Problems in commercial real estate are finally catching up to local banks.
Commercial lending conditions for L.A.’s community banks deteriorated significantly in the second quarter, according to the Commercial Real Estate Lending Index by Banc Investment Group in San Francisco.
What’s more, conditions in Los Angeles are worse than those nationwide in all four categories tracked in the quarterly report: retail, industrial, multifamily and office. The sharpest decline came in the industrial loans index, which fell 27 percent to 38.28.
“Industrial is much weaker than the rest of the nation,” said Chris Nichols, chief executive of Banc Investment Group, the capital markets subsidiary of Pacific Coast Bankers’ Bancshares in San Francisco. “There is more warehouse space available in Los Angeles.”
The index, which reflects the strength of each sector and takes into account the likelihood of loan defaults, examines lending conditions relative to the baseline period, which is set in the second quarter of 2007 and has an index value of 100.
Retail lending conditions also dropped sharply in the quarter, falling 16 percent to 58.01.
The office index, however, declined just 2 percent to 71.02 even though rents and occupancy dipped. The modest decline, which was less than the 5 percent fall nationwide, was due largely to the fact that the local office index dropped 17 percent the previous quarter.
Bankers and industry observers expect commercial real estate loan defaults to rise significantly in the coming months, which could be a major headache for banks already dealing with losses on housing and construction loans.
According to a Business Journal analysis, banks headquartered in Los Angeles County have nearly $30 billion in commercial real estate loans on their books, constituting 40 percent of their total portfolios nearly three times the national average.
“Community banks right now are very exposed to commercial real estate. They need to do a better job in risk management,” Nichols said.
Though the loans have held up relatively well, signs of stress are starting to appear.
In the second quarter, the percentage of noncurrent commercial real estate loans at local banks rose from 1.6 percent to 2.3 percent, according to Federal Deposit Insurance Corp. data.
Bigger Space
Local wealth management firm Miracle Mile Advisors provides customized exchange traded funds that can be tailored specifically to the risk tolerance of individual investors.
In these volatile times, that strategy appears to be paying off.
The firm, founded in 2007 by a pair of Morgan Stanley alums, announced last week that it has moved its headquarters from a small office on Canon Drive in Beverly Hills to a larger space on Robertson Boulevard.
The new digs will help accommodate the growing staff: The firm has expanded from just two employees founders Brock Moseley and Katherine Krantz to five in recent weeks.
“Our new offices are the most visible example of our continued success a sign of intelligent, strategic growth in an otherwise challenging economy,” said Moseley, managing director of Miracle Mile Advisors, in a statement.
Oversubscribed Offering
Preferred Bank, a Los Angeles institution focused on the Chinese-American community, became the latest local entity to receive an unexpectedly warm reception in the public markets.
The bank announced last week that there was “overwhelming interest” in a planned rights offering, which netted $17 million in gross proceeds. The bank had expected to raise $10 million. Rights offerings give existing shareholders the option to buy into a secondary offering at a discounted rate.
A number of local companies have raised capital in recent weeks with new stock and rights offerings, and many have been oversubscribed. East West Bancorp Inc., the Pasadena parent of East West Bank, raised $80 million in a common equity offering that was oversubscribed fourfold. HCP Inc., a health care real estate investment trust in Long Beach, raised $441 million in an offering that had to be expanded from 11.5 million shares to 17.8 million.
C-Suite News
Wedbush Morgan Securities Inc., an investment banking firm headquartered in downtown Los Angeles, announced that Thomas Murphy has been hired as managing director and head of the newly launched convertibles, options and distressed securities division. Wilshire Bancorp Inc., the Koreatown holding company for Wilshire State Bank, announced that Gapsu Kim has resigned from the boards of both the company and the bank. City National Corp., the downtown L.A. holding company for City National Bank, announced two new hires. Login Allin has been appointed senior vice president and manager of business and operations strategy for its wealth management division, while Larry Charlton has been appointed senior vice president and Nevada regional executive.
Staff reporter Richard Clough can be reached at [email protected] or at (323) 549-5225, ext. 251.
