Bank of America’s Brad Dubeck Is Banking on the Top Tier
Danielle Balbi Jan. 6, 2016, 12:45 p.m.
In early 2015, Bank of America Merrill Lynch led a $390 million construction loan on behalf of Douglas Steiner’s Steiner NYC for The Hub, a 750-unit luxury residential tower in Downtown Brooklyn.
Financing the 56-story tower, which is now at its 55th floor and slated to become one of the tallest buildings in the borough, marked the first deal Mr. Steiner did with the bank. Just before the year’s end, he closed his second—a $130 million construction loan for an 82-unit luxury condominium project in the East Village.
Mr. Steiner told Commercial Observer that his real estate firm actually had a more attractive loan offer on the table for the condo project, but that he opted for the Bank of America deal due to his previous experience with the bank’s Manhattan office.
“It’s not like there’s some wizard behind the curtain,” Mr. Steiner said. “What you see is what you get, and they’re all available and anxious to do business with the right people and the right projects.”
Bank of America’s New York and New Jersey commercial real estate banking team of roughly 30 client- and banking-focused employees is headed by Brad Dubeck—a Texas native who just celebrated his 10-year anniversary with the company in October. In a series of interviews, Mr. Dubeck noted how the Manhattan-based group’s lending strategy, which focuses on sponsorship and fostering long-term connections with clients, has driven its uptick in activity.
In fact, Mr. Dubeck’s team more than doubled its deal volume over the past year, having originated $4.3 billion across roughly 70 loans originated out of the bank’s New York City office in 2015—up from $1.7 billion across 35 loans in 2014. Overall, Bank of America ranked as the fifth most active lender in New York’s real estate market in 2015, landing below New York Community Bank, J.P. Morgan Chase, Signature Bank and Deutsche Bank, according to the real estate data provider CrediFi.
“We’ve had to meet the market by meeting the demand of our clients,” Mr. Dubeck told CO regarding his team’s recent spurt in transactions. The 38-year-old manager is currently the youngest market executive across Bank of America’s commercial real estate banking division.
Mr. Dubeck got his start in the business as an analyst in a training program at Bank One Corporation in 1999. At the time, he worked out of the company’s Dallas and Houston offices and moved on to a permanent underwriting position in the bank’s real estate business. There he worked on construction and term loans for just under three years—before J.P. Morgan acquired Bank One in 2004.
In early 2002, Mr. Dubeck uprooted himself from Texas, which he said he always thought he would go back to, and moved to New York. After graduating with an M.B.A. from New York University two years later, he landed a job at M&T Bank in its executive associate program.
Mr. Dubeck said that at the time, M&T’s New York office largely revolved around real estate lending. Working there, he said, he learned about the different roles and responsibilities across the bank’s real estate lending team.
“I was everything from the analyst to the client manager to the underwriter to the person who presents to the committee to the person who actually manages the portfolio and does the reviews,” he said.
In 2005, right after Bank of America bought FleetBoston Financial, the real estate market was “on fire” and Mr. Dubeck came aboard as a relationship underwriter, which he described as a “fairly junior role.” Within two years, he became a relationship manager, and was promoted to his current role, commercial real estate banking executive for New York and New Jersey, just two years ago.
Shortly after he joined the team, rising competition in the lending market and the eventual market crash in 2008 led to significant turnover, and in the depth of the recession, the origination team sometimes found itself working out troubled loans instead of churning out new deals.
“A few of the relationship managers left the company or took on new roles, which created what I would call a few battlefield promotions for junior folks like myself to take on more responsibility,” Mr. Dubeck said.
He explained how those employee departures became troubling to borrowers and eventually impacted the bank’s bottom line.
“The clients were faced with a lot of turnover in their day-to-day contacts at the bank,” Mr. Dubeck said. “This is an intensely relationship-focused business. One thing that relationship banks hate is to continually introduce new faces when clients really value consistency and the ability to pick up the phone and talk to the banker who has been managing their account for years.”
As a result, employee retention has become a crucial part of his team’s strategy. What was once a revolving door at the bank during the credit crisis is now a close-knit unit, a fact Mr. Dubeck credits for the team’s success this past year.
But the downturn affected far more than the bank’s real estate business. While lending institutions across the board faced litigation costs and layoffs, and many closed their doors or were absorbed into larger companies, the extent to which Bank of America has recovered as of now is not yet fully clear.
In a recent report from Moody’s Investor Service, the agency noted that “legacy and litigation costs have significantly eroded earnings and increased earnings volatility” at Bank of America and that the bank “suffered from significantly higher cumulative legacy and corporate costs relative to total earnings than its largest U.S. peers, and also had a higher level of earnings volatility.” Those other peers include Wells Fargo, J.P. Morgan, Citigroup, Goldman Sachs and Morgan Stanley.
