Nearly two in every three commercial real estate purchase loans made in Massachusetts in 2024 were made by a bank. iStock illustration
In a year that saw banks take up a larger chunk of the commercial real estate lending pool, local and regional banks were among the top CRE lenders.
While Citibank was the top commercial real estate purchase lender in Massachusetts in terms of volume, they were followed by Hanover-based Rockland Trust. By total number of loans made in Massachusetts in 2024, local banks made up the top four with Rockland amassing 108 purchase mortgages. It was followed by Lowell-based Enterprise Bank, Boston’s Eastern Bank, and Salem Five.
“Commercial banking is in our DNA,” said Jeffrey Tengel, CEO of Rockland Trust. “We’ve always done it really, really well and we have people that have been doing it for a long time and doing it really well. So, I think you get a bit of a reputation of delivering.”
Cape Cod 5 President Robert Talerman said existing customer relationships allowed the bank to find success in CRE lending in 2024.
“We’re fortunate to have a nice, strong, quality client base who we have opportunities to support in challenging times and less challenging times and again,” he said. “You take, good people, quality clients, and capacity to get things done, it’s going to lead to good results.”
Cape Cod 5 was tied for fifth with TD Bank in regards to the number of commercial real estate purchase loans made in 2024.
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For its part, Dedham Savings found that the MBTA Communities law helped create opportunities to lend for development projects.
“We had some of our developer customers take advantage of that,” said Dedham Savings President Peter Brown. “We got involved with a few of those projects, and a couple of them were quite large. So that actually helped us.”
Leader Bank also found success in 2024: It tied for seventh in the number of commercial real estate purchase loans made in 2024. Matthew Pierce, Leader’s chief lending officer, noted how innovation played a role in the bank’s success in 2024.
“I’ve been in commercial lending for 25 years,” he said. “I feel like the commercial side has always been a little bit more archaic with respect to how we collect data, how we gather financials, how we notify and communicate with our clients, and we’ve just built out some workflows with respect to client portals, automated client notifications that they’re getting notified as their application makes their way through our process.”
‘We Can Now Do Larger Deals’
Having strong relationships with commercial customers can pay dividends when market conditions aren’t ideal. The local commercial real estate industry continues to deal with high construction costs, high interest rates and challenging local permitting processes.
But according to CBRE, banks are making up a larger chunk of the CRE funding pool. Banks were the biggest non-agency lenders at the end of last year, accounting for 43 percent of fourth-quarter loan closings nationally, followed by life insurance companies (33 percent) and alternative lenders (23 percent). The increase is up from 18 percent in the prior quarter and 40 percent year-over-year.
Locally, banks made $20.39 billion in commercial mortgage loans of all types in Massachusetts 2024 according to The Warren Group, publisher of Banker & Tradesman. Credit unions made $556.92 million in commercial real estate loans.
Meanwhile mortgage companies and other non-bank lenders like insurance companies made commercial loans amounting to $12.61 billion in Massachusetts in 2024.
Community bank tie-ups are helping these smaller institutions fill a need in the local economy, Browns said, and helping them take market share.
“We’ve all grown to the point where we can actually do larger deals,” he said. “Our legal limit, 20 percent of capital, it’s a pretty good-sized number now, and then with our sister bank – South Shore Bank – we can go even higher than that.”
Additionally, the president noted that institutional knowledge of market areas allows for a higher tolerance to take on more speculative endeavors. When developers are buying underperforming properties and struggling to get a positive cash flow, banks can step in and be a funding source for these projects.
“We know our market areas,” Brown said. “So when we see something that might be quasi-speculative, we’ll have a better feel for that level of speculativeness because we know our market area.”
Banks also have more flexibility in comparison to life insurance companies and alternative lenders, who have more of a rigid long-term approach that doesn’t always mesh well with today’s commercial real estate market.
“Banks provide greater flexibility of loan terms, loan structure,” Talerman said. “The insurance companies and the secondary market, if you will, they can provide very long-term, attractive fixed rates, but with not a lot of flexibility or less flexibility. I think where banks have been successful and are desirable are those situations that require a little bit of flexibility.”
Bankers say they’re likely to stick with the same conservative habit in 2025: Working with borrowers they already know as customers. iStock illustration
Lenders to Stick with Known Customers
Looking ahead to 2025, local bank executives say they expect to continue to build out their commercial real estate loan books. Demand for debt is out there in the market even amid high interest rates and construction costs, they say.
“We’re forecasting pretty consistent growth,” said Pierce, of Leader Bank,. “There’s more loan demand out there, which was honestly the one thing that I would say surprised me in 2024. I think the rates are what they are, and I think people are still going to buy, sell and do construction. In 2025, I think we’ll have a really good, consistent growth. I think there’ll be just as much loan demand that we’ll be able to have the opportunity to be picky on the deals that we can do.”
Sam Minton
While there will be growth and loan demand, Brown expects competition for deals to be fierce.
“We’re all sort of competing for really good commercial real estate deals,” he said. “That being said, one of the things that we won’t do is compromise on underwriting. Even though we have this big appetite to continue to build our commercial real estate lending portfolio, we don’t want to do that by compromising on what we feel are very conservative underwriting guidelines.”
Still, growth will also be driven by how banks can maintain relationships. Institutions can be successful and possibly even see growth if they continue to maintain positive relationships with existing clients and acquire repeat customers in the CRE market.
Tengel, of Rockland Trust, said local banks are likely to look for more conservative projects and stick with customers they already know in the year ahead.
“I think having come through this bit of a down cycle in commercial real estate, I think many of the banks have really tried to stick to doing business with customers they’ve done business with before or providing financing for projects that maybe is a bit more conservative than where it was previously,” he said. “Part of that is market-driven: As interest rates have gone up – and if it’s a construction project, raw material prices have gone up – so, what might have worked a couple years ago might not work today.”
