www.REBusinessOnline.com February 2018 • Volume 18, Issue 11

At Atlanta-based SunTrust Banks Inc., commitment to the community and its mem-

bers plays a big role in shaping its business model.

From capital raising to loan ser-vicing, from private operator to REIT, and from community capital to seniors housing, SunTrust oper-ates a full suite of commercial real estate banking services.

The company’s foundation, however, lies in its purpose. SunTrust is dedicated to “Lighting the Way to Financial Well-Being” for the people, businesses and communities it serves. Sun-Trust leads OnUp, a national movement inspiring Americans to build financial confidence. The initia-tive is an integral part of the bank’s strategic part-nership with its hometown baseball team, the Atlanta Braves. (The team’s new ballpark bears the bank’s name, SunTrust Park.)

Kathy Farrell has served as head of the bank’s com-mercial real estate line of business since August 2016, and has been with the company since 2013. The com-pany has a corporate focus on the Sunbelt, which Far-rell says has its advantages.

“If you look at where the growth in this country is, so much of it is in the Sunbelt states,” says Farrell. Farrell cites economic growth, corporate relocations, a favorable business environment, strong colleges and institutions and great weather as reasons why there has been so much growth and migration into Southeast markets.

“Having a major presence in Atlanta and having people on the ground in all of the major cities in the Southeast have been great benefits for us during this real estate cycle,” says Farrell. “It’s been a great time to be a real estate lender in this region.”

In its third Executive Q&A feature, Southeast Real Estate Business spoke with Farrell about SunTrust’s commitment to the Atlanta community, the compa-ny’s growth strategy and her outlook on the future of the company and commercial real estate as a whole.

The following is an edited interview:

Southeast Real Estate Business: In 2016, SunTrust closed on the acquisition of Pillar Financial. What has been the biggest impact? How has the acquisi-tion improved SunTrust’s operations?

Farrell: We are now a full-service commercial real estate platform, and that allows us to tailor solutions to help meet our clients’ needs. We were limited be-fore in the sense of we provided construction and interim financing and could leverage our SunTrust Robinson Humphrey platform for some capital mar-kets executions. But now with the agency business

[Fannie Mae, Freddie Mac and HUD], we are able to provide long-term, permanent financing solutions for our clients. We can stay with them through the life cycle of their assets.

SREB: What impact will the Tax Cuts and Jobs Act of 2017 have on SunTrust’s commercial real estate business, and what short- and long-term impact do you think the tax reform will have on commercial real estate as a whole?

Farrell: This is a really positive action on the part of SunTrust. We are really standing behind our pur-pose by sharing some of the benefits of tax reform. In addition to the teammate benefits, we have pledged $50 million toward community giving that supports financial confidence initiatives.

A lot of affordable housing is financed through tax incentives, and the higher tax rate created a need for more incentives. The new tax plan could potentially result in fewer dollars available to finance affordable housing, and we’re a very active player in that space so we’re watching that carefully.

Overall, the government is creating incentives to spur economic growth. Ultimately, that will result in more building, so that’s going to be good for com-mercial real estate.

SREB: The Fed announced another hike of the fed-eral funds rate in December 2017 and is expected to do so three more times this year. What effect will this have on commercial real estate?

Farrell: Certainly rising interest rates are going to have two impacts on commercial real estate. As in-terest rates rise and debt service increases, free cash flow decreases. So properties are going to have less free cash flow after debt service and that’s going to impact their value. Ultimately, we could start to see some cap rate compression as a result of rising inter-est rates.

One area of concern that people want to pay at-tention to is properties that were underwritten at the margin could start to see some deterioration in debt service. Most lenders underwrite with a cushion built in for a potential rise in interest rates, but if there’s a spike that comes, it could be problematic for some assets that were underwritten at the margin and have too much leverage on them.

SREB: What growth opportunities are SunTrust currently pursuing or will it pursue in the future?

Farrell: For SunTrust, affordable housing has al-ways been a top priority. We certainly believe it’s very important to invest in our communities, and our SunTrust Community Capital Group, which is part of our commercial real estate business, has been an active provider of capital both on the debt and equity side in affordable housing and low income housing for many years. Last year alone, we will have done almost $600 million in financing for affordable hous-ing. It’s a top priority for us and it will continue to be. There is a shortage of affordable housing throughout the country and it’s really important to help provide

Kathy Farrell of SunTrust Banks: Investing back into the community is vital to our success.By Camren Skelton

EXECUTIVE Q&A: LIGHTING THE WAY

Kathy

FarrellSunTrust Banks

SunTrust Community Capital, McCormack Baron Salazar and Invest Atlanta provided $24.8 million in financing for the new YMCA of Metro Atlanta headquarters.

financing for that. We’re also working with our partners in commer-

cial banking at SunTrust who have a focus in aging services. We recently received our license to originate seniors housing loans through Fannie Mae. We are going to partner with our aging services team to pro-vide short- and long-term financing for seniors hous-ing, and that will be a focus for us going forward as well. More generally, we are looking at entering some of the 24/7 markets that we are not currently in. We’re looking at places where the bank already has a presence but we have not been active in com-mercial real estate, such as Texas and Chicago. And that wouldn’t be just multifamily, it would be office, industrial and retail. We would love to do more in-dustrial.

