RankingBanking 24 Digital (1) - Flipbook - Page 15
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“We have consistently and repeatedly said that we want to let RESG
be as big as it can be, while maintaining the discipline and the
standards, practices and processes that we have put around that.”
George Gleason II / Bank OZK
then probably no one can do it. The bank prides
the property has had minimal leasing activity and
itself on being easy to work with but is diligent
lacks a major life sciences tenant.
when it comes to collateral quality, thorough documentation and the transaction structure.
The project’s sponsors brought new capital to
the deal as part of a scheduled replenishment, ac-
“They’re very serious about their loan documen-
cording to the bank’s second quarter earnings. The
tation — hiring hordes of attorneys — to make
additional capital lowers the project’s loan to cost
that process quick and as easy as possible if a loan
to 47.1%, assuming it is fully funded. The project’s
does go bad, so they can work it out, flip it to an-
sponsors negotiated an additional two-year exten-
other developer or sell it quickly,” he says.
sion option as part of that capital contribution and
Haskell adds that Bank OZK services loans
“pretty aggressively.” He has heard stories of
a longer-than-expected leasing cycle, according to
bank management comments.
bank personnel monitoring the pace and cost of
The total loan commitment is $915 million, with
the project it funds, sometimes knowing sooner
the unfunded balance at the end of May totaling
than the developer if a permit needs to be renewed
$360 million, the “majority of which is designated
or there are delays.
for ‘good news funding’ (tenant improvements and
leasing commissions),” the bank stated in a Form
A Nearly Empty Building
8-K released after Gerlinger’s report.
All that could come to a head in the bank’s
While construction lending has been historically
largest project, a life sciences tower in San Diego,
risky for banks because it lacks a source of income
dubbed the “Research and Development District”
compared to cash flows on existing buildings, it’s
that triggered Gerlinger’s downgrade. Gerlinger
performing better than some other types of CRE in
visits San Diego annually to take his son to the
the current environment, says David Fanger, senior
zoo and has seen this particular building under
vice president and manager of the financial insti-
construction for years.
tutions group at Moody’s Ratings.
He found the agreement for the 1.7 million
The difference today, he says, is that the econ-
square foot commercial building by cross-refer-
omy remains relatively healthy, and recession risk
encing the bank’s disclosures to county records
seems low, creating demand for new construction.
tied to new building construction. He discovered
These loans usually carry a higher, floating rate
