Ben Williams, real estate law specialist and Watkins & Eager managing member, has been hopping the past year helping Mississippi developers put together projects requiring mid-range loans of $5 million to $50 million.
But next month?
“I’m not prepared to tell you I’ll be busy,” said Williams, who is in his 28th year practicing real estate law in Jackson.
Yes, the uptick in mid-range lending has lasted 18 months, Williams says. But, “All we need is another glitch to cause borrowers to wonder how they are going to get the next project off the ground.”
Projects with large doses of government help in the form of New Market Tax Credits propped up last year’s lending, especially in the health care sector with new clinics and nursing homes, Williams says.
Exceptions did occur, including the $50 million Nissan expansion and the $70 million refinancing of the Choctaw Indian Tribe’s gaming facilities. The Choctaw deal is an “aberration,” considering that Mississippi’s casino market is floundering, Williams noted.
Lending in other sectors is hardly floundering, however.
For instance, the only struggle multi-family construction has seen is in keeping up with demand, Williams says.
The demand is strong in both rental projects that are helped along by government subsidies and those built purely with private money, he adds.
“I think the one that is just booming is multi-family,” he says, but cautions that the construction loan required to get a project started adds considerable risk.
Add lodging to the mid-range loan growth list, Williams says, as well as the continuing-to-surge medical-related construction.
“Health care has saved a lot of things since 2008, because there is so much money in it,” he adds.
Driving Metropolitan’s growth
Curt Gabardi founded Ridgeland-based Metropolitan Bank seven years ago in the midst of the national banking crisis and real estate collapse. He made mid-range commercial and industrial lending a primary focus.
Today, in addition to Ridgeland, Metropolitan has operations in Flowood, Memphis, Nashville and Brentwood, Tenn. It also has a pair of community banks in Crystal Springs and Hazlehurst under the Bank of the South banner.
The bank is approaching the $1 billion in assets level, having sustained annual growth of about 8 percent since inception, said Gabardi, Metropolitan Bank’s president and CEO.
A loan portfolio that has been growing in the mid-20 percent range so far this year comes on top of annual growth in the 10 percent range in previous years, according to Gabardi.
Rental housing has been a huge part of the loan growth, he says. “We would agree [with Watkins & Eager’s Williams] that multi-family housing is a great opportunity if you look at trends in the housing sector in general.”
Multi-family has created especially strong opportunities for expansion into other markets, Gabardi adds.
“Also, transportation and health care are significant drivers of our growth.”
Next comes lodging, he says. “The hotel sector is something we think we know something about.”
At the moment, he says, “We are in the process of working on several” hotel projects in downtown Jackson.
“If you study Jackson’s market in particular, occupancy levels are in good shape. Average daily rates and RevPar (revenue per available room) are generally very healthy.”
Over-the-road trucking and related logistics have been a significant part of Metropolitan’s transportation loan activity, according to Gabardi.
It’s a lending category that will grow even more as the economy builds and the use of trucking increases. “The need for power units and trailers, both commercial and refrigerated, has already shown up in terms of our loan demand,” he adds.
Like Williams, Gabardi expects lending in health-care construction to continue at a healthy clip. “I would say that lending in the medical sector has always been a key driver of our growth,” he says.
Also like Williams, Gabardi sees the retail sector as short on opportunities. “I don’t see a lot of lending for new retail centers, he says.
Low interest rates, however, have helped building owners afford to refinance and improve their retail properties, Gabardi notes.
Unlike residential rental properties, new retail growth is tough to underwrite, Williams says.
“With multi-family you don’t have to worry about who is going to move in across the street and cannibalize your sales.”
New markets a mainstay
New Market Tax Credits can revive a stalled project in quick order, Williams notes.
“Here comes the federal government. It says we’ll give you tax credits; you bring in the investors.”
The investors are typically individuals or entities such as banks with a substantial federal tax obligation and want tax credits to lighten their load. The developer, who needs capital rather than tax credits, brings in the investors as limited partners with zero liability. With the New Market Tax Credits, they can put up a $75,000 investment that gains them a $25,000 tax credit, thus creating a $100,000 return, Williams explains.
“By the way, the project is now on the table.”
New Market Tax Credits are “a huge play” in Metropolitan Bank’s Tennessee markets, Gabardi says. In Mississippi, the tax credits have been widely used by Metropolitan borrowers for “tilt-up” commercial construction, he says.
“I’m looking out the window of our office in Ridgeland. Highland Colony has seen significant vertical construction” that included New Market Credits.
New Market Tax Credit deals are complex to put together, but they have done plenty to spur development in Mississippi, according to Williams.
“We’re in a recession in 2009 and suddenly here comes the New Market Tax Credits to the rescue,” he says.