While many lenders pulled out of the real estate market during the Great Recession, TD Bank was one of the commercial banks that stayed in—and did not need a government bailout. “We lent throughout the downturn. We never stopped lending,” says Gregg N. Gerken, senior vice president of TD Bank.
Indeed, even as the multifamily market goes from strength to strength today, and many lenders are back in the market for the best multifamily construction loans, Gerken says that one of TD Bank’s competitive advantages is its reliability for customers. Read: the noted ability to continue to support borrowers through tough economic times. In fact, during the downturn, not only did TD Bank keep its existing customers, it also continued to add new customers, says Gerken. “The strength and stability of our balance sheet through the downturn has been a very strong and positive differentiating factor for us.”
Today, TD Bank is a super-regional Northeast bank with over 1,200 branches located in 15 states on the East Coast from Maine to Miami. One of the top 10 banks in the U.S., TD Banks has assets of over $200 billion. TD Bank provided more than $4 billion in commercial real estate financings in Fiscal Year 2012, and projects about $4.5 billion in financing executions next year. Gerken estimates about 25 percent of the banks’s commercial real estate portfolio lies in the multifamily sector.
Because TD Bank never took any TARP money, it was able to take advantage of various opportunities throughout the down years that may not have been otherwise accessible. During the financial crisis, its parent company, the Canadian-based TD Bank Group, purchased the reputedly customer-friendly New Jersey-based Commerce Bank in 2008, and The South Financial Group in 2010. Earlier in the decade, TD Bank Group had in 2004 purchased Banknorth, which was founded in 1852.
Gerken, who heads TD Bank’s US Commercial Real Estate Lending, says the bank is “cautiously optimistic” about all of its four major commercial real estate food groups: multifamily, office, retail and industrial. But until the economic recovery is securely in place, lenders will have to remain especially judicious about their approach to financing, he notes.
In the multifamily sector, TD Bank provides construction financing primarily in primary markets to strong and experienced sponsors. “We pick the right sponsors in the right locations in growing or high-barriers-to-entry markets,” says Gerken. These are the urban markets such as New York; Washington, D.C.; Boston; and Philadelphia. (TD Bank remains “very bullish” on New York City, says Gerken, but it is cautious on Washington, D.C., given the uncertainty over future levels of government employment.) However, “for the right project with the right sponsor,” TD Bank will also venture out of these prime markets, to locations including Morristown in New Jersey, and Tampa, Coral Gables and Miami in Florida, says Gerken.
Before TD Bank re-enters some secondary or tertiary cities, housing has to first stabilize in those locations, comments Gerken. “There is still a single-family shadow market overhang in many of those markets…The forsale housing market in those cities continue to compete with rentals and push up the vacancy rates,” says Gerken. “But we suggest a recovery is afoot in single-family sector as the foreclosure overhang works through the system. That is positive for the industry as a whole.”
The most important consideration for TD Bank in construction financing is the quality of the sponsorship. Developers that are not top echelon may be out of luck. The bank lends to sponsors who have a long track record, great equity position, financial wherewithal and strength of operation. “We are pretty consistent in our approach to lending, and we are a predictable lending source,” says Gerken. “We are pretty clear about what we require.” And if developers meet those criteria, they “know that we are a reliable source of capital.”