Bank of the Ozarks chief urges “perspective” on deteriorating condo prices

“We are still getting paid off,” George Gleason told analysts Tuesday

TRD New York /
Apr.April 12, 2017 02:45 PM

Clockwise from left: Renderings of 9 Dekalb Avenue, Tishman Speyer’s Macy’s Development, Xinyuan’s 615 10th Avenue and George Gleason

Sometimes it seems like Bank of the Ozarks is the only show left in town, lending hundreds of millions to developers across the city amid a condo financing drought. Its aggressive approach has led some industry insiders to question whether the Arkansas-based lender is becoming overexposed to a downturn in the New York City condo market.

Not so, according to its chairman and CEO George Gleason.

Speaking on a first quarter earning call Tuesday, Gleason told analysts he feels confident that Ozarks will be paid off in full on loans it’s financing in the Empire State, though its developer clients may have to take a haircut on their own profits.

“I know when someone cuts their prices 3 percent or 8 percent on the listing prices on condos … it tends to freak folks out,” he said. “But the reality is we are typically in the 40s to 50 percent loan-to-cost and the 40s to 50 percent loan-to-value on those projects. If somebody cuts their prices 4 percent or 8 percent … the sponsors are still making a profit. They may not be making as much profit if they were getting full list price, but they are still making a profit. The mezzanine lenders are still getting paid off. We are still getting paid off.”

He encouraged analysts to keep the headlines “in perspective.”

“I read one the other day that said sales of condos in this part of New York were taking 103 days on the market versus 89 days a year ago,” he said. “Yes, if you are selling, you’d rather have your money two weeks earlier than not, but a two-week extension and time on the market — these are relatively modest issues that seem to get a disproportionate amount of attention.”

Gleason told analysts on Tuesday that he expects Ozarks to add between $3.1 billion and $4 billion in loans to its books nationwide this year.

He added that the bank is carefully assessing New York projects on a case-by-case basis in order to determine if they’re a safe bet.

“The key is what’s your project, who is your sponsor and what are their capabilities?” he explained. “What submarket and macro market is it in? And what are your leverage points and your cost-per-square-foot points? And are you building a project in a market at a cost that is going to be readily marketable and there is enough demand to justify that product? We are still finding a lot of opportunities in New York that fit that criteria.”

Ozarks, which was for most of its history a small community bank with a handful of branches in Arkansas, has been one of the most prolific lenders in the city in recent years. It recently provided a $108 million construction loan for Xinyuan Real Estate’s new condominium project at 615 10th Avenue in Hell’s Kitchen.  It’s also a lender on JDS Development and the Chetrit Group’s Brooklyn megatower rental project at 9 Dekalb Avenue and on Tishman Speyer’s Macy’s development in Downtown Brooklyn.

Michael Stern

Further reading on
JDS Development’s Michael Stern

Another of Ozarks’ clients, Extell Development’s Gary Barnett, recently told The Real Deal that there were few lenders looking at deals on an individual basis.

“Today, it’s not so much a question of loan-to-value as that condos are difficult to finance, period,” he said. “Not because they don’t make sense, but because, even if they’re guaranteed their money back, the banks just don’t want trouble. They don’t want to get a call from regulators saying they need to put more reserves forward, even if it’s not warranted. They know they can’t fight with Uncle Sam.”

Last year, Carson Block, founder of Muddy Waters Research, said he was shorting Ozarks’ stock because he believed the bank was moving too aggressively in the real estate space.

(To browse thousands of New York City new construction projects, visit TRData’s New Development page.)

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