Five days after graduating from West Virginia Wesleyan College, Brian Thompson got his first job at a bank. He liked it, and it wasn’t long before he became president of that bank. He’s been in bank leadership ever since. In 2004, he took the helm of Commerce Bank & Trust Co., a Worcester commercial bank, which is one of the larger banks based in Massachusetts. Here, Thompson discusses the pitfalls and opportunities of the commercial lending market.

Brian Thompson
Title: President and CEO, Commerce Bank & Trust Co.
Age: 65
Experience: 44 years in banking, eight at Commerce

Q: Bankers have told us that commercial real estate lending and commercial/industrial lending is where they’d like to focus their energy in the coming year. Is that a good strategy, and where do you see that market going?

A: Our growth has been…at least 15 percent per year in those core businesses. We understand the risks. We have the organizational structure to do it. It’s not easy. You’ve got to have a credit department, you have to have people throughout the organization who understand credit and can make the right decisions. Unfortunately, there’s been a lot of history in banking where people have decided they want to get into commercial and industrial, and they get in at the wrong time, or they get in with the wrong infrastructure, and a few years later, they have significant problems. What you have to do is attract the business on a profitable basis, but avoid the problems.

Q: What are those problems?

A: It’s just that you can put too much money into a project, or a company. Or you’re not able to evaluate the risks of a project appropriately. If a project falls onto hard times, it becomes your issue. We’re lenders, and spread lenders, not investors. You have to be right 99.9 percent of the time. What’s happening in these times right now, the reason why a lot of banks are looking to get into these types of activities is that they have investments on the books, and the cash flows are rolling off these investments and there’s no place to go. You can buy a two-year security for 50 basis points, I mean, they can’t make any money. So, they want to put the money into loans. Well, residential mortgages is one place you can look, but you’ve got a 3.75 percent rate on a 30-year fixed out there. How much do you want of that? That leads you into commercial real estate, where you can put it out in pretty good-sized hunks.

Q: Where is Commerce putting its efforts?

A: Our market for commercial real estate is broader than for C&I (commercial and industrial), and a lot of it is concentrated, I would say, Worcester-east because that’s where the action is; that’s where the activity is.

Q: And are you looking at multi-family development?

A: Mostly, we’re looking at projects that already have existing cash flow, somebody who’s looking to refinance an existing project that has either leases or occupants if it’s residential. We’ll do some residential, multi-family apartments new construction, but we’re very careful as to the location of that and the experience of the developer. Typically, they’ve got some real money online of their own. We walk all the comps in that area pretty well.

Q: It seems like a development like that, if it’s 100 units — that’s 100 different little pieces of risk.

A: In that case, you have a rent-up risk. Can they complete the project with the costs they’ve established? Most of them can, if they’re experienced. And then the question is: Can they rent it for what they’ve said they were going to rent it for? And how you know that is you go out into the marketplace and you walk all the comps. And then the question is: How long will it take them to rent it?

Q: What does the bank like to see as far as the absorption rate is concerned?

A: Well, a lot of these projects are going to be rented within 18 months, and depending upon their size, many of them before. And many of them will be phased in, so a project that’s 200 units might put 50 units on four times. When you look at the developers and investors we work with, I like to think they’re in the top 30 percent of people out there, and in the last five years, we haven’t lost a nickel in commercial real estate.

Brian Thompson On The Five Best Things About Worcester:

1) Its location at the crossroads of New England.

 2) The quality of municipal government.

 3) The colleges and universities here have an increased influence over the future of our city.

 4) The medical community brings tremendous economic power to our region.

 5) Strong community leadership and a large group of people who care deeply about the success of the city.