Though outside banks have long been interested in entering into city deals, more banks like People’s United, Webster Bank and First Niagra, according to bankers in the city, are widening their criteria to find deals, including targeting smaller transactions that in the past might have been left to local banks.
“You are seeing bigger regional banks go after smaller transactions,” said Dan Harris, an executive vice president and chief lending officer for Dime Savings Bank of Williamsburgh. “The larger guys might prefer to put out $15 million or $20 million but they’ll do much smaller deals to get a foothold here.”
Added Mr. Appelbaum: “Part of that is the number of smaller banks has shrunken because they went under during the recession, so the bigger boys are coming in because they see an opening.”
Pouring money into a cluster of deals, though time consuming for a bank’s loan officers, has an advantageous flipside.
“It’s often better to do more work and diversify,” Mr. Harris said. “It’s the old saying banking that it’s better to have 20 $1 million loans than one $20 million loan.”
But the recent uptick in activity among regional players and their desire to get into the New York market hasn’t come without pushing some boundaries of risk. Mr. Harris said he has seen competitors, particularly new entries in the market, adjust the cap rates they will accept on an investment.
“You might have a lender who wants to make sure the deal is a 6 cap and will lend, say, $1.25 million on that, but you’ll have another lender and they’ll use a 5.5 cap and come to a threshold of $1.430 on it, and a lot of borrowers always want the most money they can get,” Mr. Harris said. “You kind of just have to let those deals go. If it’s a deal where I really like this location I might say I’ll give you $1.3 million.”
No area of the market is more competitive than the multifamily sector where lenders are not only jostling against one another but the large government repositories of credit, Fannie Mae and Freddie Mac. Both offer loans that stretch ten years, longer than almost any comparable mortgage that a private lending institution would hand out amid the current period of rock-bottom rates. According to Ira Zlotowitz, president of Eastern Union Commercial, a commercial mortgage brokerage, the U.S. Department of Housing and Urban Development has also gotten into the multifamily lending business, offering 35-year fixed rate loans.
“Setting up the loans with the government is very tedious. You have to go through tons of paperwork and where it would take two months with a private lender it takes a year or more with HUD,” Mr. Zlotowitz said. “But borrowers are just starting the process earlier. It’s pushing the competition even more in that area.”
Local banks are adapting to the onslaught of regional entrants and government borrowing windows by offering flexibility and accommodating their clients.
“What we hope to sell as a community lender is that if there are problems and the borrower needs to take out a little more money, we will have a relationship and be able to work that out, whereas another bank less familiar with this market wouldn’t,” Mr. Harris said.
“We recently did a loan, it was a low leverage deal and the borrower wanted a couple of million more, and so we put a second loan behind the first and he used the proceeds to buy another property. I think those are the kinds of situations we excel at.”
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