Phil Green: Yes. What I would say, Steven, is that first of all, I’ve read that Wall Street Journal Article late in the year about the vacancy rate in Texas. Let me tell you what. That vacancy rate in Texas is going to be high for a long, long time. You know why? Because it’s downtown real estate. Some of those buildings – this is my opinion. Some of those buildings, I don’t know they’ll ever be filled. Some of them probably from the 1980s or 1990s. So you’ve got that and you’ve got that. Now I’ll recognize Austin’s got new buildings there, and they’ve got significant vacancy. So I’m not trying to whistle past the graveyard. I’m just trying to say there’s some element of that vacancy that it’s different than other vacancies, okay.
Not all created equal. But what I would say about commercial real estate is – we saw an increase – you heard me say we saw an increase in problem loans this quarter. That’s risk rate 10 or higher. But it really wasn’t from commercial real estate at all. In fact, if you look at what happened, let’s take commercial office. We had three paydowns of investor office that totaled $95 million. One of them, they paid off our cash loan came due, paid it off for cash is a significant deal in a downtown major market. One, we had one that was in a medical center of a major market. They put lots of cash in it and refinance the rest. We had another one that we sold. It was a completely performing loan, but the owner had some other problems, other places, and it was in Austin.
And we said, look, we got a really good bid for that long. We sold it. We took I think it was a 7% discount on it to do it. But those are three examples of investor office in Texas where we’re operating, where it worked out okay, because you’ve got the right structures, the right locations and the right sponsors for these things. None of these things were guaranteed. And so the increase in problem credits this quarter was really more related to just banking business where you’ve got someone – there is one credit that came up late. They’ve got an inventory write-down. They notified us about, I think, we’re still looking into exactly why it happened. They are two, I think it probably relates to an accounting – at least some to an accounting system, perpetual inventory system they put in, but we’ll see.
But if you got a – they basically been operating with an understated cost of goods sold, we had to write-down some inventory. So that’s an unusual thing that happens in business at times, doesn’t have anything to do with interest rates or office building vacancy rates, right? There was another that was liquor distributor that lost a supplier, and they’ve got to cut some overhead. They’ll be fine. But it’s those kind of basic banking things that are the reason we saw the increase in risk rates and higher and it wasn’t because of the real estate at all. In fact, that sort of improved. So – and the other thing I’ll say is we’re not stopping doing business in the Texas market. I mean, granted, we’re in the Texas market and thank goodness.
I mean, it’s – I’d put it up against any market that in the U.S. and we’re still seeing opportunities. There are fewer of them, and competition for the really good deals is still there, but we’re still seeing opportunities in commercial real estate that make total sense to us because of the properties and the structure and the sponsors for the deal. So my worry right now isn’t really commercial real estate. I mean we’ve been working on it for probably how long, 18 months or whatever. But what I’ve been seeing, let’s take these payoffs we talked about. And we also have one that was a risk rate 11 last year. It was – I did’nt even mention it was a $41 million deal. It’s not an office building. It’s an industrial deal.
That there was a hole in it. It’s a great piece of property for a credit tenant, but rates go up, there’s a hole in it. We – the owner sells it. He brings cash to the table. So that’s not really – it’s been performing the way I think we hoped it would. Will there be some issues? I’m sure there will be, have been a few. I think we’ve got one non-performing office building we talked about few quarters ago. But it is not a train wreck in the markets we’re in and the relationships that we’re in, in commercial real estate. And we’re watching it and we’ll keep talking to people. I mean I’ll keep going on with this answer, but I mean these are things that need to be said. You could say, well, what’s the biggest exposure on paper and it’s probably your construction portfolio for multi-family.
And it’s because the debt service coverage ratios are those things improved a little bit, but they’re still not where they’ll need to be to get them refied or get a permanent financing. But when you look at that, I think only 6% of those come due in this year. I think 75% of them come due in 2026 or later. And then when you look at the people behind them, and I’m not going to name names here, but if you look at the people we do business with, they understand this business. It’s just not like somebody who thought, gee, let’s get in the multi-family business and find a banker that will bank us. I mean, these are people who have been doing this a long time. And I feel really good about the relationships and how they take care of their business.
