by Dan Rafter
Jim Pape, senior vice president and team leader at Associated Bank in Chicago, is optimistic: He’s a believer in the commercial real estate market, both locally and across the nation. What does Pape see on the future? Steady and consistent growth for commercial real estate.
Pape spoke with Midwest Real Estate News about the financing requests that Associated Bank is seeing today and why the commercial real estate market is keeping his bank so busy.
Midwest Real Estate News: How busy is the commercial financing business today?
Jim Pape: Activity is still rising. Last year, the finance requests came on strong. This year, they are up a little bit again. More banks are coming back to the market. There is more competition overall, which is helping the individual sponsors.
MREN: What is bringing the banks back to the market?
Pape: If you look at all the commercial segments, you see that they are getting stronger. The apartment market is strong throughout the Midwest. Here in Chicago there is some concern with the downtown market. But the suburbs are seeing strong numbers in all the sectors. Leasing is strong. The overall strength of the multifamily market is one reason why banks are returning to the market in greater numbers.
As far as industrial goes, that continues to be a strong market. The tenants are there. They are looking for space. There is definitely growth in the industrial market. The industrial market is strong and robust. We are seeing improvements, too, in the retail market. We are not seeing any large malls, but the small build-to-suits or the small neighborhood retail with some strong anchor tenants has been a strong market. Even in the office market, people are hearing that vacancies in the city of Chicago are tightening up, even with the new high-rises that are planned. There are some good opportunities there. The office market in the Chicago suburbs is starting to pick up. That is a positive sign overall.
MREN: What kind of financing requests are you receiving most often today?
Pape: Most of it today is new construction, even in the apartment sector. There is a large amount of construction being done today. The conduit market is back. Fannie and Freddie are strong. HUD is strong. The insurance sector is strong. Banks are doing more construction lending. To me it is good when the conduit market is doing deals, when the insurance companies are doing deals and when Fannie and Freddie are doing deals. That is strong for the market, and that’s a good thing for banks.
MREN: When determining who qualifies for financing dollars, what are some of the factors that Associated Bank looks at?
Pape: It’s been five to seven yeas since the downturn, but we are still looking at the sponsors and the investors involved in the deal. What is their track record? If they were around during the downturn, how did they handle that with the banks they were dealing with? Did they handle the downturn in a reasonable way?
You are looking at all the information you can get on a project and on the community it is planned for. You look at market studies from companies such as Appraisal Research Counselors and Metrostudy. You are talking to the brokerage community to see how deals are going. You study the personal financial statements of the individuals involved in a project. You look at the whole package.
MREN: It’s difficult to predict the future, but do you think we’ll continue to see an increase in financing activity in the next several months and into 2016?
Pape: In each of the main property categories we will see some type of slowdown. It will be more of taking a stop to look at where the market is, seeing if there are still strengthens or positives in those markets. The apartment and industrial markets are so busy today, they will need to take a step back. Give those markets a couple of months to settle down and then go back to them.
We are also seeing some concern of what is happening in the interest rate market. Will rates start creeping up at the end of the year? You will still see continued growth in the real estate market, though. Nothing crazy, but consistent growth. And I think even the developers would rather have consistent growth instead of double-digit growth. Consistent growth is more sustainable.