Why this Fairfax community bank is betting on commercial real estate

The Freedom Bank of Virginia is “zigging when others are zagging” on commercial real estate lending, according to President and CEO Joe Thomas.

While a number of local banks are scaling back their CRE lending as they bump up against concentration limits recommended by regulators, the $1.1 billion-asset Freedom Bank has plenty of room to grow in the sector and, as such, has just hired its first-ever commercial real estate practice leader. Jeff Aleshire joined Freedom Bank on July 1 from Alexandria’s Burke & Herbert Bank, where he had been managing director of commercial real estate. 

His hiring is part of a broader push up by Thomas to beef up the bank’s management team as he seeks to double the bank’s size within the next couple of years. In recent months, he has brought in Capital One Financial Corp. banker Rob Dyson to lead its government contracting and information technology industry practice, tapped Tung Dao, formerly the deputy chief credit officer at Burke & Herbert, as chief credit officer and named Marc Tohir, formerly a commercial banking team leader at PNC Financial Services Group Inc., as head of commercial banking. 

Freedom Bank crossed the $1 billion-asset threshold a year ago and Thomas said the bank needed “to enhance and augment our management team” to keep the momentum going. 

He sees particular opportunity in CRE lending. With other local banks tapping the brakes a bit, Freedom Bank is suddenly getting access to better deals than it’s had in the past.

“We think the loan opportunities that are available with higher-quality sponsors, higher-quality real estate projects will give us unique opportunities to build new or fortify current relationships by using our CRE capacity to make incremental loans,” Thomas said.

At the end of the first quarter, Freedom Bank’s CRE-loans-to-total-capital ratio was 188%, Thomas said, well below the 300% maximum ratio recommended by regulators. With several local banks at or near that level, “now is a good opportunity to pivot and spend more energy and resources in commercial real estate,” Thomas said.

One sector he’s bullish is hotels, as tourism has fully rebounded from the pandemic. Roughly 25.95 million people visited D.C. in 2023, a 17% jump from 2022 and more than the previous record of 24.6 million visitors set in 2019, according to the most recent data from Destination D.C.

Industrial, warehouse and flex space is another category where Freedom Bank is looking to bulk up. Given its many small business and commercial clients, Thomas said, “we see how tight that market is and we’re looking at owners and investors in that segment.” 

Smaller retail and neighborhood shopping centers, apartments and multifamily — given the housing shortage that continues to plague the region — in Northern Virginia will also be a focus. Experts seem to agree that in multifamily, industrial and retail properties, prices are beginning to stabilize.

“Home builders, home renovation firms — we have a cadre of clients in what we call the investor residential segment as well,” he said.

Roughly 22% of the bank’s loan portfolio is made up of commercial and industrial loans, while owner-occupied real estate is about 24%, non-owner-occupied commercial real estate is about 30%, and residential real estate loans make up about a fifth. Eventually, non-owner-occupied CRE will grow to about 40% of its portfolio, Thomas said.

That’s still far below many other local banks, but it’s by design, Thomas said, as he plans to keep the bank as diversified as possible. And while it has some owner-occupied office in its portfolio, Thomas, unsurprisingly, is not in a rush to make more office loans. Office values have plummeted as vacancy rates have risen, and it’s unclear when they will recover given the changing needs of businesses. 

Thomas said Freedom Bank will be evaluating office lending opportunities, while taking into account the broader trends affecting the office market, such as hybrid work and companies simply needing less space. 

“All these sorts of things come into the specialized underwriting required when evaluating new office loans,” he said.