The rash of construction activity in downtown Buffalo is paying off not only for big developers and lenders, but also for community banks that don’t often benefit from such a boom.
The region’s smaller financial institutions are getting a piece of the redevelopment action by helping to finance an array of commercial real estate projects such as apartment or mixed-use conversions. That’s helping to boost their loan portfolios, at a time when loan growth otherwise is sluggish.
Some loans are manageable enough that the community banks are able to handle them on their own, giving them exclusive relationships to build off. But these banks also are partnering with larger brethren on major initiatives, such as Rocco J. Termini’s historic renovation of the Hotel @ The Lafayette.
“We have seen an increase in participation requests from other lenders, particularly some of the large local lenders,” said Charles J. Guarino, director of marketing for Warsaw-based Financial Institutions, parent of Five Star Bank.
Although the builders and developers do the physical work, lending is what fuels the engine and makes the development possible. And executives such as Evans Bancorp CEO David J. Nasca see even more business for community banks in Buffalo’s revitalization.
“I expect there will be a lot of spin-off opportunities. I don’t believe that we’ll do every large deal, but if the community does better economically, we will do well,” Nasca said after the Hamburg-based bank’s annual shareholders meeting last week.
“Buffalo seems to be in a resurgence, and we feel we have an opportunity in that resurgence to get our share and maybe more than our share.”
Nasca told shareholders that Evans is confident it can capitalize on the business growth and construction activity happening in places such as downtown Buffalo, Larkinville, the Buffalo Niagara Medical Campus and the city’s West Side. He said the bank is already lending to several prominent projects and companies.
“We believe there are opportunities in this growth for us to participate,” Nasca said.
The surge in business for local banks represents a secondary benefit from the building boom across the city. A mix of public and private dollars has spurred a flurry of new development that hasn’t been seen in decades. “It’s been incredible what’s happened the last two to three years,” said Russell Gentner, first vice president and team leader for commercial real estate lending at First Niagara. “This is an unprecedented amount of public and private investment that’s going on in the city.”
The large projects have given rise to a plethora of secondary projects, particularly for housing, as well as for retail, commercial office and mixed-use, to support the bigger expansion. “It is gratifying to see how much activity there is in the city these days,” said Jeffrey A. Wellington, Western New York regional president for M&T Bank Corp.
Community banks can often compete for and win the smaller-scale projects on their own, such as converting low-rise buildings on Main Street into updated commercial space and apartments. For example, several lenders are involved in different projects on the 700 block of Main Street, including Evans.
Developers also divide projects into smaller pieces, and then find lenders for each part.
But banks have in-house lending limits, based on their size and risk management. They won’t lend more than a certain percentage of capital or assets to any one borrower or project, and may cap exposure to one industry or region. So for bigger deals, lenders must cooperate.
Executives from both small and large banks in Western New York confirm that there has been a lot more loan sharing or loan “syndication,” a common structure in which one bank acts as the lead lender for a borrower, but agrees to split up the total loan among other banks. That reduces the risk for any one bank, especially on large projects, but also spreads the wealth by giving business opportunities to smaller institutions that otherwise would not be big enough.
“The banking environment is extremely competitive,” Gentner said. “But at the end of the day, we come together because it creates such a win-win, not only for the banks but for the marketplace. We work remarkably well together.”
And it’s easier to work with community banks. “Their level of interest in local projects is somewhat greater than banks that are not headquartered here,” Wellington said.
In one local example of recent sharing among banks, M&T led the financing for the apartment portion of the Lafayette renovation, sharing that loan with Evans, while Five Star handled the loan for all improvements on the hotel’s first three floors. M&T is also working on other partnerships with community banks.
Apartments, in particular, are seen as a major growth area, especially around the Medical Campus, which won’t have anywhere near enough parking to accommodate the projected 15,000 people who will eventually be working there. That means they either have to commute by Metro Rail or Bus, or they will have to live nearby.
Wellington said that at M&T, for every dollar of lending for the Medical Campus, there’s an additional 60 or 70 cents of loan demand for downtown housing, hotels and mixed-use around it. “It is a lot of spinoff,” he said.
Already, Guarino said, Five Star has seen a rise in such multifamily and mixed-use projects in the downtown area, near First Niagara Center and the waterfront, as aging, vacant, and derelict buildings are converted into new uses. And occupancy rates are up.
The bank financed the purchase of a former Buffalo school at 78 Huntington Ave. that was renovated into a 31-unit, loft-style, upscale apartment project. Some of the tenants come from the medical corridor expansion. It also financed the purchase and renovations to the historic White’s Livery Stable property at 430 Jersey St., which was converted into 14 low-income housing units.
Evans lent money for the conversion of the former Horsefeathers auction house, a five-story, 19th century brick edifice on the West Side, into a local food market on the basement and first floor and apartments on the upper four floors. And it’s financing the conversion of part of Lafayette Presbyterian Church into condominiums.