More on banking. Local impacts, not nationwide or worldwide.
We have a report of an indication that commercial new real estate development may be trending to a credit crunch with a small-bank refocus on loans to existing small businesses. Good news for those selling goods and services to small businesses. Bad news for TIF-hungry venturers, wanting new stuff on the ground. Bad news for CMDC, perhaps, or perhaps good news, regarding the who-and-how of those it chooses to finance and its involvement in TIF-related consulting for City of Ramsey. How does it impact Town Center and Ramsey's greater issue, the 2008 Comprehensive Plan, the roadmap for the entire city?
The article suggests that real commercial, not phony-call-it-commercial bond-financed stuff like PACT school and City Hall [and presumably the morgue] will be credit-crunched, so that those Pattiann Kurak-touted "nice shoppes and restaurants" are even more likely a figment of imagination currently, then near realities.
Just as was always expected, by the numerous [40% at the poll, at least] band of Ramsey's steady Town Center skeptics. The drum beaters and cheer leaders were blowing smoke, or so it seems, more and more, as events unfold. And an unfortunate 60% of voters were lulled into following that Pied Piper like a band of enraptured children, when asked if they'd like the place between Anoka and Elk River to have "nice shoppes and restaurants" in a so-called "referendum on Town Center."
Here is a short excerpt from the Pioneer Press latest report:
BankFirst reins in real estate loans
Regulators say bank needed to be more conservative; execs agree to make changes
BY NICOLE GARRISON-SPRENGER
Pioneer Press
TwinCities.com-Pioneer Press
Dennis Mathisen's Minneapolis financial-services company is getting a substantial makeover, partially at the behest of federal regulators.
Earlier this month, Mathisen, chairman of Marshall BankFirst and a well-known entrepreneur and protégé of Twin Cities businessman Irwin Jacobs, signed an agreement with the Federal Reserve Bank of Minneapolis and South Dakota banking regulators, pledging to address weaknesses at his company's bank subsidiary, BankFirst.
The agreement restricts BankFirst, which has been heavily focused on commercial real estate, from growing its loan portfolio and bars the bank from originating loan-participation deals without approval. Loan participations are large loans set up by a lead bank, which farms out pieces of the deal to a number of other banks.
Regulators have been increasing their scrutiny of banks' commercial real estate lending in recent months, out of concern that banks with too many such loans could be hurt in the case of a downturn.
"It wasn't like we needed to be hit upside the head with a two-by-four," said Kim Culp, the newly hired president of BankFirst. "Businesses change and industries change and we knew we needed to change."
Since Mathisen bought BankFirst in early 2005, the bank has been originating commercial real estate loans all over the country, building up a loan-participation portfolio of about $3 billion.
Locally, a handful of high-profile loan-participation deals have gone bad - including the $35 million loan for the stalled Ramsey Town Center - costing dozens of banks hundreds of thousands to millions of dollars.
In December, a consortium of bank regulators warned that small and midsize banks were concentrating too heavily on commercial real estate lending and that some, in the heat of competition, were relaxing their lending standards.
"If you're a small community bank, the fastest way to put assets on the books is through real estate," Culp said in an interview. "You're looking at our bank today, but it's a national bank issue."
BankFirst also shed its 30-person residential-mortgage division in March and is in the process of selling its stored-value card business to Bancorp Inc. of Delaware for about $61 million.
Once these changes are complete, BankFirst will have assets of about $400 million to $450 million, down from the $641 million it had as of March 31, according to the Federal Deposit Insurance Corp., and about 50 employees, down from 216 in March.
"We have a lot of capital to give me the opportunity to reinvent the bank with a new strategy," he said, "And that strategy is to be a real business person's bank."
"That's a market niche where I think there is real opportunity," Culp said.
That's a market niche that has real opportunity? Yes and no, and maybe. And you still have to be a prudent banker, or an unhappy one.
Bruce Nedegaard got credit.
In hindsight, that was relaxing the standards.
But at the time he was "a real business person" with a stable history of years of operation from one Columbia Heights location, and of profitably building quality high-end custom homes for which he'd received a builders' association award, something that was generally and positively reported, beyond the trade news. See the opening photo, from the Scherer Bros. Lumber Co. website, reporting the award. It was a BATC [Builders Association of the Twin Cities] award. A recognition of achievement from Nedegaard's crabgrass peers. It gave Bruce Nedegaard a bona fide recognition as above average, in his building career. And I have no cause to say he did not deserve the recognition, based on the quality of custom homes he had built and based on his years of success before his life ended in Ramsey-related failure.
It makes it seem that Bruce Nedegaard's biggest sin was going broke, and he and John Feges and the architects got a Town Center AIA award, and we know how that turned out on the ground in the face of the market's harsher but more legitimate judgment.
