Business folks, especially members of the real estate community, are zealous to engage in new business endeavors. Real estate leaders who have had ownership interests in savings and commercial banks have included Howard Milstein, Richard LeFrak, Stanley Stahl, Moses Marx, Charles Kushner, Ruby Schron, Ben Fishoff, and Fred Gould.
But running a bank is far different than operating commercial and residential real estate.
A bank is constantly in need of a review of its assets and liabilities and is under security from governmental oversight entities including the Comptroller of the Currency, New York State Banking Department, Office of Thrift Supervision and the Federal Deposit Insurance Corporation.
On March 11 and March 12, two very active real estate investors lost part or all of their investments in the ownership and operation of commercial banks.
LibertyPointe was founded in October 2005 and in July 2009, the regulators issued a cease and desist order, citing a high concentration of commercial real estate loans, excessive delinquencies and inadequate provisions for loan losses.
The Park Avenue bank was established in November 1987 as a wholesale bank that bought large deposits and lent capital to foreign companies.
In his entrée to the banking world, David Lichtenstein, CEO and founder of the Lightstone Group, a big owner of shopping centers, office buildings and apartments, purchased a controlling stake of Park Avenue bank in 2004. The deal was with Erol Aksoy, a Turkish investor who owned Iktisat Finansal Kiralama. According court documents, Lichtenstein became a director and hired Charles Antonucci, who was arrested earlier this month and charged with embezzlement, bribery and allegedly trying to defraud the program of $11.2 million, to run the bank, CPN News reported. The strategy was to lend FDIC-insured retail deposits to sponsors of smallish real estate projects. At the same time, Lichtenstein and Antonucci founded Park Avenue Funding as a real estate lending affiliate of the Lightstone Group, with Lichtenstein taking a majority stake, court documents noted.
The FDIC issued a cease and desist order to the bank on Feb. 11, 2009, for unsafe and unsound banking practices and violations of law/or regulation alleged to have been committed by the bank. One of the terms of the cease and desist order was to reduce the commercial real estate concentration of credit and real estate loans.
Boymelgreen, Lichtenstein and Antonuci were enthusiastic about their involvement in the ownership of a bank and their willingness and desire to provide financing for commercial real estate.
Real estate leaders in the State of New Jersey have also had difficulties in the operation of a bank.
The first New Jersey bank that failed in 2009 was Citizens Community Bank in Ridgewood. In September 2008, the FDIC issued a cease and desist order alleging “hazardous” lending practices, “unsatisfactory” capital, inadequate management oversight and other problems.
One of the founders and the chairman of the board of the bank was James Bovino, head of four real estate companies that owned various real estate developments in New Jersey. Bovino is also the chairman and founder of Whiteweld & Company. An affiliate of this company is Centuria, which acquired a 16-acre tract of land in Fort Lee, where it planned the $1 billion project, one of the largest mixed-use developments in New Jersey.
First State Bank in Cranford, NJ with assets of $270 million was, according to its Web site, “conceived by a group of local businessmen in early 2002. First State was organized as an alternative to the frustration of dealing with ‘mega-banks’ with their slow response times, their impersonal service and their remote decision makers.”
The bank was issued a cease and desist order with an emphasis on commercial real estate lending.
The chairman of the bank and CEO is Joseph Natale who was the president of First United Mortgage. In October 2007, the Chapter 7 Trustee for NJ Affordable Homes filed a complaint against First United Mortgage and Natale in federal bankruptcy court, for, among other things, allegedly defrauding hundreds of people out of tens of millions of dollars.
One thing is certain, real estate investors and bankers have to remain prudent in their business endeavors especially when it relates to investing in financial institutions and lending on commercial real estate.
Michael Stoler is a columnist for The Real Deal and host of real estate programs “The Stoler Report” and “Building New York” on CUNY TV and on WEGTV in East Hampton. His radio show, “The Michael Stoler Real Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is a director at Madison Realty Capital as well as an adjunct professor at NYU Real Estate Institute, and a former contributing editor and columnist for the New York Sun.