It’s been a whirlwind two years for the commercial real estate industry, due to the pandemic. However, despite much of the global economy losing steam as Covid persisted and the industry as a whole, taking a big hit, the last couple of years at Spencer have been some of the most robust.

We saw not only opportunity, but felt we had a responsibility to continue our lending platform throughout 2020 and 2021 taking into account this tumultuous time of uncertainty, and having record growth, with minimal delinquencies and no recorded losses. In fact, according to a recent 2021 NJ Bank Performance Report by the Financial Management Consulting Group, Spencer had the highest loan growth rate of all 56 banks in the survey. Even with tightening our underwriting metrics, given the uncertain times, this is something of which we are very proud.

The pandemic has changed the world economy, including the commercial real estate industry. The current war in Ukraine has created additional economic turmoil. At Spencer, we are adjusting to a new environment, one with the potential of becoming very volatile and uncertain. We never imagined that we would see empty office buildings, mass layoffs, reduced store hours, travel bans – an empty New York City. The retail industry, struggling pre-pandemic, was certainly not bolstered by the ecommerce surge of online spending. Gyms and restaurants closed down, some permanently. Strip malls, a staple for Spencer, saw increased vacancies as businesses shut down temporarily and/or went out of business. At Spencer, we remain cognizant of this but will not let it deter us.

We remain very active in the lending arena, with a slightly modified approach. We have always practiced a conservative underwriting style, a key to building a stable real estate portfolio. Spencer monitors market metrics, leaving room for potential issues, but we pride ourselves on the ability to adjust based on borrower financial or other pertinent information.

Analyzing the current economy and near future, retail will never fully go away because people want places to visit and things to touch. Strip centers are still of interest to us as their tenants are often times uniquely positioned against e-commerce, selling products and services typically not sold online. These neighborhood retail stores continue to fill a need, and we continue to pursue those options selectively.

In the e-commerce revolution, the trend we are seeing now is strong interest in industrial warehouse and flex buildings. Demand for flex industrial assets is very strong. However, there is still risk involved and while we recognize the need, Spencer will always keep our standards tight.

Lending on general office buildings is generally outside of our appetite at this time, with rare exception. There is a reduction in occupier demand, but the home working trend acceleration has also revealed its limitations. Despite the weakened demand, there continues to be a need for people to collaborate and meet in person, as well as mentor one another.

We do have strong interest in medical office buildings, as there will always be a need for in-person medical office visits. To us, the consolidation of medical practices indicates an opportunity: increased patient base, stronger potential financial backing from a large healthcare provider and increased efficiencies for greater profitability.

Perhaps our greatest growth area is in non-commercial construction.  It is felt that the delays and pricing issues from the past two years are substantially behind us.  Projects priced now are reflective of the current marketplace, as opposed to the last couple of years where costs of materials skyrocketed, and the workforce was diminished.  Aside from supply chain issues, there seems to be improvement on the horizon.  A multi-family building under construction will come online in what should be far better times.

If we are willing to build it, we are certainly willing to continue our strong presence in multifamily commercial lending via permanent loans. Our past and are current direction towards this product line will continue to be a major part of our lending strategy.

Spencer is a 100-year-old New Jersey bank that has seen a multitude of economies, least of all the last two years.  As we did in the past, we will continue to be committed to lending in New Jersey and in New York, generating a safe and sound loan portfolio.

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