SREB: The partnership with the Braves is also part of SunTrust’s “Lighting the Way” initiative. Can you talk for a moment about SunTrust’s decision to part-ner with the Braves for its new ballpark?

Farrell: The partnership with the Braves was really a once in a lifetime opportunity for us to join with another great hometown organization. We’ve had a decade-long relationship with the Braves — they share our values and commitments to serve the com-munity. Partnering with them at the Battery Atlanta and SunTrust Park was a great opportunity not only for SunTrust to create visibility, but also to create a venue that’s an exciting place for people to come.

We’ve been able to use the national pastime of base-ball to help educate visitors who come into our onUp Experience center there about financial well-being. No other bank has done this — leveraged the naming rights — to help people in a tangible way.

SREB: Are there any pockets of oversupply in the multifamily sphere that may give you pause? Is Sun-Trust pulling back on construction lending for new apartments, and what does the future of the multi-family sector look like for banks and lenders?

Farrell: If we’re going to look at it from a geogra-phy perspective, it’s down to a handful of markets, and then even submarkets within those cities. Within

the Southeast, certainly we continue to follow Char-lotte, Atlanta, Miami and Washington, D.C. There is still a lot of Class A multifamily to be delivered over the next 18 months in those markets, so we are watch-ing how that will be absorbed.

But unlike some other cycles, the interesting thing here is that the supply question is driven by price point. So much of the development over the last few years has been at the high-end, luxury price point, and there is a gap in the Class B, workforce housing. We’re seeing that with our clients that are starting to build more affordable product. And a lot of these are going to be in the suburbs. The in-city location is go-ing to continue to be too expensive, and those rents may have maxed out. So we see opportunities in the suburban, Class B multifamily space.

Over the last couple of years we were very selective in which projects we would finance. We held firm on our disciplined underwriting standards, and in some cases, we couldn’t get some projects to pencil out. That being said, we are financing multifamily con-struction and we have many projects for our develop-ers that we’re financing today.

I wouldn’t say we’re pulling back, but certainly at that high-end, luxury stratosphere we have slowed down and our focus has been more on Class B, af-fordable housing.

SREB: You’ve held leadership positions since early on in your career. In your view, what makes a suc-cessful leader and what are some touchstones you try to embody in your leadership at SunTrust?

Farrell: The most important part of being a good leader is having a great team. It’s so important to build a cohesive group with a shared vision where everybody works together well. When you achieve that, it lifts the whole business up.

After that, to me there are really two things I work hard at. One is listening and the other is communi-cating, because people want to be heard and people have great ideas. Then communicating, because peo-ple want to know what’s going on. I work really hard on those two, but No. 1 is having a good team and I’m really fortunate that I have the best real estate team in the country.

SREB: How could the commercial real estate in-dustry be more inclusive for women?

Farrell: It starts with actively recruiting diverse can-didates coming out of school, and helping them learn the business, grooming them for senior positions and being very deliberate in placing high-potential can-didates into positions. So much of it is about recog-nizing talent, and deliberately supporting that talent through their career, and we have to get better at that.

SREB: How have you seen the commercial real es-tate industry change over the years? Have there been any “new normals” in your view or is it more or less cyclical?

Farrell: There’s been a significant influx of foreign capital that has really changed the owner landscape. But one of the biggest changes is really the dynam-ic tenant market we have today, and that’s driving enormous change at the asset level that is going to be a new normal. When I was first working as a real estate lender, we were financing new massive en-closed mall properties all around the country. If you think about consumer demand and use of technol-ogy and how that property type has changed over the past 20 to 25 years, it’s becoming far more experi-ential and entertainment-based. It’s incredible to see the change.

SREB: Looking ahead, what technologies will shape the future of commercial real estate? How is SunTrust preparing for this adaptation?

Farrell: Our operations and processing is really moving to an automated solution with the use of ro-botics and fintech, and we’re seeing that not only in banking but the entire commercial real estate indus-try. Borrower experience, with respect to the use of fintech, is going to change going forward, and we are studying that solution closely.

The residential real estate side of the business is probably further ahead than commercial real estate, but we need to think about how to build out online platforms and access for investors and lenders, be-cause that’s the next wave in technology. n

Westminster Canterbury-Lynchburg, a nonprofit provider of residential and healthcare services for older adults, has received a $38.2 million construction loan from SunTrust Bank to develop a new, six-story seniors housing project. The new facility will be located on the retirement community’s existing 42-acre campus.