New Jersey Lenders Locked in Competition for Multifamily Assignments
Damian Ghigliotty March 26, 2013, noon
The Garden State has become fertile ground for developers, and commercial real estate lenders both large and small are looking to get in on the action, while others are looking to retain and expand the market share they already have.
Competition among lenders is quickly growing as more people look to rent in New Jersey, the most urbanized state in the country, 94.7 percent of whose population is centered in urban areas, according to 2010 figures from the U.S. Census Bureau. That abundance of multifamily properties just west of the Hudson River coincides with university expansions, new retail and office properties and other large real estate projects throughout the state.
Brian Whitmer, a senior director in investment sales for the New York tristate area at Cushman & Wakefield, works out of northern New Jersey and went through the pipeline of multifamily developments he sees in the works there. Of the 22,968 units he found in the pipeline in northern New Jersey, 59 percent, or 13,538 units, are in the Gold Coast—areas along the Hudson River like Jersey City, Hoboken and Weehawken.
“Over the last two years there has been an unprecedented number,” Mr. Whitmer said of development of multifamily properties in the area. He added that several factors are driving it, chief among them improving employment conditions that have driven up occupancy, but also people looking for an alternative to Manhattan and Brooklyn rents.
“Right now multifamily in New Jersey is an extremely hot property,” said Russell Murawski, first senior vice president at Valley National Bank, which has been lending for multifamily and other commercial real estate projects in New Jersey for over 20 years.
“Younger couples in the state look at their ability to buy a house, particularly in central to northern New Jersey where prices remain steep, and very often they realize that No. 1, they may not be able to afford it, and No. 2, owning real estate now isn’t the same as it was 15 to 20 years ago, when there was a guaranteed appreciation,” Mr. Murawski told The Mortgage Observer.
“All of the bankers know that this is a very strong market, and they’re all sharpening their pencils,” said Mr. Murawski. “We compete with the smaller community banks, and we also compete with the big banks—the M&Ts, the Chases and the Investors—on a consistent basis.”
Valley National’s commercial real estate department oversaw about $1.5 billion in assets for New Jersey as of December 31, 2012, roughly half of its total volume for New York and New Jersey combined. About one-third of the bank’s New Jersey portfolio is made up of multifamily loans.
“There are a lot of prime areas throughout the state,” Mr. Murawski said. “We’re starting to see growth in Newark, Jersey City, Carteret and other places near the port. Our major footprint has always been northern New Jersey, and we’re continuing to see strength in that region, especially in Essex and Morris Counties.”
The Wayne, N.J.-based bank closed on a large mall acquisition in western New Jersey and a townhouse project in Morris County in January 2013, among other transactions. Valley National declined to give the names of those properties, due to client confidentiality. Mr. Murawski said the bank plans to increase its lending for multifamily developments in the state by at least 10 percent this year.
“We brought in a couple of new people that have contacts outside of the contacts we’ve been working with historically,” he said. “In addition to that, we will continue to ramp up an aggressive sales culture, understanding that we’ve got competition and we need to be there first.”
Mr. Murawski said the bank would remain competitive on interest rates while focusing on the need to build lasting relationships with its present and future clients. “We’ve grown from a small local community bank into a fairly large institution, but we try to keep the principles of a community bank, where we know our customers, know their accountants and lawyers and everyone that’s involved,” he said. “We try to stay with the more local developers, owners, operators and managers, and we try not to get out of our own market.”
Thomas Didio, a senior managing director at mortgage brokerage HFF, said that as the growth in the number of lenders focusing on multifamily outpaces the rate at which new developments get completed, banks and mortgage brokers are being forced to compete for those deals by offering the best incentives to borrowers.
“It all comes down to price and terms,” said Mr. Didio, who co-heads the firm’s New Jersey office in Florham Park. “You’re seeing a lot of lenders compressing rates for loan terms of five to 10 years, offering open periods for prepayment and reappraising properties to lend more proceeds. The majority are structuring loans to give borrowers maximum flexibility in order to win business.”
