Credit unions play a vital role in the commercial lending space, complementing what traditional banks and life insurance companies offer. While the past year has brought a fair amount of challenges and uncertainties, lenders such as Alliant Credit Union have consistently remained in the market.
Charles Krawitz, vice president of commercial loans and loan trading at Alliant, shared with CPE the main lessons learned from 2020, as well as the reasons behind a 10-year high transaction flow for Alliant.
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What strategies have credit unions applied to commercial mortgage lending since the economic uncertainty caused by the health crisis?
Krawitz: The pandemic and the resulting economic uncertainty pushed many traditional commercial mortgage lenders on the sidelines in 2020, with many lending exclusively to their best relationships. But many credit unions, as well as loan funds and community banks, have been able to step in to fill this gap. At Alliant Credit Union, we have never stopped lending and have consistently stayed in the market, lending to experienced borrowers with asset types and geographic skills.
A key lesson from 2020 is that it doesn’t pay for borrowers to put every dollar to work. Having cash on hand to support operations during a crisis is more critical than ever. We are therefore looking for more reserves than in the past to ensure that borrowers are prepared for future storms. And in the current environment, we’re looking to do more adjustable rate bridging loans, with borrowers looking to reposition their properties to thrive in the face of drastically changed preferences.
What makes a credit union a viable source of lending compared to traditional banks and life insurance companies, for example?
Krawitz: Credit unions are an important source of additional capital in the commercial lending space. In the event that a borrower cannot turn to their primary bank for a commercial mortgage, whether for reasons of geography, lending standards or other factors, a credit union can step in and make the loan. ‘in a way that is mutually beneficial for the borrower and for our member base. We provide an additional capital resource to the market, on top of what traditional banks and life insurance companies offer.
What’s your take on a potential wave of distressed properties on the market?
Krawitz: I hope that with the distribution of stimulus funds and COVID-19 vaccines, the overall economy is moving in a positive direction and as a result there will not be a huge wave of troubled properties in the market. In case we see some of this activity, it is important that borrowers and lenders work together to find solutions.
Keeping lines of communication open, listening to the other party’s point of view, and providing ideas for modifying the loan or adapting the property to current market conditions can help borrowers and lenders avoid the unwanted outcome of a foreclosure. .
Alliant Credit Union recorded a 10-year high transaction flow in the first quarter of the year. What were the main factors behind this surge?
Krawitz: Over the past year, we have been steadfast in our approach to lending, while a lot of capital has been left out. Commercial mortgage bankers recognized us as a source of capital that could fill gaps where other lenders had less appetite, and as we made more transactions, we deepened our relationships with major mortgage brokers. , which resulted in more opportunities.
On top of that, many investors are returning to the market after sitting on the sidelines in 2020 and looking to take advantage of low rates before they rise. We were well positioned to take advantage of this increase in overall transaction volume.
Tell us a bit about Alliant’s progressive prepayment structure.
Krawitz: As a licensed credit union in the state of Illinois, we charge a performance maintenance fee with a progressive structure. We have found the simplicity of this structure appealing to borrowers.
In your opinion, what are some of the biggest challenges and opportunities facing financial markets in 2021?
Krawitz: Between the stimulus payments, the widespread distribution of COVID-19 vaccines and the current administration’s ambitious infrastructure plan, we see an economic recovery on the horizon and an influx of capital into the markets in 2021. This may lead to some inflation and upward. pressure on interest rates. There is certainly pent-up demand among newly vaccinated consumers to go out and spend, but it remains to be seen whether the gains from a spending surge will translate into long-term, sustainable prosperity.
While some sectors of the economy will rebound quickly, others could be changed forever. For example, most organizations place too much emphasis on the collaborative nature of in-person work to abandon their desks altogether, but they will certainly adapt to new, flexible working styles. The impact of these new modes of use on the office market will take some time to materialize.
When it comes to physical retail, not all tenants will be coming back, so there is the question of how to reuse these buildings in a meaningful way. Leisure travel will rebound as people get vaccinated, but with the proliferation of virtual meetings throughout the pandemic, business travel may not return to pre-pandemic levels. which could have a marginal effect on the hotel industry.
What do you expect for commercial loan volumes in 2021?
Krawitz: We expect loan volumes to be higher in the market in 2021, with more transactional activity. After an exceptionally tough year, many retail, office and hotel owners are ready to sell – and there are buyers in the market. Investors looking to diversify beyond equities may turn to commercial real estate as interest rates remain too low to make the bond market attractive.
At Alliant, we forecast 2021 to be our best year yet for commercial real estate lending, with a 50% increase over last year’s lending volume. We are confident in the future of the housing workforce and demand, and believe that qualified project developers will have ample opportunity to successfully reposition properties.