Raleigh November 2023 Key Take Aways
• RPN Guest John Shimer is a managing partner of Time Construction, who are commercial and residential general contractors working on projects for $100K to $10M, specifically adaptive reuse and renovation.
• RPN Speaker + Member David Koehler of Wells Fargo discussed changes in bank regulation around capital management; banks’ financial performance; and loan portfolio data.
• David reported Basel III is a regulatory change giving GSIBs and regional banks (banks with $100B in assets) larger capital requirements, which will impact loan allocation. Category 3 and 4 regional banks will carry the same capital requirements as GSIBs. The proposal will be finalized in Q2 2024. Banks will manage capital conservatively, assessing business lines for profitability. The proposal could create headwinds for regional banks as it sets a high growth bar and could give pause to growth plans.
• David reviewed trends in banking performance in Q3: deploying cash positions as interest rates have increased; deposit pricing has stabilized some; cash balances continue to grow; asset quality is somewhat normalizing across portfolios; and profitability outlook looks gloomy against headwinds. Many banks’ average earning assets declined in Q3 due to decreased demand for loan growth because of rate environment. Card portfolios continue to increase.
• David said office and multi-family sectors are most challenged with refinancing pressure. Office owners are electing to default on loans vs. refinancing. Thirty percent of all hotels will be refinanced in 2024. Retail is seeing a slight delinquency rate lift. Multi-family sees slowing rent growth, rising construction costs and less available financing. Bank reserves are ramping back up.
• Richard Oldham of Sanford Contractors reported no let-up on labor pressure. SCI still has some materials issues, including electrical, bronze and water meters. Equipment is getting better.
• Whiting-Turner’s James Larkin said the construction side is moving faster than the data side when building high-performance buildings, like the firm’s Wolfspeed job in Chatham County.
• SINGH Development’s Mony Grewal discussed the financial challenges of development in the current lending environment. SINGH did start a new Assisted Living project near Crabtree Mall in Raleigh.
• Beth Harrelson of First Horizon sees borrowers going to 5-year terms with life insurance companies in hopes interest rate market will shift. She said most life companies’ highest leverage is 60%.
• Lee & Associates’ Scott Hadley said Granville County commissioners voted for contract with Portman for two industrial buildings (200K, 700K SF). He sees interest in Granville, Vance and Warren Counties.
• Hunter Stewart of Lee & Associates reported the firm will open a Charlotte office in early 2024. He said industrial is changing quickly; single family is white hot, especially in Clayton and Johnston County; and multifamily is extremely slow. He’s had good activity with banks and medical groups at MOSAIC and Northwood Landing in Pittsboro.
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