When ailing banks were lining up for infusions of federal money last year, as part of the government’s $700 billion bailout package, the New York Community Bancorp politely said “no thanks.”
The company, whose holdings include savings banks and larger commercial operations, was cleared to receive $596 million in preferred equity stock from the Treasury Department. But its earnings capacity was so solid, according to Joseph Ficalora, its chairman, president and chief executive, the funds weren’t needed.
And this may be even more striking considering that a steep 80 percent of its business is real estate loans; among them, 71 percent are apartment building mortgages with another 21 percent to similar residences with stores in their ground floors. And all told, about a quarter of its loans underwrite Manhattan properties.
But Ficalora, who began working for the company in 1965, as a teller at a bank branch in Corona, Queens, just a few blocks from his house, doesn’t invest in splashy, high-risk mega-projects.
On the contrary.
Most of his buildings are comparatively small, old and rent-regulated. Though they may not generate huge multiples, they are dependable bets over time, which is particularly beneficial when the market tanks, like recently.
And with an average size of $4 million, 60 percent loan-to-value ratio and four-year payback rate, those loans offer minimal exposure, Ficalora explained. As a result, the company, which is based in Westbury, NY, posted a third-quarter profit, in its fifth consecutive quarter of growth.
It may also explain why New York Community Bancorp, with assets of $33 billion, is the country’s 24th largest bank-holding company and the city’s largest thrift.
Ficalora spoke to The Real Deal about his counter-cyclical success, the advantages of being a conservative lender and the importance of regulated rents.
Your earnings-per-share amount in the third quarter was 28 cents, but you also managed profits over the last year and a half when your counterparts were flailing. How did you pull that off?
It’s consistent with what we’ve been telling the Street: Our earnings are growing, our spreads and margins are widening and our loan book is growing. Our charges against reserves continue to be better compared to the banking industry as a whole.
About two percent of your third-quarter real estate loans were delinquent, which is comparatively miniscule. Why?
The people we lend to haven’t lost money on their properties in 30 years. And there have been very difficult credit cycles in the last 30 years. This is a very unusual record. Yes, we are seeing more losses in the current quarters, primarily generated by our acquisition of other banks, although they are well within the growth capacity of our earnings. And we will continue to grow our capital and reserves. We’re willing to take a small fee but less risk, and the combination makes us a far better cycle player.
Some banks are rushing to unload distressed loans. Is that a smart move? Or is it better to extend the loan and hang on to it?
It depends. The owner, the marketplace… all things are considered in any disposition of an asset, like the caliber and the capacity of the owner to sustain their portfolio, whether the debt-coverage ratios are strong on particular properties. In each and every case, we do an analysis of how and if we will intercede.
Is it okay to discuss selling a loan before it’s officially in default?
Yes, you can discuss it. But for good reason, banks should not undermine property owners. It is not in their interests or our interests to do that.
But what about renters in your buildings who are losing their jobs and struggling to pay rents? Couldn’t that imperil your properties or prompt landlords to sell them?
In the depths of the last credit cycle, we went to 12 percent unemployment in New York. Rent rolls collapsed and vacancies were high, but our buildings were fully occupied. Even if tenants lose their jobs, they will strive as hard as they can to keep their best assets: our buildings.
Usually rent-controlled and rent-stabilized buildings are slime in the hands of market players. They don’t care about the tenants. They want Trump to buy the footprint and build a tower. Look what happened in this cycle with Stuy Town, a deal that couldn’t be covered by current rent rolls. There’s also Riverton [Houses in Harlem]. That was in our portfolio at $11 million in 2005. It defaulted earlier this year. The cash flow may be fine in the property, but certainly not for $250 million.
What would you say to critics of rent-regulation laws who claim they discourage development and limit supply, keeping rents high for everybody else?
Rent stabilization and control serve a purpose, and when properly managed, they generate a good place for people to live, and a good income stream for an owner. All parties in that circle win. Rent-stabilized buildings consistently go up, unlike other values, which fluctuate.