Alliant Credit Union of Chicago’s Member Business Loans grew 24% last year to reach $355.6 million by Dec. 31, accounting for 5.5% of Alliant’s total loans. Alliant’s growth outstripped the national growth rate of 15% in 2016, which NAFCU showed was the fastest since 2008.
Charles Krawitz, who joined Alliant as its vice president of commercial lending in January 2017, responded to questions about its MBL program, which typically makes business loans of $1 million to $20 million on commercial properties across the United States. Alliant ($9.5 billion in assets, 345,193 members) is one of the nation’s 10 largest credit unions.
What’s the trend in member business lending from the past year?
Our MBL loans fall into two primary categories: those made to commercial real estate investors and those made to owner occupants of commercial properties. Demand for both categories of loans remains extremely strong for several reasons relating to the economy’s continued expansion.
For starters, improved bottom-line cash flow, in conjunction with low interest rates, has created a favorable environment for property owners to refinance existing loans and utilize excess proceeds to improve their property’s appearance and market appeal. Alliant anticipates a continued uptick in loan demand as market prognosticators warn of increasing interest rates and property owners seek to lock in today’s historically favorable long term rates.
What qualities are shared among businesses receiving loans from Alliant? Why Alliant? Why not a commercial bank?
Alliant lends to experienced commercial real estate owners whether or not they’re local to their properties. If they’re not local, we require that they work with highly regarded local leasing agents or managers.
While we make five-, seven- and 10-year term loans on all asset types and evaluate each opportunity based on its individual merits, we are particularly partial to loans that generate consistent, historical bottom line cash flow. Examples of this type of preferred loan include: multi-family, neighborhood retail centers and multi-tenanted industrial properties. We are also highly receptive to placing term loans on recently constructed self-storage opportunities in a lease-up phase.
We’re always in the market. We’re always interested in the right loan opportunities, whether they’re refinances or acquisitions.
This position contrasts to other lenders that will only lend to those in a very tightly defined geography and who are inconsistent in their lending appetite. Another benefit of Alliant lending is our flexibility when it comes to our overall relationship to those receiving loans. We don’t require borrowers establish a broader banking relationship with us. In short, we don’t condition our lending on a mandated depository relationship or require other tie-ins.
Do you have an example of a business that has particularly benefitted from an Alliant loan?
In terms of a business that particularly benefited from an Alliant loan, one immediately comes to mind. Late last year we made a loan to a small business operating in the outsourcing field. The business owner had outgrown her existing office space and was seeking to acquire a new building that could accommodate her growing company’s needs. Meanwhile, she was looking to offset costs by generating rental income from a portion of the new space. Alliant provided a long-term financing solution at an attractive interest rate that turned this business owner’s needs into reality.
What trends do you see happening in the commercial lending space?
While commercial real estate continues to prosper, we are sensitive to the fact that the recent post-recession cycle has seen a robust run up in values, and that these values may be topping out. In particular, we are paying greater attention to risks that may manifest themselves at loan maturity, with a particular focus on tenant lease expirations and rental rates as they compare to the broader market.
It’s also important to keep an eye on employment: It’s the leading determinant of demand for space, be it for commercial, multifamily, or hospitality properties. While there are localized factors that clearly exert upward or downward pressures on employment, overall labor participation rates are increasing and upward wage pressures seem to be manifest in a growing number of locales. Inflation, running at close to 2% nationally, should help bolster rents, and in turn, lend support to commercial real estate valuations. We anticipate that any such gains will be offset by the impact of raising interest rates which will cause capitalization rates to also increase.