Last year, HFF arranged financing for 67 deals in New Jersey worth $2 billion—with $800 million of that in multifamily. In December 2012, Mr. Didio and his team closed a $72 million refinancing deal for The Vanguard at The Shipyard, a 196-unit multifamily property on the corner of Hudson and 14th Streets in Hoboken. They also closed a $53 million refinancing deal for The Sheffield at Englewood South, a luxury apartment complex on both the north and south sides of Route 4 in Englewood.
“It was a new project with full amenities—structured parking, pool, workout facility, concierge—and 97 percent leased,” Mr. Didio said. “That deal was a horse race between three life insurance companies and Freddie Mac. One of the life insurance companies won the business, because they were able to give a 12-year deal with four years of interest-only.”
Two additional lenders vying for a stake of New Jersey’s multifamily market—M&T Bank and Investors Bank—said they plan to compete by providing the best client relationship services, as opposed to lowering interest rates to attract new borrowers. For Investors, that approach is relatively new, said Kevin Cummings, the bank’s president and chief executive officer.
“We’ve been working very hard to become a bank that serves its customers on a relationship basis first and foremost,” Mr. Cummings told The Mortgage Observer. “That’s the kind of reputation we want to build going forward. We hired a chief culture officer in April 2012 to help us in that transition.”
Investors, which entered the New Jersey commercial real estate market in 2005, has since established lending relationships with some of the largest developers buying and refinancing properties in the state, Mr. Cummings said. The bank’s roster of clients with multifamily and other commercial real estate holdings in New Jersey include The Woodmont Company, Roseland Property, Hartz Mountain Industries, Jack Morris and SJP Properties.
“In 2008 and 2009, when we started to really ratchet up our real estate lending in New Jersey, a lot of the national and local players were pulling back on the market,” said Mr. Cummings, who also highlighted the growing potential of New Jersey’s urban centers on the Gold Coast. “It was like the Red Sea was parting, and it was a great opening for us.”
Investors closed a $42 million multifamily deal in Hasbrouck Heights, N.J., and two $20 million deals in Newark last year. In January 2013, the bank’s real estate team provided a $44 million student-housing loan for Rutgers University’s 12-story New Brunswick campus at 290 George Street.
“Those are the type of loans a bank our size can do,” Mr. Cummings pointed out. “Yet we’re small enough that our clients can have conversations with our chief lending officer, our chief operating officer and myself.”
The Short Hills, N.J.-based bank oversaw a commercial real estate portfolio valued at $5.4 billion as of December 31, 2012, with $1.8 billion of that for commercial real estate in the Garden State. Drilling down even further, about $900 million of the bank’s New Jersey book is made up of multifamily loans.
Mr. Cummings said he would like to see the bank grow its New Jersey multifamily real estate portfolio by 8 to 10 percent in 2013.
“Multifamily is a hot asset class right now, and it’s one where, even though the margins are narrowing due to competitive pressures on the interest rates for these loans, it can be a very profitable business if you properly manage that interest rate risk,” he said.
One of the fastest-growing lenders in the New Jersey commercial real estate market is M&T Bank. In August 2012, M&T announced its plans to acquire New Jersey-based Hudson City Savings Bank and its 135 branches, 97 of them in New Jersey, for $3.7 billion. The acquisition is expected to close in the second quarter of 2013 and will more than triple M&T’s New York-area market share.
“With that acquisition, we’re going to build out an entire commercial bank on top of Hudson City’s thrift platform,” said Gino Martocci, M&T’s metro area executive.
M&T’s real estate team oversaw a $7 billion portfolio of loans in the tristate area as of December 2012, with “low- to mid-nine-figure commitments in New Jersey over the last three years,” Mr. Martocci said. “We’d like to double or triple that number in the next few years,” he added. “We plan to have a multibillion-dollar loan portfolio in New Jersey between commercial real estate, business banking and commercial and industrial lending. We’d also like to grow our client base from 40 or so to more than 400.”
