Trending
Cross River, emerging lender to NYC dealmakers, in rough waters
NJ-based bank with $1.1B in real estate loans faces FDIC scrutiny
Cross River Bank’s Gilles Gade; 227 Grand Street (Getty, Google Maps, Linkedin)
UPDATED June 29, 2023, 5:07 p.m.:
Another regional lender with ties to New York’s commercial real estate sector has drawn regulatory scrutiny.
New Jersey-based Cross River Bank, an increasingly active lender to the city’s mid-market landlords, was flagged — in May 2021 — by the Federal Deposit Insurance Corporation for engaging in “unsafe or unsound banking practices related to its compliance with applicable fair lending laws and regulations by “failing to establish and maintain internal controls,” according to a March consent order which predated that month’s bank failures but was only recently made public.
The order requires Cross River to conduct a bevy of internal assessments and implement corrective actions on its lending practices by early next month, 90 days after the order was issued.
A spokesperson for Cross River called the consent order “the result of a standard review pertaining to certain aspects of our lending processes conducted two years ago” and said it will have no impact on the bank’s commercial real estate loan portfolio, which the spokesperson described as “very high credit quality.”
Cross River has already complied with a number of the FDIC’s demands, added the spokesperson, who pointed to a Kroll Bond Rating Agency report issued last week stating that “the consent order is not expected to have any material effect on the bank’s operations.”
Cross River holds $1.1 billion in real estate loans, including $400 million on multifamily properties, several of which were provided to well-known dealmakers in Brooklyn and mid-sized landlords across the city and in New Jersey.
Founded in 2008, Cross River emerged from the financial crisis as a key partner to fintech and later cryptocurrency companies as both sectors grew rapidly during the 2010s. But the venture-backed bank has faced substantial challenges of late from rising interest rates, cratering cryptocurrency prices and the expiration of the federal Paycheck Protection Program, under which the bank churned out tens of thousands of loans to small businesses during the pandemic.
“They were the facilitator for an awful lot of the fintech boom,” said banking consultant Chris Whalen, chairman of Whalen Global Advisors. “Now that that’s over, I don’t know what they’re gonna do.”
According to the Small Business Administration, Cross River was the nation’s sixth-largest originator of Covid relief loans in 2021. When that revenue channel dried up, the bank’s net income dropped by a stunning 73 percent last year, according to the Information and publicly filed reports.
T. Rowe Price, which invested in the bank’s parent company at a $3 billion valuation, cut the value of its shares in Cross River by 26 percent in December. Other investors in the $620 million haul Cross River garnered in March 2022 include private equity firm Eldridge and venture capital giant Andreessen Horowitz.
If Cross River pulls back on commercial real estate lending, it could push more multifamily borrowers toward larger banks like JPMorgan, exacerbating what one multifamily broker called a “gaping hole in the market” left by First Republic’s seizure and sale last month.
While Cross River doesn’t have as large a presence in New York commercial real estate as Signature Bank did, it recently played a role in a number of high-profile deals in Brooklyn. Last year, it provided a group of investors including Hutton Capital and Rosewood Realty’s Aaron Jungreis with a $27 million loan for their takeover of a Williamsburg apartment complex developed by Toby Moskovits and Michael Lichtenstein, ending a long-running series of disputes over the property.
In Crown Heights, Cross River provided Cheskie Weisz’s CW Realty with a $44 million construction loan for a 98-unit rental project at 1499 Bedford Avenue in November, then gave Abraham Fruchthandler’s FBE Limited a $29 million loan in December to refinance its 75-unit rental property at 1120 St. John’s Place.
When Bushburg and the Moinian Group were ready to begin their redevelopment of a landmarked former dairy factory in East New York into a 320-unit luxury residential and retail complex, the developers turned to Cross River and Valley Bank, who provided a $105 million construction loan.
While any suggestion about the bank’s future is purely speculative, Cross River’s crypto and fintech ties have clearly caused concern.
“If they have examiners living with them, which is what it looks like, I don’t know how they’re gonna keep doing business,” said Whalen. “It becomes very burdensome when you’re under something like this. It’s a real problem for a lot of investors.”
This story was updated with a statement from Cross River Bank and to clarify that the FDIC consent order was issued before the failures of Silicon Valley and Signature Bank.