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How does 'the new normal' in community banking affect dealmaking?
Editor’s note: This is the first post in a two-part discussion on local commercial lending and real estate development in a post-recession regulatory environment.
In the aftermath of the Great Recession, new banking regulations and procedures have dramatically changed the financial market, and there are few industries that have been more impacted than real estate.
I recently sat down with Brian Campbell, Vice President of First National Bank of Michigan, and 616 Development founder, Derek Coppess, to uncover exactly how this "new normal" has impacted dealmaking in West Michigan.
First National Bank of Michigan made it possible for 616 Development to secure financing for 616 Lofts at the Kendall, at 16 Monroe Center.
Brian, what does "the new normal" mean for community banks like First National?
In a way, the new normal is community banking.
With the new normal, you see longtime bankers who used to be at regional branches leaving to join community banks, and the reason is that the regionals only want those large transactionals that they can price cheaply and win. They don't act like they're vested here. So long-term bankers want to make deals and improve their community, and where can you do that? At community banks.
So that's a huge cultural shift in banking.
We live here. We know this market. We can provide feedback and financing solutions in a relatively quick timeline. The decision markers are here, so they know the market inside out, versus someone who’s out of state. For us, business is less driven by economic factors than it is by relationships, and projects and the city — even employees. We all want to be here and to better our community, and that’s really what it comes down to.
Derek, why is it important to have local decision makers when securing financing for a deal?
Local is always better. It's a popular social trend right now, but when it comes to securing financing for properties and projects, there are very real, concrete reasons why local is best. Working with local bankers, gives you access to good, old fashion handshake business. When the decision maker is around the corner, rather than being at a desk on the East Coast, there is a real opportunity for a real relationship. Once trust is built, deals get easier and more fluid. Deals are more efficient, successful and — most importantly — more likely to meet the needs and wants of the local community.
Brian, how difficult is it to get deals done through community banking in "the new normal"?
There is a lot more flexibility with community banking. Part of the new normal is that state regulators are more involved in the process — there are more forms to fill out, more reporting, more audits and so on. So, with the new normal, it's more difficult to get deals done no matter where you are, but at a community bank, you have much more flexibility. It's not as if everything either fits in the same box or not, like you will often find at big banks. There are many more opportunities for custom solutions, which don't stick strictly to that off-the-shelf approach.
Derek, how does the extra flexibility you find in community banking trickle down and impact the project's success and profitability?
I always say real estate development is like the old Wild West: as long as you are within proper legal lines, anything is fair game. The best developers are oftentimes successful, because they're the most creative problem solvers. You need a bank that you can quickly meld around the creative deal you just structured. Local banks are more agile when it comes to creative deal structuring, especially when you've built up that trusting relationship.