Five Questions With: Julia Anne M. Slom

"The borrower is critical to the commercial lending relationships."

Julia Anne M. Slom is senior vice president and team leader of Washington Trust Co.’s Commercial Real Estate Group. The group focuses on developing real estate loan business and with more than 25 years of experience in business, real estate and commercial lending she leads a team of seven lending officers. Slom talks with PBN about the positive and negative aspects of the region’s commercial real estate market.

PBN: Washington Trust’s Commercial Real Estate Group has recently financed several commercial projects in states including Connecticut, New Jersey and – most recently – Massachusetts. What percentage of your commercial real estate (CRE) lending is done outside of Rhode Island and do you expect that percentage will grow?
SLOM:
Our primary market area for commercial real estate lending is Rhode Island, Connecticut and Massachusetts and our portfolio has been equally divided among those three states over the past several years. Rhode Island is obviously our home territory and Massachusetts has been a key growth area for us in the past several years, but we had particularly good activity in Connecticut in 2014. When it comes to doing business outside of the southern New England area, we often make a strategic decision to lend in contiguous markets, such as New Jersey.

PBN: What are the most and least important factors in determining which commercial real estate projects to lend to?
SLOM:
The borrower is critical to the commercial lending relationships; their experience, reputation and track record plays a key role in our decision-making. Location is also an important factor for commercial real estate properties, especially whether the property is in a desirable location for tenant leases. Sound metrics in terms of borrower equity, moderate leverage and cash flow excess, or reserves to cover future capital expenditures or leasing shortfalls should vacancy occur, are also important. We have been very fortunate to work with some of the best real estate professionals in the marketplace.

PBN: What are some red flags for commercial real estate loans? Do you see any of them today in any of the markets you are lending to?
SLOM:
We get concerned when a deal structure appears too leveraged. Some deals may have too many financing layers and not enough equity. When a project hits a bump, which they often do, it bodes well for its long-term success to have patient capital or equity, versus too much debt or mezzanine financing. Another concern we have are deals that are underwritten with prospective rent increases in markets that are already potentially overheated. While we have done a good amount of multifamily business in the Boston market, we do have concerns that there may be overbuilding in the high end apartment segment of that market, and some of the deals we are seeing have their success predicated on potentially aggressive rental rate growth. Another concern we have is that as an industry we seem to have very short-term memories. There is a lot of capital chasing deals and it sometimes leads to overly aggressive lending practices. Discipline is very important.

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PBN: What does Washington Trust bring to the commercial real estate market that its competitors do not? Are these factors a sustainable competitive advantage?
SLOM:
Washington Trust has a rich history and is one of the most respected and service-oriented companies in southern New England. We are a local company and our customers have direct access to our CEO and president. We have a reputation in the industry for returning calls promptly, providing feedback quickly and delivering on our promises in a timely manner. We have a strong and cohesive team, so clients always know who to call. I think that is not only important, but makes a difference.

PBN: Where does the real estate group fit into the bank’s overall goals and how important is it for future growth?
SLOM:
Washington Trust is fortunate to have many strong business lines; in addition to commercial lending, our retail, mortgage and consumer lending and wealth management divisions all contribute to overall profitability. Our Commercial Real Estate Group has grown, both in terms of team members and loan volume, substantially in recent years and will continue to be a key growth area for the company.

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