Bank OZK eyes multifamily lending opportunities, just not in NYC

Construction lending giant reports 55% drop in Q2 net income, but boosts overall loan portfolio

TRD NATIONAL /
Jul.July 24, 2020 03:45 PM
Bank OZK's George Gleason 

Bank OZK’s George Gleason

Bank OZK, one of the nation’s largest construction originators, is eyeing lending opportunities in the multifamily sector despite the coronavirus-fueled volatility.

Those opportunities just aren’t in New York City.

At the bank’s second-quarter earnings call Friday, chief operating officer Brannon Hamblen — president of its real estate specialties group — said the company was “more on the cautious side in the more dense urban settings.”

The bank was still lending the second quarter. The Little Rock, Arkansas-based company’s total real estate loan portfolio increased to $14 billion over that period, from $13.2 billion year-over-year.

Bank OZK, which has been one of the largest construction lenders in New York, Miami and Los Angeles, reported another sharp drop in net profit in Q2. Critics say that focus on loans in large metro areas translates into substantial risk.

Net income for the quarter dropped 54.5 percent to $50.3 million. Bank OZK attributed those losses to the pandemic’s effect on the economy and a recently-implemented accounting method known as CECL — which estimates future losses of loans. The combination caused the bank to incur a provision for credit losses of $72 million in the second quarter.

That was down from a staggering first quarter net income drop of 89 percent: $11.9 million compared to $110.7 million in the same period of 2019. That was also attributed to the same accounting method.

But so far, Bank OZK has shown few signs of distress in its real estate lending group, which reported no write-offs from April through June executives said. The bank also reported that only $24 million of its non-purchased loans are delinquent — a little more than a tenth of a percent. The pandemic has led to massive problems for lenders across sectors, as borrowers have been falling behind on payments because of loss of revenue.

Bank OZK has long stressed it only originates low-leverage loans, which it says protects the bank in case of a downturn. But the impacts of the coronavirus could change valuations across real estate as many valuations of hotel, retail, and office properties could change.

In its most recent quarter, Bank OZK stressed that its New York City’s loans have an average loan-to-value ratio of 41 percent; its Miami loans, 37 percent; and its Los Angeles loans 41 percent. The bank reappraised 36 of its loans in its real estate specialities group during the second quarter, but bank executives said the LTVs mostly remained the same.

Bank OZK is closely watched because of the company’s heavy concentration of commercial real estate loans, which makes it a bellwether on the state of the market. Over the past few years, Bank OZK has had some massive originations, including a $558 million loan in late 2018 to the Estates at Acqualina luxury condo project in Sunny Isles Beach, Florida.

During the earnings call, Bank OZK CEO George Gleason said its loans “are best quality, best yielding loans in every respect. That point of view has only grown stronger every year and every quarter, so we are not concerned about that concentration.”


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