CCIM Institute’s courses add value for bankers in commercial real estate.
the past three decades, community banks have substantially increased their
presence in commercial real estate lending, according to a 2012 FDIC Community
Banking Study. Between 1984 and 2011, commercial real estate lending doubled
from 13.2 percent of community banks’ portfolios to 26.6 percent. And the
percentage of community banks specializing in commercial real estate has grown
from 2 percent to 24 percent.
The increased presence in
commercial real estate signals a need for increased education for bankers who
deal with commercial assets. Many in the lending field have found that CCIM’s
course concepts meet that growing need. In particular, CCIM’s cash flow model,
which is a key component of CI 101 - Financial Analysis for Commercial Real
Estate, has been useful in providing documentation for commercial real estate
lending, says James R. Purgerson Jr., CCIM, senior vice president of Citizens
Bank & Trust in Baton Rouge, La. “With increased regulation, it’s more
important than ever for community bankers to document their commercial real
estate lending decisions,” he says. “Bank examiners really like the CCIM
product and analytical tools. They like the supporting documentation it
Purgerson says that the cash flow
model is so helpful that he requires his new lenders to learn it. “When we
underwrite a loan, we plug numbers into the cash flow model and use it as an
addendum to our credit analysis. It’s useful backup if the deal is audited by
the FDIC, external/internal auditors, or state regulators.”
Below Purgerson explains how the
CCIM education can help community bankers make solid lending decisions.
: As the commercial real estate market
recovers,many lenders want to increase their commercial real estate loan
volumes. What challenges do community banks face in vying for commercial real
Purgerson: Commercial real estate is
attractive to community banks, but national and regional banks’ interest rates
are more competitive, so a lot of times we’re up against larger institutions
offering better rates. At the same time, bank regulators scrutinize commercial
real estate lending portfolios because most bank failures are caused by poor
underwriting and aggressive commercial real estate lending.
: How does the CCIM designation help to differentiate
Purgerson: Lending is a commodity. To be
competitive, you want to provide extra value. With the CCIM skills, you can
provide perspectives that your clients may not have considered.
CIRE: How can community bankers utilize CCIM’s cash flow
Purgerson: Community bank lenders can use the
model to make more-effective lending decisions and explain those decisions to
their boards. In the current regulatory environment, it is more common to have
a commercial real estate loan audited, especially among community banks. An
FDIC examiner from Florida told me the CCIM approach for analyzing investment
and rental property is valuable when trying to ensure quality lending practices
in this area. The cash flow model asks for a lot of inputs; the output gives
you a true picture of the current financial viability of a project.
CIRE: How do you use the cash flow model in your
Purgerson: I use the model to project cash
flows in one to five years. The model takes into account factors such as
vacancy rate and debt coverage ratio. I also use it to test different
assumptions. Even if a property isn’t leased, the bank wants to see what cash
flows would look like if the property was 80 percent leased.
CIRE: What are the intangible benefits to using the cash
Purgerson: The other day a broker told me,
“You get it.” After completing the CI 101 course, bankers understand the
commercial brokerage perspective. Also, when a developer walks into your office
looking for financing you know you’ve run the same numbers. Bankers who’ve
completed CI 101 have the skills to decide if they should lend on a project.