Community banks put on brave face after rent-reg market woes

Some banks step up multifamily lending while others look to get out

New York /
Feb.February 10, 2020 07:00 AM
New York Community Bank CEO and president Joseph Ficalora (Credit: Facebook, iStock)

New York Community Bank CEO and president Joseph Ficalora (Credit: Facebook, iStock)

For years, New York’s community banks have been go-to lenders for rent-regulated housing. Now they’re straining to convince investors that they have minimal exposure to the city’s multifamily market — though balance sheets and industry insiders say otherwise.

New York Community Bank, Signature Bank and Dime Community Bank all paint a rosy picture of their multifamily loan portfolios, citing healthy loan-to-value ratios, portfolio diversification and few non-performing loans.

However, critics say those figures are largely predicated on property values that no longer pencil out. Last year’s rent law overhaul severely limited potential rent increases, eroding the worth of buildings with stabilized units.

“If [you] say, ‘my loan-to-value hasn’t changed,’ you aren’t saying anything,” noted one analyst, who asked not to be named. “It’s a fair criticism of what these community banks are saying.”

Signature reported on its fourth-quarter earnings call that it pared down its commercial real estate loan portfolio by $428.3 million to $1.27 billion, a drop of more than 25 percent. The bank was criticized in 2018 for lending to notorious landlords Raphael Toledano and Steven Croman, who were accused of using aggressive renovations and other tactics to flip rent-stabilized units to market rate.

The strategy produced quick returns for some property owners, whose senior loans were often paired with subordinate nonbank financing. That buffered traditional multifamily lenders such as NYCB, Signature and Dime from much of the risk prior to the sweeping rent law changes.

But despite community banks insisting that their loans are based on existing cash flows, many saw steep drops in their market caps leading up to the new rent law. Analysts at the time attributed the decline to expectations that the law would be revised in tenants’ favor.

Seeking to head off concerns about buildings teetering on the brink of default, Signature executives insisted on the bank’s most recent earnings call that a substantial portion of its multifamily loan portfolio involves “multi-generational holders of huge portfolios [that are] not highly leveraged.”

At a Midtown conference hosted by Ariel Property Advisors, Joseph Fingerman, a senior vice president in the bank’s commercial real estate lending group, said he did not see a “huge problem” with Signature’s $15.1 billion multifamily loan portfolio.

“Unfortunately, a lot of owners are no longer putting maintenance into buildings so we’ve actually seen incomes go up in some cases,” Fingerman said, referring to a decision by many landlords to reduce or halt renovations because the new rent law greatly reduced how much of the costs could be passed on to tenants. “Some loans as they mature will require either a paydown or a guarantee or some other credit enhancement. We haven’t seen any defaults because of the new legislation.”

Some insiders aren’t buying the positive outlook.

“Signature Bank is at risk, no matter what they say,” one analyst said. “New York Community Bank is at risk, no matter what they say.”

NYCB, one of the larger community banks, told investors last week that it’s leaning on its expertise in multifamily lending in the wake of the changes to the market and absorbing some of the runoff from other institutions. The bank’s multifamily loan volume rose by $893 million from the third quarter to the fourth and by $1.3 billion, or 4 percent, year-over-year.

Sixty percent of NYCB’s multifamily loan portfolio, totaling $18.7 billion, is subject to the new rent law, CEO Joseph Ficalora said on the earnings call. The bank also “opportunistically repurchased” $771 million of multifamily loans it had originated and sold to other financial institutions — a sign that the bank is aiming to ride out the storm as pricing comes down.

Dime, meanwhile, is significantly cutting back on its multifamily lending as it gets ready for $515 million in loans on New York City rental properties to come due this year. The community bank is looking to diversify its portfolio and “de-emphasize multifamily” as it moves towards becoming “a full-service commercial bank,” a change Dime made to its charter just two months before the new rent law passed.

Dime originated $149.9 million in real estate loans overall in last year’s fourth quarter, 35 percent less than during the same period in 2018.

“We are no longer reliant on transaction and refinance volume activity in the New York City multifamily markets,” Dime’s president and CEO Kenneth Mahon said on the bank’s latest earnings call. “Those volumes appear to have been impacted by the rent-regulated rule changes, but Dime is no longer a significant player in that market.”


Related Articles

arrow_forward_ios
2544 Valentine Avenue in the Bronx (Photo via Black Bear Capital Partners)

Bronx rent-stabilized multifamily portfolio nabs $186M loan

Bronx rent-stabilized multifamily portfolio nabs $186M loan
Emerald Equity’s Isaac Kassirer  with 110 West 116th Street and 120 West 116th Street (Google Maps; Emerald)

Ladder Capital moves to foreclose on Emerald Equity’s Harlem rentals

Ladder Capital moves to foreclose on Emerald Equity’s Harlem rentals
Chestnut Holdings president Jonathan Wiener (Photos via iStock; The Westchester Bank)

State investigation takes issue with faulty lease riders

State investigation takes issue with faulty lease riders
State Sen. Michael Gianaris and President-elect Joe Biden (Getty)

Michael Gianaris to President-elect Biden: Cancel rent

Michael Gianaris to President-elect Biden: Cancel rent
Photo illustration of Judge Eric Komitee (iStock)

Rent law challenge dismissed; battle may go to higher court

Rent law challenge dismissed; battle may go to higher court
Signature Bank CEO Joseph DePaolo and New York Community Bank CEO Joseph Ficalora (Photos via Getty; Facebook; iStock)

NYC’s multifamily lenders see shares tumble in 2020

NYC’s multifamily lenders see shares tumble in 2020
185 East 85th Street (Google Maps)

Rent overcharge case targets “The Jeffersons” tower

Rent overcharge case targets “The Jeffersons” tower
Lenox Terrace at 470 Lenox Avenue and Olnick Organization president Seth Schochet (Olnick; Google Maps)

Olnick reaches $1.2M settlement with Lenox Terrace tenants in rent overcharge case

Olnick reaches $1.2M settlement with Lenox Terrace tenants in rent overcharge case
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...