OceanFirst Dumps $1.4B Rent-Stabilized Loan Book Post-Merger

One week after closing its biggest acquisition to date, OceanFirst Financial is moving quickly to shed one of the deal’s biggest risks: New York City rent-stabilized multifamily.

The New Jersey-based bank plans to sell roughly $1.4 billion of multifamily loans inherited through its acquisition of Flushing Financial Corp., a portfolio that represents the bulk of Flushing’s rent-regulated apartment exposure, Bisnow reported. OceanFirst said the sales are expected to close before the end of the second quarter, effectively removing most of its ties to a property sector lenders are finding increasingly difficult to stomach.

The move follows OceanFirst’s $579 million acquisition of Long Island-based Flushing, which closed June 1 and expanded the bank into a $23 billion institution with more than 70 branches across the Northeast.

While OceanFirst did not disclose the buyer or pricing, the lender had already signaled skepticism about the portfolio’s future performance.

In investor materials released ahead of the merger, the bank said it assumed losses on the rent-regulated loan book at roughly four times Flushing’s existing reserves and marked down the value of the underlying portfolio by more than 10 percent during underwriting.

At the time, Flushing held about $1.4 billion in loans backed by buildings containing rent-regulated units. Nearly half of the debt was tied to fully stabilized properties, while another 35 percent was secured by buildings that were at least 50 percent regulated. The average loan size was approximately $1.3 million.

OceanFirst nonetheless described the portfolio as relatively conservative, citing a weighted average loan-to-value ratio of 55 percent and a debt-service coverage ratio of 1.7 times. The bank’s own direct exposure to New York City rent-regulated housing was comparatively minimal, totaling just $27.8 million as of May.

The sale underscores how dramatically the lending landscape has shifted since New York enacted the Housing Stability and Tenant Protection Act in 2019.

The law curtailed landlords’ ability to increase rents and deregulate apartments, compressing property values and making financing harder to obtain. Many community and regional banks that once viewed rent-stabilized buildings as dependable collateral have retreated from the sector altogether.

Flushing was among the lenders most closely associated with that market. At the end of the first quarter, the bank held $6.5 billion in loans, including roughly $2.4 billion backed by multifamily properties. Under OceanFirst’s ownership, much of that exposure appears headed off the balance sheet.

— Holden Walter-Warner