Andrew Deluski serves as senior vice president, senior business lender for Bank Rhode Island’s Commercial Real Estate division. In addition to his work with the bank, he teaches finance at Rhode Island College and bank management at Roger Williams University on a part-time basis.
Deluski spoke with PBN about the market and future trends in commercial real estate banking.
PBN: What is BankRI’s appetite for commercial real estate projects in today’s climate?
DELUSKI: I would describe BankRI as having a strong appetite for commercial real estate projects within Greater Rhode Island. While everyone is adapting to the new post-COVID working environment, we are seeing that certain asset classes have performed better than others. For example, industrial, mixed-use and residential assets remain in high demand among investors.
Our current customer base, along with new customers, has provided some exciting new projects that are going live within the next year. And from our solid reputation in the community, we have gained a number of new clients with sizable transactions, as well.
PBN: How would you describe the commercial market right now, and how is that being impacted by current challenges?
DELUSKI: The market can be challenging and a bit uneven at this time. The Federal Reserve has tightened fiscal policy and increased interest rates twice in 2022, including the largest hike in 20 years in early May. And there are plans for additional increases before the end of the year.
We’re also seeing the rising costs of materials and labor driving up the price of construction and, subsequently, projects. Even with these and other current challenges, the bank’s pipeline for business is robust, as there are numerous transactions in underwriting or in deal discussion.
To date, BankRI CRE continues to exceed year-over-year growth rates. This has been accomplished while maintaining strong underwriting fundamentals.
PBN: Has financing demand for office and commercial space changed since the pandemic? Do you see this coming back, and if so, might it look the same as it did prior to COVID-19?
DELUSKI: It has absolutely changed. The post-COVID reality is that remote work will remain in some capacity, and is something all businesses will need to provide and address.
Already, we are seeing large office spaces contract into smaller ones, and also some moving to new, more convenient locations. This shift has increased demand for more moderate retail/office space.
We have customers who are now breaking their available space into smaller unit sizes to meet this changing demand. So I don’t think we’ll go back to seeing office space as it was prior to the pandemic. More likely, we will see space that is more scaled back, yet with some of the similar characteristics we saw in offices before 2020.
PBN: How has BankRI shifted its attention and strategy based on changes in demand for different types of real estate?
DELUSKI: BankRI has always been community focused and we continue to assist our customers with the challenges they face in the market. We know that housing and a lack of affordable housing is on the mind of everyone in this space and that Rhode Island clearly lacks inventory.
Commercial real estate is in a moment when projects at times need to be viewed through a different lens; one that both fills a community need while also being profitable. Residential is a huge need locally, and we are always looking to work with developers and not-for-profit organizations to address this issue by providing unique financial solutions.
PBN: How does rising interest play into this? Does BankRI expect to see interest in real estate loans (commercial, residential) cool off?
DELUSKI: Yes, we believe that the Fed’s action – increasing rates and the unwinding of quantitative easing – will slow economic activity and reduce inflationary pressures. This could temper the very active housing and commercial real estate markets.
However, other external factors such as supply chain management, which impacts the cost of goods and supplies, especially as it relates to the housing market, are concerns that will need to be addressed as we move forward.
That said, as a bank we have developed strong, long-standing business relationships with excellent real estate developers and investors who will continue to service the needs of the Rhode Island community.
Nancy Lavin is a PBN staff writer. You may reach her at Lavin@PBN.com.