Bank OZK still making condo construction loans despite pandemic
CEO George Gleason spoke at Wednesday’s TRD Talks Live, and had some things to get off his chest
Bank OZK CEO George Gleason had some things to get off his chest.
First, one of the most active condo construction lenders in Miami, New York and Los Angeles is still writing loans despite the pandemic, he said.
Second, Gleason maintains the bank only originates low leverage loans to the best sponsors, and to borrowers whose projects are in growing markets.
Speaking from Bank OZK’s Little Rock, Arkansas, headquarters at Wednesday’s TRD Talks Live panel, Gleason blamed any misunderstandings about the bank’s business model on its own poor job of media relations. But he also blamed the media for how he believes it has portrayed the bank, implying a regional bias in coverage.
“So many people in the media, especially in large metropolitan markets, see a bank that is headquartered in Arkansas and has its real estate unit headquartered in Dallas, Texas, and somehow assumes, ‘wow, can guys from Arkansas actually be smart enough to do the largest and most sophisticated transactions in New York and Miami?’” he told told The Real Deal publisher Amir Korangy.
Gleason’s bank, formerly known as Bank of the Ozarks, has risen from a little-known regional lender, to a nationwide originating machine. The bank entered the New York City market in 2012 and began lending to major property developers like Starwood Capital, JDS Development Group and Square Mile Capital.
But critics charge that the bank’s high exposure to construction lending and its eye-popping deals such as a $664 million loan for an office project in Tampa, Florida, is risky for a bank with just $24 billion in assets.
“I understand the principles of diversification and not having too many eggs in one basket,” he said. “The reality is the larger the project, the better the sponsorship, the more experienced and ability and background the sponsor typically has and the more capital and liquidity they have.”
As coronavirus has frozen deals and forced some lenders to back off ones in the works, Gleason said Bank OZK is still originating condo loans. The bank hasn’t seen much interest for these loans in New York in the last 30 days, however, he acknowledged. It has made three loans in Miami, including a $59 million construction loan for a condo project in Miami Beach.
Despite the devastation that the virus has had on real estate, Gleason said a report of the bank’s loan appraisals showed that in some cases the values of the projects it loaned on actually increased.
“Of new appraisals that take into account Covid-19, about 20 percent of those loans have less than a 5 percent change in their loan to value,” he said. “About 40 percent had higher [LTVs] and 40 percent had lower [LTVs].”
Gleason noted that its hotel loans have sustained the biggest hit in valuation. But he said the company’s low leverage loans still give it a cushion to mitigate losses.
He stressed he is a believer in the future of office, despite companies like Facebook, which has said it could see up to half its 45,000 employees work remotely in the next decade.
“The information flow, and the collaboration, and the esprit de corps, and the building of a team that make a company great as opposed to good largely derive from personal interaction and informal interaction,” he said.
Gleason was just 25 when he purchased Bank of the Ozarks in 1979, putting down $10,000 in cash and taking out a $3.6 million loan, according to Bloomberg. In 1997, he took the company public. And in 2018, the bank underwent a multimillion-dollar rebranding as Bank OZK, a move it said would free it from “the limitations of a name tied to a specific geographic region.”
So far, Bank OZK’s real estate loans show no signs of distress, according to its first quarter earnings released at the end of April. The bank reported no new write-offs in its real estate lending group. Its overall real estate loan originations dropped 5.4 percent, year over year, to $1.76 billion.