US Bancorp (NYSE:USB)
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U.S. Bancorp's (USB) U.S. Bank, the third-largest real estate construction lender as of year-end 2011, said Friday it closed a $285 million bridge loan on a Silicon Valley office complex in the largest loan of its type outside of New York this year.
Real estate construction lending declined sharply after wreaking havoc on bank balance sheets through the recession, according to the Federal Deposit Insurance Corp. But a few spots of economic growth within the U.S. have given rise to more projects this year for the few lenders that remain active in bridge financing.
In particular, rising employment in Silicon Valley is prompting the completion of the 1 million-square-foot Moffett Towers mid-rise office complex in Sunnyvale, Calif., said Joseph Hoesley, vice chairman of commercial real estate at U.S. Bank. An explosion of tech and social media companies in the region have made the project an anomaly from much of the rest of the nation where regional markets are only plodding along, he said.
"Office new construction is being limited by demand right now," nationally, he said. However, "these tenants in Sunnyvale are not taking 5,000 square feet, they are taking 200,000 to 300,000 square feet so we feel pretty good about what the developer is doing in that market," he added.
Hewlett-Packard (HPQ) has signed up for 396,000 square feet of the newest building in the complex, following a flurry of leasing of existing space by Google Inc.'s (GOOG) Motorola Mobility, Microsoft Corp. (MSFT) and Rambus Inc. (RMBS), said Matt Lituchy, chief investment officer for project developer Jay Paul Co. The first buildings were completed in 2008 but sat largely empty for more than two years, he said.
Competition for construction lending is healthier but mostly limited to a handful of banks, said Hoesley, of U.S. Bank. U.S. Bank expects to increase all commercial loan committments to $12 billion to $13 billion this year, after doubling them in in the two years to 2011 to $10 billion, he said.
"When so little has been built for several years opportunities would come up but they are here and there," said Richard Brown, chief economist at the FDIC.
The economy will still be challenged in the next couple of years, with plenty of governors limiting growth of the market, Hoesley said. Banks aren't building on speculation as they did during the heydey that produced disastrous results for many financial institutions.
Total volume of construction and development loans on bank balance sheets declined to $240 billion at the end of 2011, down from $321 billion a year earlier and about 38% below the peak in early 2008, according to the FDIC. Delinquencies soared to 17% in 2010 from 3% at the end of 2007, and have since settled back toward 13% through 2011.
U.S. Bank's construction loan delinquencies have been above the national average but are coming down, according to Trepp, a commercial real estate mortgage data provider.
-By Al Yoon, Dow Jones Newswires; 212-416-3216; email@example.com