovation work being done by HOAs at major condos.

On the flip side, deals in the retail and restaurant sectors are few and far between, though we are still looking to do loans for operations with excellent locations and financials. And we are seeing many transactions in the hotel and office sectors being put on hold.

GlobeSt.com: How do you think the South Florida CRE market is faring compared to the rest of the state?

Simler: South Florida has some definite advantages over much of the rest of Florida, with major investment from South America in the area, and a wide range of companies diversifying the economy.

Another positive is that we are seeing even more interest than usual from business owners in New York and New Jersey who want to move here. South Florida has always been a draw, since we have great weather and no state income tax. But now, we are hearing from folks whose decision to move is being spurred by the pandemic’s impacts on the New York City area.

GlobeSt.com: How is the bank helping borrowers hurt by the pandemic?

Simler: A major part of this has been helping business owners navigate the process for Payroll Protection Program (PPP) loans. Valley has made 1,063 PPP loans to South Florida businesses, totaling $136 million.

Beyond that, we are working with clients one-on-one to create custom plans, and in some cases, we have deferred certain loan payments.

We’ve seen that the attitude about possibly taking properties back is much different than it was in 2008 and 2009. Most of our assets have significantly more equity than in previous cycles, with strong sponsors standing behind them. This incentivizes everyone to work things out and to ensure a successful long-term game plan.

Also, our structure allows quick decision-making, unlike larger loan servicers or CMBS debt. This is where being a big bank with local decision-making allows us to be responsive to our customers in times of need, whether it’s working out loans or deploying over $2 billion in bank-wide PPP loans.

GlobeSt.com:  How do you see the near-term future for the South Florida CRE market?

Simler: Certainly, the biggest questions are around retail, hotels, restaurants and office, knowing that until people get back to their normal routines, those segments will be negatively impacted. Thankfully, South Florida has a well-rounded economy that goes far beyond tourism, which will help our area withstand these pressures.

So like the clients we work with every day, our goal is to stay positive, continue to figure out how to make deals work, and to help area businesses, which of course will in turn help the bank succeed in the long term.