In almost 14 years in business, Alan Doyle never saw a year as bad as 2009. Doyle, who links commercial real estate developers to financing, completed just a handful of deals during a year when some predicted the crash of the commercial real estate market. That never materialized and Doyle says things are now looking up.
His firm, Larew Doyle & Co., is securing financing for three retail centers, four multi family apartment properties and two office/industrial buildings, which total slightly more than $50 million in value. Lenders, he said, appear to have left the “fetal position” caused by the economic crash of 2008, but the market faces a long road to recovery.
PBN: To an outsider, the commercial real estate market appears to be holding its own. What does it look like on the inside?
DOYLE: A year ago it wasn’t quite clear how federal bank regulators and the commercial- mortgage-backed securities special servicers were going to tackle the pending wave of defaulting commercial real estate loans. Now that we’ve had the benefit of looking back 12 months, a clear trend has emerged that has benefitted property owners … bank stockholders and property values in general.
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PBN: What’s the trend?
DOYLE: In the early 1990s, the [government’s] heavy-handed, slash-and-burn mentality resulted in banks bundling and selling loans and foreclosed properties at a steep discount, which wreaked havoc on both bank earnings and commercial property values. In the present down cycle, either through “divine providence” or at the directive of the current administration, regulators have allowed banks more time to work out problem loans in an effort not to exacerbate an already-struggling banking industry.
Also, special servicers – privately owned, third-party companies tasked to work out nonperforming mortgage loans on behalf of the thousands of bondholders – have likewise taken a protracted approach to workouts, but for entirely different reasons – fee income. The fees earned by special servicers are directly tied into the length of time they spend on working out loans.
PBN: What was the default rate in good times?
DOYLE: One percent.
PBN: So why shouldn’t we be terrified at the idea of 5.4 percent?
DOYLE: It’s about how we approach defaults that makes a difference in it being a horrible situation from something which is a manageable problem. … [The federal government is] allowing banks more time in working out some of these loans rather than just using a heavy hand, foreclosing and taking back the property and taking a huge hit. … If you use a heavy hand and you liquidate property, then you’re throwing a lot on the market and you’re depressing values.
PBN: What about in Rhode Island?
DOYLE: While Rhode Island’s commercial real estate market received its share of lumps, it does not share the limelight with what Moody’s rates as the weakest markets in the nation: Phoenix; Detroit; Wilmington, Del., Trenton, N.J., and Atlanta.
Rhode Island bank-lending portfolios appear to be stable, despite the continued inflow of new problem loans. … Those Rhode Island banks that are seeing the bulk of commercial real estate work-out activities inherited weak portfolios in conjunction with out-of-region bank acquisitions over the past five years.
PBN: Office vacancy rates in Providence rose this year. What affect does that have on the financing market?
DOYLE: With a total of 13.8 million square feet of office space – including 6.27 million square feet in Providence and 7.64 million square feet in the suburbs – Rhode Island is viewed as a third-tier market by the national investment community. …
Further exacerbating rising vacancy rates has been new construction over the past few years in both the downtown and the suburban west markets.
What does concern commercial real estate investors and national lenders more than Rhode Island’s vacancy rates is its excessively high unemployment rate, which the Bureau of Statistics lists as 11.9 percent.
PBN: What types of property are proving popular investments?
DOYLE: Supermarket-anchored retail strip centers, nonluxury apartments and free-standing retail properties such as CVS and Walgreen’s Pharmacies still demand the best pricing, albeit at lower levels than experienced just two years ago. Property types which continue to struggle include luxury apartments, hotels, residential subdivisions and unanchored retail strip centers.
PBN: Are some developers looking for a chance to buy property cheap and bank it?
DOYLE: When not working on retaining tenant occupancies, developers and investors are searching for underpriced commercial real estate acquisition opportunities. What was initially thought by many in 2008 and 2009 as a return of the early 1990s, which saw an abundance of “low-hanging fruit,” the result of steeply discounted bank foreclosed properties sales, has now been replaced by the realization that these opportunities are few and far between. •INTERVIEW
Alan Doyle
POSITION: Principal at Larew Doyle & Co. in Providence
BACKGROUND: Doyle emigrated from Ireland and grew up in Rhode Island. After graduating college Doyle worked for 18 years at financial institutions such as Citibank, Fleet Bank and Travelers Realty Investment Co. In 1997, he formed his own boutique commercial mortgage advisory firm to connect developers with financing opportunities.
EDUCATION: Bachelor’s of science in finance from Providence College in 1980 and an executive master’s of business administration from the University of Rhode Island in 1993
FIRST JOB: Manually resetting bowling pins at age 12 at the Knights of Columbus Hall in Cranston for $3.50 a night
RESIDENCE: Barrington
AGE: 52
