In a change from addressing investor issues about their building and construction and advancement and multifamily financing as they have in the past few quarters, bank executives and experts refocused on a new topic this past quarter: resolving perceptions of retail weak point in their realty lending.
Numerous banks even had prepared slides in their discussions breaking out their retail realty concentrations for analysts, some at the demand of their boards of directors.
While at this point bankers are not excessively alarmed about the sector, it’s clear they have actually gotten the message from their financiers and are significantly sensitive to the issues some of the big nationwide retailers are experiencing.
Naturally, it doesn’t help when, for the first time given that the Great Economic crisis, over half of all public retailers reported unfavorable year-over-year same-store sales development this year, inning accordance with Kevin Cody, a retail analyst with CoStar Portfolio Method. Gymboree, Payless, rue21, Wet Seal, American Apparel, Look Mountain, RadioShack, and hhgregg are amongst the merchants that have actually declared personal bankruptcy this year.
Cody has actually tallied more than 6,000 closures totaling about 76.7 million square feet this year.
Cushman & & Wakefield approximates that a minimum of 8,000 retail stores will close this year, which would move the overall quantity of shuttered space to more than 93 million square feet– levels not seen since 2008.
Bankers pointed out the growing presence of e-commerce, along with weak growth potential customers dealing with some retailers in an overbuilt retail market and the constant drumbeat of store closure announcements, as the major consider their decision to deal with the matter with financiers this quarter.
” It’s something that we are continuing to view, the’ Amazon Result’ as it’s called, “stated Susan Springfield, executive vice president and chief credit officer of First Horizon National Corp. (NYSE: FHN), the bank holding business for First Tennessee Bank, a $29 billion bank based in Memphis.
” Certainly the entire Foods acquisition and it looks like Amazon Prime day exceeded exactly what people believed it would,” Springfield said. “So it’s absolutely something that we’re seeing carefully and are making the proper adjustments in terms of our underwriting.”
In general on net, senior loan officer reacting to the Federal Reserve’s quarterly study of bank loaning practices indicated that their lending standards for all significant categories of CRE loans tightened up throughout the 2nd quarter.
The ‘Amazon Result’ is impacting bank lending in other ways too. Banks are starting to measure their exposure to residential or commercial properties with national grocery chains as anchor occupants. When it concerns providing on strip centers, they are increasingly favoring centers filled with service organisations, nail beauty parlors, hair salons, barbershops, pizza locations, liquor shops, karate schools and others.
Other hand to Amazon Impact
There is an other hand to the Amazon Impact too, said George Makris, chairman and CEO of Simmons Bank, an $8 billion Arkansas-based bank.
“There are a number of pockets of intermodal centers throughout the nation that are actually growing as distribution centers for Amazon and others,” Makris stated. “We have actually been fairly effective with … some of those advancements through in-market customers who are very experienced in that arena. So, rather than having negative patterns in our portfolio from a retail direct exposure, we believe we’re in fact gaining from the growth trends in the online shopping.”
While lots of lenders reported that they do not see any current weakness in their retail loan portfolios, they don’t deny there are threats in retail lending now.
“You tend to believe [the Amazon Effect] is just going to impact the bigger space, however all of us know that realty worths are based on comps, and if there are troubles in the larger space, it’s going to filter to the smaller sized note sizes too,” said Brian Vance, CEO of Heritage Financial Corp. (NASDAQ: HFWA).” I believe there’s going to be issues in this space for all banks in the future.”