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The commercial real estate lending environment may be a tough one right now, but a Massachusetts community bank is making headway in Connecticut as one of the year’s fastest-growing commercial real estate lenders.

Oxford, Massachusetts-based bankHometown slotted into The Commercial Record’s Fast 50 rankings this year in sixth place by dollar volume of commercial real estate mortgages.

The Fast 50, compiled from data collected by The Warren Group, publisher of The Commercial Record, shows the 50 fastest-growing lenders in Connecticut for the first half of 2023, compared to the same period in 2022.

With only five branches operating in Connecticut, bankHometown saw $27.2 million in commercial loans in the first six months of 2023, which was a 252 percent leap from the $7.7 million it recorded in-state in the same period in 2022.

Quick Turnaround of CRE Loans

This achievement is possible due to the bank’s strong business model of three banks in strong markets in Massachusetts and Connecticut, the bank’s top executive said. The Hometown Financial Group has the $1.4 billion-asset bankHometown that operates in northeastern Connecticut and Central Massachusetts, the $1.8 billion-asset bankESB that services Western Massachusetts, and the $1.4-billion Abington Bank which serves Eastern Massachusetts.

“We’re a $4.5 billion organization. The way I describe it is, it’s the best of both worlds. We have the size, capacity, and the brain power to do larger, more complicated CRE loans,” Rob Morton, president and CEO of the $1.4 billion asset bankHometown, said.

Click here to see our rankings of Connecticut’s fastest-growing lenders of 2023.

“But because we’re a collaboration of three community banks, we still have the approachability and the responsiveness, the heart and soul of a community bank. So that is driving our success in all markets, especially in Connecticut. Because we can do the bigger deals, and we can get them done quicker than the large banks,” he added.

BankHometown also benefits on its “deal discussion process” which improves efficiency in loan originations, as well as enhances borrower experience and adds personalization based on the clients’ needs.

The process involves collection of certain financial information from the borrower, which will be the basis of internal discussion between credit and commercial loan officers and underwriters. The team will collectively agree on the terms and conditions and covenants of the loan – and a tailored term sheet will be presented to the borrower just days later.

Personalized Lending

It’s not typical of other banks’ operations, but Morton said it works for bankHometown to have credit and commercial lending officers work together and collaborate to first avoid wasting time and energy on loans that are unlikely to get approved, and second to save the customer time and frustration as they would know early on if the deal will push through, instead of experiencing time-consuming back-and-forth as normal origination process goes.

In some cases, these back-and-forth processes with larger banks can change the terms of what was originally discussed, Morton said.

“In some instances, the lender will quote what he or she thinks the deal will be and then the credit department will change it. The lender then has to go back to the borrower and say, ‘here’s the deal’. That can be a very frustrating and aggravating process for the customer,” he said.

“For bankHometown, people have more confidence that we are going to deliver the loan that was discussed on the front end. So, I think that’s a competitive advantage that we have,” he said. “When everyone agrees, [the loan] goes through an underwriting process that is quicker and more seamless.”

Awareness of the bankHometown brand and its capabilities has also grown in the Connecticut market, the bank’s CEO said.

Cross-Border CRE Spillover

With development and land in Massachusetts becoming more expensive, Morton said, some investors are opting to move out of the Bay State and settle in Connecticut to build multifamily investment properties, a bright spot in commercial lending.

“We are seeing growth in the multifamily apartment sector. We have a customer who, historically, has been building a portfolio in Western Massachusetts. But due to the increase in prices [due to high interest rates], he has focused to grow his portfolio in Killingly,” Morton said.

Killingly hosts one of bankHometown’s five Connecticut branches, after Brooklyn, Putnam, Grosvenordale, and Woodstock, part of its 16-branch network. Morton said Killingly is a central location where “the community can benefit from the growth that’s been pushing out from Massachusetts to Connecticut.”

Soft CRE Market

The bank is seeing that commercial real estate will continue to be a “soft market” – with more sellers than buyers – in both Massachusetts and Connecticut in the next two years, citing that the high-interest-rate environment that Morton thinks will “stay longer than people realize.”

“I think the Fed futures had said that interest rates will be down 125 basis points by the end of next year. But I’m not sure about this. Unless there is a real hit to the economy, I think the Fed is going to be reluctant to move interest rates lower anytime soon,” Morton said. “I anticipate a soft market for at least the next two years, but I could be wrong. But if it perks up, we’re ready to go.”

Even for bankHometown, growing its commercial real estate lending in the first half of this year would not necessarily translate to an acceleration in lending the second half of 2023 or even next year. The bank is not expecting a growth pattern emerging in commercial real estate lending moving forward, and instead is seeing a modest slowdown in take up in the coming months.

The bank originated two large hotel loans in Connecticut over the past year. Morton said that bankHometown is getting closer to its internal policy limit in lending within the hotel industry – which is a lower limit compared to lending to other sectors – and noted that such scenario can lead to “more selective” lending in that sector.

Morton said bankHometown’s commercial borrowers in Connecticut are in multifamily rentals, hotel and hospitality, storage units, as well as large classic retail supercenters “with strong anchors and great locations.”

The bank only has three office loans in its commercial lending portfolio – two in Massachusetts and one in Rhode Island.