That volatility was expected to come to an end soon as Bank of America settled a securities lawsuit in 2014, which cost the financial giant $16.65 billion.
“Bank of America really sticks out as the laggard across virtually every sector,” said Roger Arnold, the chief economist at the money-management firm ALM Advisors and a columnist for TheStreet. “The biggest issue is that they have been focusing all of their attention on legacy issues and losses, but most of it appears to be done at this point.”
Mr. Arnold added: “The bank has been reducing labor at a substantial rate greater than any of the other money centers. I think for Bank of America the most important thing is that they have to start banking again.”
David Hilder, a senior equity research analyst at the institutional brokerage Drexel Hamilton, said that the bank has fully recovered in terms of profitability, similar to the other three money center banks—Wells Fargo, J.P. Morgan and Citigroup.
“If you look at the first nine months of , Bank of America had net income of $13 billion, which compares to less than $2 billion in the first nine months of 2014,” he said. That increase is largely due to a variety of nonrecurring charges in 2014, including costs from pre-crisis litigation and other legal reserves, Mr. Hilder noted.
As for Bank of America’s competitors, J.P. Morgan took the lead with a total net income of $19 billion for the first nine months of 2015, Wells Fargo followed with $17.3 billion and Citigroup’s net income totaled $13.9 billion.
The bank’s profitability will continue to increase looking ahead, though not at the same rate, Mr. Hilder said.
The amount of commercial real estate debt that Bank of America holds amounted to 6 percent of all of the bank’s loans, as of the third quarter of 2015, up from roughly 5 percent in 2014. Bank of America has a total loan portfolio of $883 billion, with commercial mortgages accounting for roughly $54 billion, according to recent regulatory filings.
The bank’s total commercial real estate lending in the U.S. trails behind Wells Fargo, where such loans account for about 11 percent of all assets, and just ahead of J.P. Morgan, which is growing its mortgage business (now about 3.5 percent of the bank’s total loan volume).
Mr. Dubeck’s team is one of nine commercial real estate teams across the entire bank. According to a 2014 regulatory filing, Bank of America had a total commercial real estate loan concentration of $47.7 billion, with California accounting for 22 percent of the total with $10.4 billion in loans, compared with the entire Northeast market, which had a total of $8.8 billion.
The commercial real estate lending arm at Bank of America only accounts for a fraction of its total business. The total of $54 billion in commercial real estate loans is roughly 13 percent of the bank’s total commercial loans, Mr. Hilder said.
“The $54 billion is actually smaller than Bank of America’s credit card loans, which total about $90 billion, smaller than residential loans, which are about $195 billion, and even home equity lines of credit which are about $80 billion,” he said. “Commercial real estate lending is certainly a significant business to all of the major banks, but it’s not one of the larger drivers.”
As the country’s economy and real estate industry have come a long way since the worst of the downturn, Bank of America’s lending team has been able to focus even more on building and maintaining client relationships, Mr. Dubeck said.
His team has five relationship managers, each of whom focuses on no more than 20 clients in the New York and New Jersey markets. The rest of the team is made up of debt underwriters, portfolio managers and relationship administrators (who not only fund the loans, but work with other banks on syndications).
Additionally, the bank is hiring client-focused staff and investing in technology, according to the Moody’s report from Dec. 10, 2015. The report also noted that Bank of America’s “management is focused on boosting revenue by deepening relationships with existing clients and selectively adding new customers.”
Of course, many banks pride themselves on their relationship lending. What differentiates Bank of America, Mr. Dubeck said, is that the bank “can leverage the broader platform to provide more solutions to real estate-oriented clients than others in the market.”
Through the team’s relationship managers, the bank offers its clients wealth management and advisory solutions for their own companies. Employee benefits such as checking accounts, health savings accounts and retirement plans can also be provided through the bank, he said.
While providing consumer banking products to existing clients is part of the top-down orders from bank Chief Executive Officer Brian Moynihan, Bank of America has also been consolidating its consumer products as a means to cut costs, Mr. Hilder said.
“One of the things that Bank of America’s senior management has emphasized is only doing things that benefit clients,” he said. “If you look at all of the pieces that went into the current Bank of America—including Merrill Lynch and Countrywide Financial—there were a number of relatively small businesses that each of those companies had that didn’t connect with clients.” (Both mergers were announced in 2008.)
As for the bank’s commercial real estate borrowers in New York City, there are fewer than 100, which Mr. Dubeck explained is intentional and crucial to his team’s focus on top-tier sponsorship.
