Five Questions With: Michael A. Lee

"Real estate owners and investors typically make purchase decisions based on contractual income less expenses, reserves, and debt service." / COURTESY FAYFOTO

Michael A. Lee is managing director of commercial real estate banking at Santander Bank NA. A Rhode Island resident, Lee joined Santander in 2001 and is today responsible for the bank’s commercial real estate and multi-family real estate portfolios.
A board member of the Greater Providence Chamber of Commerce and the Rhode Island Bankers Association, Lee has spent the majority of his career in lending and risk roles, previously holding positions with Bank Boston and FleetBoston.
A three-decade veteran of the financial services industry, Lee talked with Providence Business News about the commercial real estate market in Rhode Island, how it’s affected by low benchmark interest rates and some of the challenges that face the Ocean State moving forward.

PBN: With the second quarter ending last week, how has Santander’s commercial real estate business been through the first half of 2015 and what contributing factors do you think have affected it?
LEE: Santander’s commercial real estate business has had solid performance to date in 2015. A key reason is the fact that the sector is in the sixth year of a recovery. Most investors and analysts look at asset quality as a lead indicator to determine the health of the sector. When we look at specific asset quality metrics like delinquencies, non-performing loans and loan losses, the industry trends are favorable and portfolios are normalizing. In addition, when you combine favorable asset quality trends with improving market occupancy and employment, it bodes well for the sector’s growth potential.

PBN: How does Santander’s commercial financing business in Rhode Island compare with neighboring states?
LEE
: Our real estate business is concentrated in the Northeast and we have maintained a long-term presence in Rhode Island. Boston is the largest metropolitan statistical area within the New England region with Providence second. Other major population centers include Hartford, Worcester, Manchester, Portland, and Stamford. Our portfolio would mirror the region’s population demographics with Boston representing our largest concentration and a sizable presence in Rhode Island as our second largest regional concentration.

PBN: If the Federal Reserve were to increase benchmark interest rates later this year, as they have indicated as much, how do you see it affecting the commercial real estate industry?
LEE
: Real estate owners and investors typically make purchase decisions based on contractual income less expenses, reserves, and debt service. For new construction or transitional assets the revenue is based on potential income using market comparables. So cost of capital and interest rates, which drives debt service payments, are factors that influence what buyers are willing to pay for real estate assets. Significant movements in interest rates with an inability to pass through rent increases to offset the added expense will adversely influence what buyers are willing to pay for assets. We look to help our clients manage interest rate risk by offering fix rates at close for term loans that in turn help lock in margins. In the case of floating rate debt, banks provide interest rate protection products or a hedge to convert a floating rate to a fix rate and again help lock in interest rate risk.

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PBN: What would you say are the biggest challenges Santander Commercial Real Estate Group faces in Rhode Island and how will you address them?
LEE
: I would agree with our political leadership that economic development and job creation continue to be some of the biggest challenges for our state. The recent collaboration and approved budget are important first steps. Equally important enablers include a thriving capital city, a well-trained and skilled workforce, a stable and predictable regulatory environment, stable energy and utility costs, a competitive tax structure and cost of living as well as public safety and transportation. Managing these elements will lead to organic growth which in turn will be a demand generator for commercial real estate activity.

PBN: Moving forward, where do you see some key areas of growth in Rhode Island and how will you tap into them over the next two quarters and beyond?
LEE
: We continually look to support Rhode Island’s commercial real estate investors and developers. We are relationship focused and support our clients in well-conceived projects in which they also choose to invest their precious capital. Over the next couple of quarters there are multiple projects throughout the state in various stages of development that we are in active discussions to play a role in financing.

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