Peach and Alliance Bank working together
During terrific and horrific economic times, evaluating business opportunities with “assertive consistency” can pay off.
That strategy is playing out for Alliance Bank of Arizona, which has financed some $25.5 million in construction and redevelopment projects that are shaping downtown Tucson’s revitalization.
Despite the Great Recession and the city’s troubled Rio Nuevo program, Alliance Bank ventured downtown in 2005. Several local clients with long and strong business relations with the bank saw intriguing opportunities there. Knowing that the bank was still lending, they brought proposals. Alliance Bank responded with a mix of 12 acquisition, construction and renovation loans to these “visionary” developers.
“We did not go out of our way to go downtown. We put the word out that we had financing available throughout the marketplace. It just so happened this group of loans were placed there, a significant clustering,” said Duane Froeschle, senior executive of Alliance Bank’s Tucson division, 4703 E. Camp Lowell Drive. “We do have extensive loans outside downtown.”
Officials financed the proposals based on each project’s merits and each developer’s positive history with the bank. Many are well-known downtown players, such as Ron Schawbe of Peach Properties; Rialto Block owner Scott Stiteler; Rob Caylor of Caylor Construction; and Ross Rulney.
Many of their undertakings are successful, creative, high-profile makeovers changing the face of Tucson’s urban core.
“The confidence of the relationship is a central theme in all these loans,” said Froehlich.
Alliance Bank’s first downtown-area venture was with Peach Properties, a $712,000 loan to redevelop new retail and office space at the Firestone Building, 439 N. 6th Ave.
“Look at the timeline, the first in June 2005 and from then, loans into 2011. That is indicative of our consistent ability to lend at the market peak and through the downturn. Each loan stood on its own, the underwriting parameters showed feasibility,” said vice president Joe Snapp.
“We also look at projects from the developer standpoint, not necessarily the downtown factor. We look for potential future upside and that upside has progressed steadily since we got involved,” he added.
With a “critical mass” cluster of 12 loans downtown, Froeschle said the bank took precautions to minimize risk. There is a mix of borrowers and “a diversity of occupancy and tenancy that gives us confidence. It mitigates much concern.”
During the due diligence process, Snapp also takes steps to reduce risk by walking properties with the clients. He talks to tenants, tallies up rent rates and vacancies, and tries to get a feel for the validity of the proposal.
His on-site intelligence is rolled into the loan evaluation. Then during the underwriting process, “we help them understand the risks we see in their investment as well as the potential,” he said.
Alliance Bank’s biggest downtown deal was $6.1 million in 2007 for the One North 5th/Depot Plaza. This loan to Schwabe and Stiteler was to revitalize the Martin Luther King Building, a former public housing project.
The renovation now features 85 market-rate and 11 low-income apartments. The makeover also includes 9,000 square feet of new street-front commercial space.
“That’s turned out to be the benchmark for future multi-family projects downtown. It became very successful. Others looked at it, saw it was viable, and decided to do other multi-family downtown,” Snapp said.
Two East (2 E. Congress) was another large loan for $5.5 million. Caylor received financing in 2007 to purchase and extensively renovate the historic Valley National Bank Building, built in 1929. J.P. Morgan Chase Bank is the current tenant.
Loans under $1 million have been used to restore the Old Market Inn at 402 N. 6th Avenue, and to buy and rehab 829 E. 17th Street for Hi-Speed Rods & Customs.
“Sometimes, renovations are a little more complex than straight construction. Often, we had to tailor a unique financing structure to the property,” said Froeschle, who helped found the bank in 2003 with native Tucsonan Robert Sarver.
Froeschle, based in Tucson, also is president of Sarver’s Western Alliance Bank headquartered in Phoenix, which includes Alliance Bank of Arizona and First Independent Bank in Reno, Nev.
“We characterize ourselves as a business bank, not a real estate bank,” he said. “We have a long vested interest here and operate essentially as a large community bank.”
Throughout the 2007-2010 financial crisis, he said they were able to lend due to “assertive consistency” whether the economy is red hot or stone cold. As real estate “turned south, the builders had confidence we had financing.”
“We were there when somebody else wasn’t,” added Snapp. “Based on relationships, they believed in our abilities to provide what they were looking for.”
The quality of the business connection however, did not guarantee funding. Some proposals didn’t pencil out. Others were rejected very early in the pitch. So far, the bank has only one underperforming loan downtown of concern.
“Our local understanding of the market allows us to understand these opportunities. We migrated through some difficult economic times more favorably than some of our competition,” said Froeschle.
Many factors are influencing downtown’s renaissance. Specifically, the University of Arizona’s expansion there, and the influx of apartments and student housing that the bankers characterize as “a critical mass of beds.”
Also, new mixed-use commercial space is evolving and the business community has high hopes for the modern streetcar initiative.
“Those all brought some long-term confidence to the stability of the downtown real estate market. We were able to make some of these loans as the economy and market was declining, something we’re very proud of,” Froeschle said.
Added Snapp: “In our decisions, the people are as important as the projects.”
Contact reporter Roger Yohem at ryohem@azbiz.com or (520) 295-4254.