Last year, the bank closed a $39 million deal with Hillier Properties for the 153-unit senior multifamily apartment building Copperwood at 300 Bunn Drive in Princeton. The property is under construction with an expected completion date in mid-2014.
“Right now we’re putting many of the bank’s resources into the New Jersey market in order to develop our business out there,” said Mr. Martocci. “We’ve been operating out of a relatively small commercial real estate office in New Jersey for about five years. We’re about to go from that office in Saddle Brook and our commercial and industrial lending office in Princeton to 97 branches and offices in the state by the second quarter of this year.”
Due to M&T’s strong focus on relationship banking, Mr. Martocci said he and his team are ready to “finance anything our clients do that makes sense for them and for us,” whether it’s multifamily, retail, industrial or office space. Multifamily will be a focal point for the bank’s New Jersey team, he said, though it will likely constitute a quarter to a third of its business.
M&T’s competitors in the state include Wells Fargo, Valley National, Investors Bank and PNC Financial Services Group, said Mr. Martocci. PNC, which oversaw $305 billion in total assets and $186 billion in total loans as of December 2012, declined to speak about its commercial real estate operations in New Jersey.
Outside of the banking arena, the commercial mortgage brokerage firms are locked in competition as well.
“We’ve been very successful in the multifamily business,” said Israel Schubert, a managing director who heads Meridian Capital Group’s New Jersey office in Iselin. Last year the firm relocated its 35-member mortgage team there to a newly built-out 10,500-square-foot office space due to a rapidly growing volume of transactions.
Meridian, one of New York’s leading commercial mortgage firms, arranged financing for 331 deals in New Jersey last year valued at $1.6 billion, up from 181 deals valued at $600 million in 2010. Over those two years, Meridian’s multifamily origination volume for the state nearly tripled, rising from $450 million to $1.2 billion.
Last year, the firm arranged $50 million in permanent financing for the recently constructed Harrison Station luxury multifamily building located at 300 Somerset Street in Harrison, N.J., as well as a $32.9 million loan for the 93-unit Berkshire at The Shipyard multifamily property located at 1401 Hudson Street in Hoboken.
“We’re always looking to grow our lending, and we’re geared up for it,” said Mr. Schubert. “We have a keen understanding of this market. We know who the players are, we know what they need, and we know how to get it.”
The rise in competition among banks and mortgage firms vying for the lion’s share of New Jersey’s multifamily market has led to more losses for many of the players involved, said Mr. Cummings of Investors Bank, who added that the bank had lost out on deals in recent years due to increased competition.
“We are currently renegotiating with one of our largest multifamily borrowers, who is looking to refinance an existing $30 million loan,” Mr. Cummings said. “The thing that is holding him up is the contractual prepayment fee. He has an offer from a conduit with Freddie Mac at a reduced 10-year rate.”
Freddie Mac is the “the 800-pound gorilla” in the room, said Mr. Didio of HFF. “They are a challenge for everybody. They can do the biggest loans, they are very competitive, and all they do is multifamily, so they know how to underwrite and they know operating expenses. They probably know operating expenses better than some of the owners do.”
Mr. Murawski of Valley National noted the breadth of competition in New Jersey among lenders—including Freddie Mac—without seeing a need to get too specific. “Every transaction we look at,” he said, “has more than one bank involved.”
- 1401 Hudson Street
- 290 George Street
- 300 Bunn Drive
- 300 Somerset Street
- Berkshire at The Shipyard
- Brian Whitmer
- Cushman & Wakefield
- Gino Martocci
- Harrison Station
- Hartz Mountain Industries
- Hillier Properties
- Hudson City Savings Bank
- Investors Bank
- Israel Schubert
- Jack Morris
- Kevin Cummings
- M&T Bank
- Meridian Capital Group
- PNC Financial Services Group
- Roseland Property
- Russell Murawski
- Rutgers University
- SJP Properties
- The Sheffield at Englewood South
- The Vanguard at The Shipyard
- The Woodmont Company
- Thomas Didio
- U.S. Census Bureau
- Valley National Bank