One of the first deals that pulled Bank of America out of the recession was a $25 million loan to Gristedes owner John Catsimatidis in December 2008. The former mayoral candidate’s real estate company, Red Apple Group, had plans to build a residential tower named The Andrea in Downtown Brooklyn. The loan from Mr. Dubeck’s team would eventually become one of four loans the bank provided to Red Apple for each of the buildings in the development project.
At the time, the 2008 deal “was one of two construction loans on the whole East Coast,” Mr. Catsimatidis told CO.
Red Apple’s executive vice president, Robert Zorn, said that during any construction period, “things don’t always go as planned” and that Mr. Dubeck’s loan originators, underwriters and relationship managers were able to quickly work through any difficulties that came up.
“They’re not always the cheapest, but during the course construction [the real estate] team was good about working around or fixing problems over the course of construction,” Mr. Zorn said. “We’ve become friends as part of the process.”
Mr. Steiner offered a similar sentiment.
“We actually hit a glitch during the financing of [438 East 12th Street],” he said. “Instead of derailing the deal as the market changed, we just worked through it, which is proof of the relationship nature of the bank, rather than thinking it’s a one-off deal.”
Mr. Steiner said that compared with other lenders he has worked with in the past, Bank of America’s commercial real estate banking team feels more like a partner. “We like them because they can do big deals and the process is not painful,” he said.
As of late, Mr. Dubeck and his associates have been selling off pieces of their deals to other banks as a part of their strategy and also due to the mammoth size of many of those loans.
“Generally speaking, our preference is to use the scale of BofA’s balance sheet as a competitive advantage when it comes to financing transactions,” Mr. Dubeck said. “We will originate very large loans and many times take a very large commitment on those loans in order to become the administrative agent, and allow us the opportunity to sell pieces to other banks generating syndication revenue.”
In the last month alone, his New York team originated a $640 million construction loan for Tishman Speyer’s three-tower, multifamily rental project in Long Island City, Queens, and a $690 million construction loan to Related Companies and Oxford Property Group for 30 Hudson Yards—a deal that was complex not only because it closed ahead of syndication, but because it was a construction loan for an office condo property, which is rare in New York.
“We took the syndication risk of going to market post-closing,” Jeff Dybas, a senior relationship manager at the bank, told CO at the time of the loan’s closing.
Those group deals present their own complications, according to Mr. Dubeck. With more parties involved in a particular transaction, his team has to keep in mind what types of assets, sponsors and submarkets other banks are comfortable with.
“Because we originate some larger transactions with the intent to sell pieces of the debt to other banks, we have to be very mindful of the changing appetites of those other institutions,” Mr. Dubeck said.
Across the board, banks have become concerned with demand in the high-end condo market, as well as the increasing cost of land in New York. Additionally, lenders are shying away from financing too many hotels, especially the development of them, because of some softness in the hospitality market, Mr. Dubeck pointed out.
Nonetheless, construction deals have become a larger part of Bank of America’s New York lending business in the past year, with most of those loans going to condo, multifamily and office developments. Construction loans, including some hotel deals, now account for roughly 30 percent of the New York and New Jersey team’s deal volume, according to Mr. Dubeck. Any more than that would be “too risky,” he noted.
“It looks like this is the beginning of the process of Bank of America getting back into the lending business,” Mr. Arnold said. “As long as they are making the loans directly and servicing the loans that they make, there’s little cause for concern.”
Looking ahead, Mr. Dubeck said that he expects his team to remain a leading lender in New York in 2016, but that with the bank’s growing emphasis on high-end sponsorship, his team will become increasingly particular about which deals it opts to finance.
“Part of our strategy is not to be real estate lenders per se, but to lend as a part of a very broad banking and financial services relationship with our real estate clients,” he said. “We will be an active market participant next year. However, we will be increasingly selective when it comes to originating new construction and [other higher-risk] loans.”
- 30 Hudson Yards
- Bank of America Merrill Lynch
- Brad Dubeck
- Deutsche Bank
- Douglas Steiner
- FleetBoston Financial
- Goldman Sachs
- J.P. Morgan Chase
- John Catsimatidis
- M&T Bank
- Morgan Stanley
- New York Community Bank
- Oxford Property Group
- Red Apple Group
- Related Companies
- Signature Bank
- Tishman Speyer
- Wells Fargo
- Jeff Dybas
- Steiner NYC
- ALM Advisors
- Roger Arnold
- David Hilder
- Brian Moynihan
- Bank One Corporation
- Robert Zorn
- Drexel Hamilton