The Federal Reserve raised the Federal Funds Rate 11 times between March 2022 and July 2023 to curb runaway inflation. While inflation has slowed, it has not exactly been welcoming news for commercial real estate borrowers as they face higher interest rates to finance their projects, resulting in challenges to get deals through the process.
Challenging times, indeed, for commercial real estate bankers as well. But that hasn’t stopped Community Bank from continuing its ambitious push into Pittsburgh and beyond with a lending strategy that includes growing the bank’s commercial real estate lending team and leveraging its strong, long-term relationships with successful real estate developers and investors.
So says Ross Langford, senior vice president and senior commercial banker/capital markets at Community Bank who has seen the bank’s total assets grow from $460 million in 2009, when he started with the bank, to over $1.4 billion in assets today.
“It has been a challenge, but we’re in a fortunate position as a bank, in that we have a solid balance sheet,” Langford said of Community Bank, a 123-year-old institution from rural Carmichaels, Pennsylvania, that has found commercial success in recent years in its aggressive expansion into Pittsburgh and beyond.
“We’re looking to grow in people and market presence and we’re looking for quality projects – coming up with ideas, options, solutions and culturally helping clients solve their problems.”
Langford discusses Community Bank’s successful commercial real estate lending strategy amidst a more expensive borrowing climate and how the bank is preparing for future opportunities as the Fed begins its anticipated easing of interest rates later this year. This interview is part of Community Bank’s Business Insights series, presented in partnership with the Pittsburgh Business Times.
The sobering news, Langford said, is that “originations and loan volumes are down because of the higher cost of capital and buyers have to put more equity into their deals.” At the same time, he added, “a huge influx of money flowed into investment houses” and not into banks. “So now it comes down to, ‘How much liquidity do you have, and how much can you put in the bank?’”
But for Community Bank, with its deep roots in the communities of southwest Pennsylvania and the Ohio Valley in West Virginia and Ohio, that’s not the end of the commercial real estate lending story.
“Pent-up energy”
Langford acknowledges that qualified commercial real estate borrowers, prior to and during the pandemic, could finance upwards of 75 percent to 80 percent of the cost of their real estate investments.
“With 3 percent loans, money was really cheap,” he said. “There was lots of deal volume at the time.”
Right now, however, bank financing typically will cover 65 percent to 70 percent of the cost of those investments, even as real estate values continue to climb, Langford added.
“But the real estate side of commercial lending still is more exciting to me,” Langford said of his role at Community Bank. “The economics are better and there’s a lot of pent-up energy out there, a lot of money on the sidelines right now. Most developers are looking for the next emerging market. Right now, there’s a slower pace, but there is a lot of planning in the works.”
Building the foundation
Langford said he and the bank’s Commercial Lending Team built the bank’s real estate lending portfolio around multi-family and single-tenant buildings before expanding into industrial and warehouse properties, local hotels and other larger-scale real estate financing deals.
“We naturally progressed on the development side of it, and when it comes to creating a unique structure and terms to make a deal work, we excel,” he said.
Of course, it also has helped that the bank over the past couple years has invested in technology, “really talented bankers, and a lot of quality partners who are helping us navigate where interest rates will be over time, relative to the bank’s lending capacity. When interest rates do come down, we’re really going to have an impact on the market.”
Why relationships matter
While the real estate financing deal flow may have slowed, it hasn’t stopped, thanks to Langford’s and his team’s investment in relationship building with local developers, family-owned real estate investment firms and even larger banks in the region.
“We help support quality projects and we actively connect with local developers to build our book of business. Pittsburgh is home to numerous family offices with large real estate portfolio holdings that require custom solutions to create successful financing options. It takes strong relationships, built on trust and respect, to design mutually beneficial transactions.
With good relationships, developers can expect “an open discussion to craft a fair deal,” he says. “Interest rates aren’t always the most important part of the financing package. Sometimes, it’s the deal structure or plans for building and selling off properties. As long as it’s an equally fair deal for everyone, we’ll get it done. When we work together on a deal, we can figure it out.”