At the time Nedegaard and Ramsey Town Center, LLC hit the jackpot for $35 million Town Center Financing [most of it going to the land speculators, given the high per acre price he paid, around $100,000/acre], presumably his banker originating the participation loan did some kind of due diligence, for benefit of the other participating banks. However, I have no clue what degree of due diligence the originating bank and the consortium banks did. Not enough, is the suggestion of hindsight.
I believe the normal practice is that bank participants defer to the due diligence effort of the originating or syndicating bank. Whether banks will be suing other banks appears to be a future question. I have not seen anything about such activity at present.
But the implication is that credit is not only tightening on the home mortgage front [and the home-buliding front due to the mortgage lead crunch necessarily making the new building prospects less promising]. The implication is a possible glut of small commercial. Jim deal has one office building at Town Center his insurance company occupies, hence that rent flow is covered. The other, diagonally opposite the new City Hall palace, houses Bolton & Menk, or a branch outlet of that firm, an engineering consultancy used a lot by City of Ramsey. Is that a quid pro quo? Don't ask me, ask them, or the City Planning Dept. It looks on the surfact to have a quid pro quo aspect.
If Deal's Plaza is already rented up, he may be fine, if there are unbreakable long term leases. But if tenant grass is greener some other place, tenants have a way of moving.
The other true [not false "city hall" genre] commercial site, anchored by Coborn's, still has a number of store fronts where "For Lease" is the indication.
What the small store site turnover at Maple Grove is, would be useful information to have, but I have not seen any reporting of that. However, the article indicates that bank regulators are locking the barn door now; so where is the horse?
Is it anticipatory, that the economy is going through a contraction and shake-out where regulators foresee new commercial real estate over capacity, or is it a situation already showing up on the ground? Clearly, the small shop sector appears to be trending that way, unless small entrepreneurial thinking is that Town Center, even with the Coborn's anchor, is unpromising. The long-term vacancies at that corner of Town Center suggest something, that way. The question is whether Maple Grove has the same new vacancy problem or a high turnover of shop sites.
The failure of Ramsey Cross Roads, Ramsey Crossways, Crosswise, Crossings, whatever the turkey was intended to be called, is also telling.
No big box attractiveness. No developer to step forward and take that risk. It all suggests that the retail commercial market is presently overbuilt - and there is a capacity glut.
Commercial office or light industry? Everybody's been TIF crazy, Ramsey included, and the city administrator of Rogers, a particularly heavily TIFed place, got sacked after a long tenure and a change in council make-up.
It seems signs point to commercial office and commercial retail and commercial light industrial doldrums. Over capacity always is reflected in recession, and the regulators' efforts as the Pioneer Press reported them, appear to reflect anticipation of recession in now stepping in to curb capacity expansion, but possibly that contraction will happen without existing surviving small businesses finding a dry-up of credit in their sector.
Perhaps, that was one banker blowing smoke, saying he foresaw one niche or sector that was less depressed and distressed than in the areas where his bank promised regulators they would scale back.
One banker, talking his shop, is not a sufficient sample from which to extrapolate.
And - how will CMDC and its SBA lending-consulting aspects prosper; a juggling act while, presumably intending to continue consulting with Ramsey for a fee, over perhaps the very people paying a fee for CMDC advice and aid in gaining finance for projects in Ramsey? *
How, ultimately, will that fare?
Who is on the CMDC board?
Who are the paid advisory professionals?
A councilmember in Ramsey got CMDC help for a shop in Anoka [not in Ramsey's tax base, not helping Ben the taxpayer, that way]. Is this the promising market niche with real opportunity that Culp, the BankFirst executive, was highly touting? Opportunity for who and what, exactly?
*_____________________________
I presume Mulrooney is still on the City of Ramsey, approved and active consultants list. If not, he was, at about the time that somebody, allegedly, was checking Nedegaard out for the City, about when the Town Center Master Development Agreement was being negotiated and written, and signed. He is still, according to a whois, the Administrative Contact for CMDC:
Administrative Contact:
Mulrooney, Michael mike@cmdcbusinessloans.com
Central Minnesota Development Company
1885 Station Parkway NW
Andover, Minnesota 55304
United States
7637843337
And about checking Nedegaard out, this was reported:
Nedegaard assembled the land and owned it. The city didn't have a choice in selecting a developer, Norman said.
"We wanted to do the project and he owned the land," he said.
The city's options were to condemn the land or go ahead with Nedegaard with a letter of credit to protect the city, said Norman.
Although the city consultants did a study before the project started that indicated Nedegaard may not survive financially, it is not unusual for projects to have two to three owners before completion, he said.