Outside Looking In: Strength of Manhattan Real Estate Market Draws New Lenders to Big Apple
Daniel Geiger June 27, 2012, 2 p.m.
Garrett Thelander, an executive at Massey Knakal who leads the company’s capital services group, was fielding offers for a financing deal he was recently arranging when he noticed many of the banks lining up to compete weren’t ones he was used to working with.
“There were a lot of players from out of town that you usually don’t see here that were competing and they were competing hard,” he said, describing it as a roughly $8 million deal for a commercial building that was owned by the building’s occupant.
People’s United, a Connecticut-based bank, wound up making the loan.
Because it was a low-leverage deal, Mr. Thelander said the bank differentiated itself by pushing hard to lower its rates. Regional and local banks have the flexibility to undercut competitors on interest rates because of a roughly 200 basis point spread between what banks themselves can borrow at and what they charge customers for loans.
“They were competing against the bigger banks and they got very aggressive and they stood out because of that and also because they were willing to close very quickly,” Mr. Thelander said. “I think you can tell from that their interest in pushing into this market in a bigger way.”
Given the strength the Manhattan real estate market, lenders have long vied with one another to place debt, especially in transactions that would appear to have solid fundamentals or conservative leverage levels. But with many real estate markets still sputtering or flat around the rest of the country, more banks, especially regional players who in the past may have done only a sprinkling of deals, are seeking to lend in the city.
“I do think that more regional lenders are trying to do deals here,” said Howard Applebaum, an executive vice president and chief lending officer at Sterling National Bank, a longtime local bank in the city.
“It’s the strongest market in the country and it was barely wounded over the last three years. The vacancy rate in residential buildings is less than 1 percent. It’s a very strong market and you’re going to get a lot of players coming here,” he said.
Kevin Santacroce, an executive vice president and chief lending officer for the Long Island local bank Bridgehampton National Bank, has himself been trying to position his bank’s entry into the city.
“We’re really focused on the East End of Long Island but we have been growing in the city, primarily through the relationships we have with clients,” Mr. Santacroce said. “There is such a strong tie with the Hamptons and Manhattan that we’ve been able to do a few deals there. It’s just a market that we, like a lot of lenders, want to be in.”
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.”
People in this story
- Freddie Mac
- Fannie Mae
- Howard Applebaum
- People’s United Bank
- Garrett Thelander
- U.S. Department of Housing and Urban Development
- Bridgehampton National Bank
- Kevin Santacroce
- Dan Harris
- Eastern Union Commercial
- First Niagra
- Sterling National Bank
- Webster Bank
- Dime Savings Bank of Williamsburgh
- Ira Zlotowitz
- Massey Knakal Realty Services