Attorney Edward G. Avila represents many of the lenders in southern New England. With more than three decades of experience in conducting commercial transactions, he’s had a bird’s eye view on the region’s banking and business environment. Avila is managing shareholder at the Roberts, Carroll, Feldstein & Peirce Inc. law firm in Providence.
During his long career at the firm, he has watched – and survived – as the economy has gone through multiple crises. He has closed more than 3,500 transactions and has represented lenders in multimillion-dollar transactions involving green energy and construction. He handles complicated real estate deals, business acquisitions, business loans and refinances. He also handles foreclosures, bankruptcies and workouts.
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PBN: Following the pent-up demand in the immediate wake of the pandemic, have you seen a sustained demand to complete transactions?
AVILA: The answer is both “yes” and “no.” There was a pent-up demand that created a huge inflow of business for us in 2022. I probably had more loan deals come through than at any other time during my 36 years as an attorney.
But when the Federal Reserve started raising rates, that changed the dynamic. We didn’t feel the effects immediately. But during 2023, it’s slowed down considerably. The increase in rates affected mostly regional and smaller banks because they went full steam ahead and lent so much money in 2021 and 2022. All of a sudden, with the rates rising, it affected their ratios. The FDIC [Federal Deposit Insurance Corp.] requires banks to have a certain ratio of capital versus their outstanding loans.
So, the banks definitely have slowed down during the first six months of 2023. Some have put a pause on lending. It hasn’t been a full shut down, but on certain areas where they overdid it, particularly in commercial real estate, it is now very slow. Banks are unlikely to touch office real estate right now with vacancy rates so high. They have to manage what they already have in their portfolios.
PBN: Have other sectors been impacted, and if so, is it for the same reasons?
AVILA: I’ve seen some developers slowing down, but not so much because of the interest rates. It’s the cost of construction materials and labor that’s hitting them. Inflation. They can deal with the increase in interest rates, but not with the other costs. So, they’re doing a pause.
PBN: When will the banking and construction sectors return to normal?
AVILA: If I knew for sure, I’d be rich. I don’t think things will pick up in the balance of 2023. This is a slowdown, not a stop. I still have plenty of business. But nowhere near the volume that it was. I don’t see a boom of activity during the rest of this year. Banks and developers will ride out where they are, figure out where rates will settle, figure [out] the supply chain costs, and recalibrate what they can do and re-apprise what they want to do. But talk to me three months from now and it might be a totally different story.
I believe we’re going to hit a recession, but it will not be a deep one. I think it will be shallow and short.
PBN: Are the regional banks in any sort of peril?
AVILA: I haven’t seen any cracks in the armor. There’s no evidence that points to them being in danger of failing. Nothing like that. I don’t have inside knowledge. It’s what I see from the outside.
I think the regional banks have a significant portfolio of commercial loans based on what they’ve been doing the past two years. Going forward, they’ll be more selective in what they’re doing. They’ll cater to their existing customers, but not aggressively pursue new clients. They’ll do deals, but instead of loan officers saying “yes,” “yes,” “yes,” they’ll be saying “yes,” “no,” “yes,” “no,” “no,” “no.”
They’re now focusing on getting more deposits than making loans. I’ve seen a lot of cycles in my career. And I know that eventually the banks will realize that giving loans out is how they make their money.
PBN: If banks are doing less financing, what projects, if any, will they still fund?
AVILA: There’s not any one bank that has shut down lending money for commercial loans. I have 15 loans on my desk right now with nine different banks. They’re still lending but not at the volume they were before. They’re thinking “we grew too fast, let’s slow down.” I’m not talking about the too-big-to-fail banks. Those are in a whole different category. But the community banks and regional banks in recent years provided a lot of loans that used to only go to the big banks. Now the smaller banks need to take a breather.
Just like the stock market, everything has cycles. It goes up and goes down. I’ve lived through the 1990 Rhode Island credit union crisis when approximately 45 institutions were shut down and people couldn’t get their money. I lived through the dot.com boom and bust. And I lived through the 2007-2008 market crash. Everything has cycles. We’ll get through it. I’ve seen so many changes that I think “this is just another phase.”
Contact PBN staff writer Sam Wood at Wood@PBN.com.
