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BizTalk: Buffalo real estate, from the eyes of a national banker

Quentin Fogan loves to come home to Western New York.

The son of two Niagara Falls educators, Fogan and his family now live in North Carolina, but whenever they visit here, they try to hang out at Canalside, catch a hockey game, or just spend time with friends around downtown Buffalo or the Elmwood Village.

But Fogan, 36, sees more than just the activities that are happening, because he looks at everything from the viewpoint of a national commercial lender.

Fogan works for Bank of America Merrill Lynch, where he's a director of real estate structured finance in the company's Global Banking & Markets division. He helps oversees a team that makes or originates long-term commercial mortgages on strong-performing properties, and then packages them for sale to investors on Wall Street as commercial mortgage-backed securities (CMBS), through what's also referred to as "conduit lending."

Fogan's main territory is the southeastern United States, but he's also kept responsibility for parts of New York state, including Buffalo.

"It's always been important to me," he said. "My family still resides there, so I've always maintained coverage for originations."

Fogan grew up in North Buffalo and Williamsville, attending Williamsville North High School before going on to Wake Forest University and then obtaining a master's degree in real estate development from Columbia University. He joined RBC's commercial banking division in Charlotte and then switched over to Bank of America, where he's been since 2005, first in New York City and then in Charlotte.

He recently returned to Buffalo for an Urban Land Institute and Largo Capital panel discussion on the commercial real estate market.

Q: How's the market been for you here?

Quentin Fogan: In Western New York, there have been a number of conduit or CMBS transactions as we look at this last stretch of the commercial real estate cycle coming out of the recession, and it remains an attractive market for lenders like myself because of the fundamentals.

The fundamentals in Western New York in particular, we find that rent growth, occupancy and cap rates have generally trended in a sustainable and favorable trend, which for lenders like myself is an ideal market for structured finance or conduit lenders.

Q: What do you look for?

A: When we're looking at financing, we like to see properties that have a strong operating history, with strong property management and the ability to attract and maintain tenants that will support the operations and ultimately the bottom line of the building. What Buffalo and Western New York have continued to show is growth and stability in those metrics.

That, specifically, is what has made Buffalo an attractive market, and to that end, Bank of America Merrill Lynch has financed a number of properties through this last cycle in Western New York, including some apartments downtown, in the suburbs and most recently last year, we financed a retail property not far from the Walden Galleria. More broadly speaking, we've financed warehouse and industrial, self-storage and manufactured housing.

Q: What do you see for the retail market?

A: Retail is evolving, and to that end, much of that is driven by what is effectively called the Amazon effect – the online retail influence and the consumer adoption of it. How much of an impact will that have on traditional brick-and-mortar commercial real estate? I don't believe that anyone knows how that fully plays out. We're in the midst of  a very dynamic retail environment.

One of the things that we're seeing play out in the retail space and being adopted by some of the national retailers is "omnichannel" retail. That involves a combination of a balance of a traditional store with having the ability for customers to place orders online with in-store pickup, and the third segment would be online ordering with delivery to your home. You're seeing that strategy within the larger national retailers and finding the right balance is a critical part of this evolution of retail.

But I don’t think that any of that is going to take away from traditional brick-and-mortar retail. What we're seeing play out there is creating a place, a destination that is more than just the contents of the store, a place where people want to go, shop, spend time, eat, bring their family and enjoy beyond just the shopping that that particular store may provide.

Where we've seen success in Buffalo is in places like Canalside, where the master plan of the developer is for a multipurpose use, where you have events for professional hockey, lacrosse, where you have entertainment and outdoor entertainment with the outdoor festivals and rinks.

All of that creates a place that is more than just one of its components. That dynamic has a lot of attraction that is universal and builds out a retail destination. It’s not just retail. It's everything that goes around it.

Q: Is traditional retail going away?

A: No, and I don't think anyone says that's the case. The question is how will traditional retail evolve in the backdrop of those influences. I still believe that there's still a need for everyday retail, and you can see that from the expansion of grocers and anchor shopping centers. Families still continue to do their shopping in stores, and there's a need for that. The evolution is the question. The need for retail, I don't think anybody believes is going away.

Q: What's the multifamily apartment market like?

A: The trends there have been significant, and it speaks to a number of themes, some of those being adaptive reuse, and finding properties that support redevelopment. Where we've seen success, there is development that attracts a variety of users.

When you look at Western New York and Buffalo, and you look at what's going on in the medical corridor and the development going on there, and you look at development in downtown Buffalo, there's been very creative and thoughtful development around multifamily and trying to get back into places, which is more than just a building.

Q: How is Buffalo perceived in the national lending arena?

A: Our primary focus is always around the strength of the property, its location and its performance. Those things need to stand on its own, regardless of the property. Within that capacity, the location of the property is obviously paramount.

The fundamentals of any market are always a focus of our loan buyers. Buffalo, I believe, demonstrates a lot of strong fundamentals, and I do think there are cases when people who are not familiar with Buffalo and Western New York, and spend the time to research the market and look at fundamentals, I do believe that they generally find a favorable conclusion there.

I think that more broadly, that's been demonstrated by outside investors making inroads into markets like Buffalo and Western New York. That speaks to the favorable trends in the market itself when you have not only national providers in the CMBS space, but also equity investors from outside the region making investments in the community.

Q: Is the renaissance in Buffalo being recognized?

A: I do think that there's an appreciation for that within our platform. Because we're fortunate enough to have members of our team that are familiar with upstate and Western New York, we appreciate the fact that there is this renaissance going on in Western New York and Buffalo. And I do think more broadly, markets like it have also benefited. I do think that's known.

Q: And what do you think personally?

A: I love it. Our family loves it. We get back a number of times a year, in the summer and during the holidays, and we make it a point to spend time in the places we've discussed. We go to a hockey game, and we end up spending time with family and friends, in and around Canalside, in and around downtown Buffalo and Elmwood Village. Both of my parents were educators in Niagara Falls, so we spend time there as well.

Every time we come back, we're pleasantly surprised by the amount of development activity that has occurred in Western New York, and it speaks volumes.

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