Colorado bankers outline rescue for developers
Several large banks in Colorado are considering a loan fund to rescue commercial real estate developers unable to secure long-term financing because of the economic downturn.
“We are all worried if good, solid properties can’t find permanent loans because there is no market,” said Bruce Alexander, president and chief executive of VectraBank Colorado. “If they start to default, then property values start to decline.”
Alexander heads a committee of bankers who gathered with other business leaders at the request of Denver Mayor John Hickenlooper and Gov. Bill Ritter to brainstorm ways to stimulate the local economy.
The group will run its proposal by the mayor Tuesday, and then Alexander’s committee plans to solicit support from other bankers with the help of the Colorado Bankers Association.
Besides VectraBank, other banks backing the loan-fund idea include JPMorgan Chase, FirstBank, Compass Bank and US Bank, Alexander said.
Wells Fargo and KeyCorp also are part of the committee, but their representatives were unable to attend the first meeting.
If 10 banks agreed to commit $50 million in funding, that would create a $500 million loan pool for refinancing commercial real estate projects.
“We need a little time to have this economy recover to where people are in a frame of mind to step out,” said Buz Koelbel, a developer with Koelbel and Co. in Denver. “They are hidden in a bunker right now.”
In normal times, commercial banks lend builders and developers money to construct their projects and then typically give them a couple of years to get the projects leased out.
At that point, developers, able to point to a steady flow of cash, would lock in a longer-term mortgage, freeing up capital so banks could make more construction loans.
Those commercial mortgages were typically bundled and debt securities were sold against them, not unlike with residential mortgages.
Few options available
But the credit freeze has crippled the securitization market, leaving developers few options for long-term financing.
While most regional and community banks avoided underwriting subprime or other high-risk mortgages, they did lend heavily on a short-term basis for local commercial real estate projects.
Under the proposed program, many participating banks would refinance current borrowers for another five years, long enough, they hope, to allow for commercial mortgage markets to recover, Alexander said.
Some banks with less exposure in commercial real estate might also take on new loans by refinancing projects funded by other lenders.
“FirstBank has been asked to commit to extend a certain amount of commercial loans subject to our underwriting criteria,” said John Ikard, president and CEO of the Lakewood-based bank holding company.
Must meet standards
Ikard said in an e-mail that the bank would refinance existing projects with new loans that it would hold in its own portfolio.
“I want to stress that all requests must meet our conservative underwriting standards as the loans will be held on our books,” he said.
Alexander said bankers get blamed for not lending more, but even in the arena of commercial loans, they only had 17 percent of the market.
Nonbank lenders, such as hedge funds with less concern for risk, grabbed huge market shares, only to disappear once they got overextended.
Several of the banks considering the program are receiving taxpayer money under the federal Troubled Asset Relief Program (TARP) ” VectraBank, JPMorgan Chase, US Bank ” and are trying to think of creative approaches to get that money into the economy, he said.
Bankers in other states also are trying to band together to prevent commercial real estate markets from meeting the same fate that residential real estate did, said Mike Brauneis, director of regulatory risk with consulting firm Protiviti.
“The goal is fairly clear. They are trying to keep that market from collapsing in a similar manner,” he said.
Aldo Svaldi: 303-954-1410 or firstname.lastname@example.org