Local Knowledge Helps Tech CU Grow CRE Loans Safely
When Technology Credit Union began its commercial real estate program in 2006, one of the formulas to make it work was clear: keep it local.
Over the past two years, the majority of the credit union's deals have been in CRE and construction lending and refinancing for commercial properties in the San Francisco Bay area.
Since then, the $1.7 billion cooperative in San Jose, Calif., has built a $145 million commercial loan portfolio consisting of CRE, construction, multifamily loans and SBA loans, according to Joe Anzalone, executive vice president and chief banking officer.
“We don't do commercial lending for borrowers nationally, as that does not serve our members,” Anzalone explained. “We also believe that in order to lend prudently and safely, you need to understand the markets you serve – we know and understand the markets that make up our field of membership, and that's where we’ll remain.”
In 2006, when Tech CU's commercial banking group made its debut, lending was focused on loans for investment properties with one to four units and apartment lending, Anzalone said. Over the past two years, the majority of the credit union's deals have been in CRE and construction lending and refinancing for commercial properties in the San Francisco Bay area, including mixed-used and multi-tenant.
Just last year, Tech CU approved a $9.5 million loan to support the refinancing of a multi-tenant property in downtown Mountain View, Calif., that counts Google Inc. as the major tenant. The credit union also approved loans for such landmark buildings as a $5.14 million to support the purchase of an historic SOMA office building in San Francisco and $4.5 million for refinancing the historic Fox Theatre building in downtown Redwood City, Calif.
In December, the credit union also closed on a $10 million commercial real estate loan to developers Pelio & Associates to provide long-term financing for the Los Gatos Motor Inn located in Los Gatos, Calif.
Anzalone said while the projects are diverse, the commonality is they’ve all come out of a network of relationships among Tech CU's commercial banking team and membership.
“It's not cookie cutter. Rather, we look at each loan request and the sponsorship behind it. This involves a thorough review of the loan request, borrowers’ past experience and underwriting characteristics, to ensure we are making a loan that will meet our credit quality requirements,” Anzalone noted.
Along with making a quality loan decision, Tech CU also wants to build a long-term relationship with the borrower, which will hopefully lead to providing more products and services in the future, he added.
Rather than carving out a certain niche within the CRE space, Tech CU is receptive to most commercial real estate projects in the Bay Area, assuming the underwriting characteristics around debt, serviceability and collateral support are present and the borrower has a verified track record, Anzalone said.
With the Bay Area seeing the evolution of many product types over years, demand for space has grown and availability of properties is somewhat constrained, Anzalone noted. In addition, the technology market that Tech CU serves is fueling solid demand for commercial space as companies grow. Still, there are some property types the credit union will not finance including with some exceptions, special purpose properties, which do not allow for leasing or occupation by various tenants, he added.
“For commercial lending, our members have been requesting CRE, construction lending and SBA lending,” Anzalone said. “As our membership grows, we also want to keep up with their financial needs and will certainly evaluate other loan product types on a regular basis.”
Over the past few years, several credit unions have experienced significant financial losses and in at least one case, a conservatorship, due in large part to their CRE activities. When asked how Tech CU ensures that it doesn't succumb to these types of outcomes, Anzalone said the credit union's CRE lending team with more than 70 years of combined experience has been key.
Indeed, Anzalone has more than 20 years of experience in commercial banking and venture capital in Silicon Valley. Robert Sherrard, senior vice president of commercial real estate, is extremely active in the regional real estate market on a community and professional level and has a successful background in financing commercial real estate projects in the Bay Area for more than 25 years, Anzalone said.
Other members of Tech CU's CRE team are Niki Wong, senior vice president of commercial lending and program manager of SBA lending who brings experience as a senior SBA loan officer, as well as in the commercial and industrial and commercial real estate lending business. Brian Evans, SBA business development officer, has more than 20 years’ experience in commercial lending and is a specialist in SBA lending.
“They know the San Francisco Bay area market intimately,” Anzalone said. “CRE is not something that any financial institution should get into without having experienced, knowledgeable people in place who can analyze business models and understand how they relate to the financing on a project.”
For Tech CU, SBA lending is definitely an area of growth for and the credit union is expecting an increase in activity in 2014, Anzalone said, adding it's an excellent government-guaranteed program that allows the cooperative to lend to small business owners who wouldn't otherwise get financing.
“It's great for our members, many of whom come from the tech ecosystem here in Silicon Valley and have an entrepreneurial bent,” Anzalone said. “It also ties into our larger vision (and) strategy, which is to have a solid suite of products and services that can meet the financial needs of our members in all aspects of their life, personal or professional.”
Anzalone emphasized that Tech CU did not just jump into commercial lending and that the credit union spent years building up a strong team. Its efforts tie into a diversification strategy that over the past four years has broadened the credit union's product portfolio including retail banking, wealth management and commercial banking to diversify risk and better serve the financial needs of its members in all aspects of their lives, he said.
In 2014, Tech CU plans to continue building upon the relationships it has in the San Francisco Bay area and among its members, including focusing on CRE construction and SBA lending, and growing market share, Anzalone said. However, its core focus still remains and will always remain serving the banking needs of its members.
“Our niche is that we’re local. Can't stress this enough,” Anzalone said. “It means that our team understands the Bay Area market intimately, has a strong network and can analyze and look at business models (and) financing from a unique perspective because of that.”