Banker Sticks to Strict Standards in Down Market

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With three decades of banking and real estate industry experience under his belt, Mark Forbes has seen it all. Now, he heads the real estate division for L.A.’s largest bank, City National, originating loans on many prime office spaces in Los Angeles, and across California and Nevada. He recently sat down with the Business Journal in his downtown L.A. office to discuss the state of the industry, how this current downturn stacks up historically and when things might start to turn around.



Question: Virtually every day an expert comes out with a doom-and-gloom forecast for commercial real estate. How has the market reached this point?

Answer: In one word: cyclical. Everybody knows it; it’s nothing new. Real estate is a cyclical business. What you’re planning today is not the market you’re often delivering product in. The product cycle is so long.


Q: If everybody knows the industry is cyclical, why did so many get fooled again?

A: We all got sucked into this (notion) that real estate would never be cyclical again because there was now permanent liquidity in the space. Everybody got a sense of security, albeit now proving to be a false sense of security, with mortgage-backed securities. By slicing a million mortgages into tranches and everybody taking a little piece (it) created safety, yet we all know that it is a cyclical business.


Q: Did you notice your competitors relaxing their underwriting standards?

A: That’s absolutely the case. We saw a number of people come in to compete in our regional markets that weren’t locals, if you will, and really pushed to gain market share pushed pricing, pushed terms. I could name names, but I’d rather not. And they forced the hands of others to compete.


Q: Did City National get sucked into this dangerous game?

A: For the most part, I think we were fortunate. We generally held terms longer, though generally while we held terms we had to give on price, and we’re still suffering under some deals that were inappropriately priced. The spreads got so narrow, it was hard to justify being in the business. The market got too wild for us, which curtailed some of our activity.


Q: Is City National making commercial real estate loans today?

A: We’re still open for business (but) we have to believe that the deal is appropriately underwritten given the market conditions and that we have certainty of repayment.


Q: Some analysts are predicting huge losses among banks with heavy exposure to commercial real estate. What do you think?

A: I hear these numbers thrown about wildly, but I can’t put them into context. There are too many variables to account for that.


Q: You’ve been through a few rough patches in the past.

A: The one that everybody thinks about in Southern California that’s still memorable is the early ’90s. I was through one in the oil patch in the middle ’80s and one felt more in the Bay Area during the tech wreck of 2000. Really, the one that more closely resembles the depth of this was the early ’90s in Southern California particularly.


Q: So how does this downturn stack up?

A: The difference this time, while the depth of the downturn feels similar, the breadth of it is so much worse. There is no safe place to hide; there is no safe place in the industry; there is no safe port in this storm. That has me probably more concerned about the length of this, given the breadth of this downturn. We still talk about the early ’90s, and we’ll be talking about this for the rest of my career.


Q: What will the landscape look like once this all shakes out?

A: We are starting to see what will be an open playing field without the severe competition, without the terms being driven to levels that are unappealing. We’re excited about that. It can’t come too soon, but it’s not going to come as soon as we like.


Q: Did you ever imagine you would be dealing with something like this?

A: I grew up on a cattle ranch, so there was a thing for real estate, but it was more about the cattle than the land. That doesn’t exist anymore in my family, but I have a love for the land. My grandfather, though, did ranching on the side he was a banker in a small Podunk town in Wyoming. While I never really thought I wanted to be a banker, lo and behold, here I am one.

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