New York’s commercial real estate market has been pummeled by the pandemic, but one of its biggest condo construction lenders reported almost no write-downs in the third quarter.
On its earnings call Friday, Arkansas-based Bank OZK reported that its net charge-off rate, or ratio of loans written-down to total loans originated, was 0.09 percent. That is well below the industry average of 0.52 percent, the bank said.
It also has a number of loans that are being deferred, potentially signaling distress down the line.
The company’s net income for the third quarter was $109.3 million, a 5.2 percent increase from $103.9 million last year. It also reported that its overall lending increased 9.2 percent to $19.36 billion this year, up from $17.7 billion in the third quarter of 2019.
Since the last recession, Bank OZK, formerly known as Bank of the Ozarks, has become one of the largest issuers of condo loans in New York, Los Angeles and Miami, working with developers like JDS Development, Starwood Capital, and Square Mile Capital. Those include a $558 million loan to Jules Trump’s Estates at Acqualina condo project in Sunny Isles Beach, Florida, which it issued in 2018.
The bank reported two major write-downs in the third quarter of 2018, causing its stock price to drop 24 percent. Since then, it hasn’t reported any major markdowns of its loans.
The bank said it has been getting repaid on its loans even as the broader economy is dealing with fallout from the pandemic. George Gleason, Bank OZK’s CEO and chairman, said that contracts are being signed at condo projects it has lent on in New York City.
“We are pretty optimistic on the long-term prognosis of New York,” he said. “It is just going to come back slower.”
Based on the bank’s appraisals, valuations of its properties (which include condos, multifamily buildings, hotels and retail) haven’t changed much since the pandemic began. Of the 22 loans it reappraised, 17 saw their loan-to-value ratio remain unchanged. On four loans, it increased more than 5 percent, and decreased more than 5 percent on one loan, according to Bank OZK’s management comments.
Bank OZK had a balance of 583 deferred loans totaling $550 million, or about 2.8 percent of the balance of its total loans in the third quarter. With its real estate loans, the bank said it is asking borrowers to put down more payments in its future reserves.
“We said we will do three months of extensions, but you’re going to have to put up the other three months and rebalance the reserves so that it’s not a problem,” Gleason said during the call.
Prior to the pandemic, the bank’s construction lending slowed down due to increased competition from debt funds and nonbank lenders. But since the pandemic began the bank has kept on lending, including a $59 million construction loan for a condo project in Miami Beach. In its second-quarter earnings call, the bank said it was eyeing lending opportunities in the multifamily sector.
The regional bank has attracted its share of detractors and short-sellers who claimed that it was being too aggressive outside of its home market, especially in construction lending, which is generally viewed as risky. The bank also shed its holding company, which allowed it to stop filing quarterly and annual reports with the U.S. Securities and Exchange Commission and removing its oversight by the Federal Reserve.