CRE Midwest

Associated Bank weathers financial crisis by repositioning

Associated Bank successfully repositioned itself with a number of key hires and strategic dispossessions in 2010, paving the way for a strong year in 2011 that saw close to $1 billion in financing.

Associated Bank successfully repositioned itself with a number of key hires and strategic dispossessions in 2010, paving the way for a strong year in 2011 that saw close to $1 billion in financing.

The financial crisis hit banks especially hard, with very few escaping unscathed. Milwaukee-based Associated took its share of hits, but it’s how the firm reacted that set it apart.

“The bank wasn’t immune from the recession that hit the real estate market in the last three years,” says Breck Hanson, Executive Vice President Head of Commercial Real Estate for Associated. “We have a group of people who took an opportunity to rekindle the bank’s position in the marketplace and grow it.”

Hanson came out of retirement after years of heading LaSalle Bank’s CRE division and then Bank of America, to take the helm at Associated. With a number of strategic hires, a capital raise, and an initiative to expand the bank’s lending practice, Hanson led the bank to a solid 2011 and plans for an even stronger 2012.

“We will do footprint-wide just short of $1 billion in commitments in 2011,” says Hanson. “In 2012, we expect with a year under our belts to do even better than that. I think we can do $1.2 billion.”

The goal was to shake off the bad loans and get back into a market that provided numerous lending opportunities to healthy, aggressive banks. The plan was sound, but it did involve a certain amount of pain.

Gregory Warsek, Senior Vice President, Commercial Real Estate Regional Manager, has been with Associated for 10 years. In 2010, he was heavily involved with Associated’s strategy of simultaneously initiating a stock offering and selling large portions of its portfolio.

“We took a bold move that a lot banks could afford to do,” says Warsek. “We sold off notes in $200-$300 million tranches.”

The majority of loans targeted were highly leveraged deals that the bank wanted off of its books. In order to become aggressive, it needed to free its capital burdens. The majority of the notes were absorbed by larger funds that had the ability to take on the long-term maintenance of the loans.

“We got rid of our problems and it was painful,” says Warsek. “Those buyers will make money on those deals, but we had to get back to lending money.”

The bank did just that as it took a “contrarian” approach to the market, says Warsek.

“I didn’t think we were going to make the numbers we are going to make,” he says. “We will do close to $1 billion across the Midwest and $500 million in Chicago this year. The idea that we were actively looking for opportunities resonated with people.”

The addition of Hanson and several other new staffers brought dozens of new relationships to the bank that enabled this lending to take place, says Warsek.

In all, Associated worked with 40 new clients in 2011. Relationships go a long way in banking, but the nature of the recent recession also changed the way that borrowers do business now. Rather than pooling all of their resources with one institution, now it is considered a better strategy to spread out the risk.

“People realized that they should have diversified banking relationships,” says Warsek, “When a bank went away, those relationships were lost. It’s important to have multiple relationships.”

Associated was also able to expand its footprint in 2011 by adding new offices in Indianapolis and Cincinnati. The firm also has offices in Minneapolis, Green Bay, Milwaukee, Madison, Chicago, and St. Louis.

“We saw some nice growth in Indianapolis, Cincinnati and St. Louis,” says Patrick Ahren, Senior Vice President, Commercial Real Estate Credit and Portfolio Manager, who was brought to Associated by Hanson last year. “Everyone remains cautiously optimistic about commercial real estate.”

Ahren says that the multifamily market leads the firm’s investments in 2011, but it has also been active on the industrial front. New construction is rare, but Associated has been involved with several build-to-suite industrial facilities throughout the Midwest. 

Office and retail product is still lagging, but even in markets that are struggling there are occasional opportunities to complete a good deal, says Warsek.

“Some deals I can’t see how you could get hurt,” says Warsek. “We have a client buying the Schaumburg office market at such a low price that it can’t be built for a fraction of what he is buying for. The deal works. I’m not saying we want to target the Schaumburg market, but guys are finding opportunities.”

Refinancing has been the biggest source of lending for Associated and 2012 should bring even more opportunities, especially as billions in CMBS debt will come due. In the next five years, an average of $400 billion needs to be refinanced each year.

In 2012, the number will be closer to $600 billion as many of the five-year deals made in the heyday of 2007 will be coming due. Many of these deals will be greatly overleveraged as values have gone down in recent years. Many will qualify as distressed assets, which could entice investors to get back in the market.

“That still an avenue and opportunistic buyers are looking at those assets,” says Ahren “They can be appealing. There are definitely a lot of distress scenarios that clients will take a run at.”

Of course, competition has started to heat up in the lending environment. Associated came out of the gates early in 2011 and capitalized on a weak market, but as 2012 approaches, more banks have cleaned up their own balance sheets and will be hunting for good deals as well.

“Many banks have their problems under control and they need to drive earnings again,” says Hanson.  “Our goal is to maintain underwriting standards even in a competitive atmosphere.”

Yet a year into its plans to increase lending, Associated executives like their chances to grow even more in 2012.

“We have a year of momentum behind us now,” says Warsek. “Our new hires are in place and we have a big pipeline that is approved. We didn’t have the kind of velocity heading into 2011 as we do heading into 2012. I’m very optimistic.”