Hartford Business Journal

HARTFORDBUSINESS.COM | March 6, 2023 27 52-story office towers in Los Angeles, according to published reports. Meantime, the delinquency rate for office loans backed by mortgage- backed securities, while still relatively low, increased a quarter percentage point in January to 1.83%, the Wall Street Journal reported, citing data from Trepp Inc. That was the largest delinquency rate increase since December 2021, the Journal reported. Many large banks last quarter also set aside more money to cover loans they expect to go bad in the future, according to S&P Global. In downtown Hartford, at least one major office building — the Stilts Building at 20 Church St. — has fallen into foreclosure. During New York-based M&T Bank's fourth-quarter earnings call, Chief Financial Officer Darren J. King said office space is a clear area of concern. King said his $200.7-billion asset bank, which has a major Connecticut presence following its $8.3 billion takeover last year of Bridgeport-based People's United Bank, has seen moderating risk in its hotel portfolio, but concern for an increasing portion of its nursing home and office loans. M&T had about $5 billion in office loans as of the fourth quarter, about 20% of which was "criticized," or in danger of default, prompting the bank to keep close watch on lease expirations and sign-ups, King said. There has been "decent" renewal activity and some downward movement in rents, King noted. "If we talk about our expectations for charge-offs … as we go into this year, that's the place where we'd have the most concern," King said, referring to office loans. King said recent tech-sector layoffs might drive people back to the office. He is more confident that younger workers eager to advance their careers will ultimately lead the return to offices. "Is it five days a week, probably not, but it's not going to be zero, at least this is Darren's opinion," King said. Michael Weinstock, M&T's Hartford regional president, said his bank hasn't changed underwriting standards for office loans. The bank makes loans based largely on long-term customer relationships, which builds in its own security, he said. "We generally have been down the road with our clients for some time," Weinstock said. "These are relationships as opposed to an investment in an asset class." Community bankers optimistic Ion Bank President and CEO David Rotatori said Webster's recent charge-offs made him ponder if his bank should take another look at its office exposure. The Naugatuck-based bank, with $2.1 billion in assets, recently completed a "thorough" review of all commercial loans over $500,000, finding "very few" at any risk, he said. "We did talk about some of the office challenges, but we didn't see any that we felt warranted a write- down right now," Rotatori said. Rotatori said Ion has not changed its already-conservative office loans underwriting criteria. As a mutually owned bank, Ion doesn't need to manage shareholder expectations and is less likely to take preemptive action, Rotatori said. Nick Caplanson, president and CEO of Norwich-based Dime Bank — a mutual lender with $1.1 billion in assets — acknowledged the turbulence in the office market, but said his bank would not shy away from well-founded office loans. Caplanson said Dime Bank is maintaining already conservative commercial lending standards. "While I clearly agree the commercial office market has softened up, we have not seen any deterioration in our portfolio whatsoever," Caplanson said. "Part of that is how we approach underwriting of these loans. It's a little more conservative than national and regional commercial lenders." Caplanson said his bank's experience with its $450 million commercial loan portfolio — 13% of which is office loans — might run counter to the widespread concerns raised in the national press. "They are waiting for the shoe to drop," Caplanson said. "Well, it hasn't dropped here. And I don't see it even looking like it is going to drop." FOCUS: BANKING & FINANCE David Rotatori Nick Caplanson Michael Weinstock Here's A Glimpse of Our Bank Portfolio... Building banks is a specialty of ours. Over the years, PDS has had the great privilege of working closely and often with some of the area's most respected banks, including TD Bank and Webster Bank. These projects have ranged from new construction to general renovation, including several new free standing buildings, one of which incorporated the latest TD Bank design with LEED Platinum credentials. In addition, we have completed fast track interior fi t-outs with all new fi nishes specifi c to our client's design needs. With in-house disciplines of engineering from civil to mechanical, PDS can design the right building to fi t your budget and timeline. SPOTLIGHT ON: COMMERICAL 107 Old Windsor Road, Bloomfi eld, CT 06002 | 860.242.8586 | pdsec.com THINK • PLAN • BUILD 4,000 SF | Wallingford, CT 4,000 SF | Norwalk, CT Various Interior Renovations

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