Real Estate Loans - Manhattan Mortgage Market Condition
Expo Highlights Opportunities, Risks & Other Considerations
I attended the 2014 NYC Finance Expo at the Roosevelt Hotel on May 14th. The expo was well attended by Manhattan real estate professionals and financiers of Manhattan real estate including banks and other lenders.
The organizers had three or more seminars running simultaneously throughout the morning, with most sessions running between 20 minutes and an hour. About every 15 minutes a new session started, so there were plenty of ways to spend one's time productively.
The topics of the seminars covered a cross section of interests of those in the Manhattan real estate financial industry, from social marketing to real estate finance to real estate planning. I sat through a couple of sessions where I listened to Manhattan real estate and financial executives talk about where we are in the current cycle in the Manhattan real estate market, with an eye toward Manhattan real esate prices and valuations from a lender's point of view.
Billionaire businessman John Catsimatidis is shown in the photo at right at the NYC Finance Expo in Manhattan.
Click here to read the rest of our story about NYC & Bronx real estate mortgage market conditions at the NYC Finance Expo.
Real Estate Loans - Manhattan Mortgage Market Condition
Expo Highlights Opportunities, Risks & Other Considerations
I started by listening in on the main forum where a panel of Manhattan real estate lenders and experts discussed the fundamentals and key barometers of the Manhattan market.
Manhattan Real Estate Market - Lending Risks
The first topic of conversation was risk. There seemed to be agreement that at present there wasn't a lot of risk in lending into the Manhattan real estate market, but that didn't mean there weren't lending risks. Some of the other risks the bankers and financiers had to evaluate included the interest rate risk - meaning that if they lend at a given rate now and interest rates rise, the lender's margin gets squeezed.
Manhattan Real Estate Market - Client Risks & Banking Regulatory Risks
Another lending risk in the Manhattan market was the risk associated with the borrower's financial profile - because the client's balance sheet and appetite for risk can quickly change, and so does the risk associated with loans made to the client. The bankers and lenders also mentioned that there was still some risk of banking and lending regulatory changes, given the 2008 real estate market and bank / financial system meltdown.
Manhattan Real Estate Market - Construction Boom
The lenders noted that there's a lot of building construction going on in Brooklyn, Queens and Manhattan currently. And that as the building boom continues, so does the risk associated with it. But they said there are ways to better calculate those risks and means to manage them as a percentage of the total risk exposure of the bank or lending institution. For example one can mix small lots and commercial buildings to give a real estate lending portfolio a mix of assets that have different dynamics in the ups and downs of an NYC real estate market.
Manhattan Real Estate Mortgage Market - Incredibly Competitive & Borrowers Demanding
One Manhattan banker talked about some of the demands being made by borrowers in emerging neighborhoods as being very aggressive given the market realities for the timing of those neighborhoods actually 'arriving'. The Bushwick neighborhood in Brooklyn and the Ridgewood neighborhood in Queens were cited.
Another panelist said that some of the current loan multiples didn't appear to make sense. The Flushing neighborhood in Queens was mentioned here, with the caveat that the speaker was still in the process of learning more about what's driving the underlying market dynamics of this neighborhood. The Manhattan financier said that the current very low prime interest rate was enabling borrowers to gain leverage in a very competitive NYC real estate lending market.
Editor's Note: Flushing is located near LaGuardia Airport wherein a large airport enhancement project is expected to begin in 2016. There's also a battle to construct a shopping mall near Citifield on parkland in Flushing Meadows Corona Park. And there's a large Asian community there which appears to be well funded.
Manhattan Real Estate Market - Mortgage Lending Closing Times
Many borrowers were trying to close in 60 days. And some creditors were giving $1,500 attorney or processing fee rebates to entice borrowers. One of the Manhattan bankers said that Manhattan and New York City is at the top of cycle vis a vis the market prices versus rental payments. He went on to say that every market has its ups and downs. And there seemed to be consensus that this is a great time for borrowers.
Other Factors in NYC Real Estate Market - Capitalization Rates, Vacancy Rates, Taxes & Incomes
Offsetting the dynamics currently in the borrowers' favor are other trends which bankers continue to monitor. They noted the rise in real taxes, incomes, capitalization rates and vacancy rates. There was something in there about the debt to equity rates of strong borrowers being in the neighborhood of 1 to 1.25.
Aggressive Lenders in Manhattan Mortgage Market
Because of the boom cycle of building and the current competitiveness in the market, one panelist said that he thought that the banks were once again being overly aggressive. He said that his bank needed to stick to their programs, but sometimes that meant being cut out of deals.
One panelist noted that some banks appear to be buying interest rate caps in secondary financial markets to manage their risk. One audience member commented that this sounded a bit like the market a decade ago, when banks bought risk management [insurance] services from AIG to hedge their bets.
NYC Mortgage Lenders Managing Portfolio Risks
Some banks were beginning to manage their risk in other ways, like lending to owner occupied commercial space borrowers. Current interest rates of 3% to 3.5% are ridiculously low and are certain to go up. Some of the small business owners who bought their buildings have begun to expand their real estate footprint by buying other buildings nearby.
Manhattan Mortgage Rates NYC 2014
One of the lenders said that when interest rates approach 6% to 7% the market will cool off siginficantly and the cooling will "separate the men from the boys". They said that in Manhattan and NYC, there's a lot of money sitting on the sidelines. And he went on to note that in the Bronx one of the deals he saw was priced at 70 times rent.
NYC Community Banks Working With Alternative Mortgage Lenders
One panelist said that NYC and Manhattan community banks have staying power and they have billions in their portfolios. Some are allowing loan / mortgage prepayments without penalties, so the borrowers can take advantage of the market if interest rates come down. It's a way for the banks and lenders to continue the relationship with the client for the long term.
For clients with credit issues or weak financial statements, one lender said that these borrowers were being charged 8% to 13% interest rates, and that banks were working with private lenders to close such deals. The local banks charge the alternative private lenders 5 % to 7%, so the alternative lender can make a handsome profit in exchange for absorbing the risk. An audience member noted that this sort of lending intermediation was commonplace prior to the last financial meltdown. They said that less than a decade ago, banks were originating the loans, and then selling the mortgages to Fannie Mae / Freddie Mac. In the current configuration, the banks lend to the private equity entities, who in turn make the loans and then either hold or sell the mortgages.
One of the bankers noted that in this market, there's margin compression due to competitive bidding of interest rates by lenders. There's also a lot of competition in terms of length of deal / loan closing time. Some insurance companies, private equity firms and non-bank lenders are able to close in three days. The community banks typically make loans of about $300,000 on up into the millions. One speaker said that doing something on the scale of anything near a $20 million loan is a huge loan for a multi-billion community bank, and hence they're rarely done.
There was talk about CNBS.
NYC Real Estate Market Neighborhoods
One of the community banks talked about where they were doing the deals. They said that Flatbush exploded within the past year, and that Bushwick and Greenpoint were also busy. They were also active in parts of Harlem, the Bronx and the East Village and West Village in Manhattan.
The banker said that they were busy providing real estate mortgages to borrowers for retail space for shopping centers and office buildings for professionals in the NYC and New Jersey areas. He noted that lately they had begun to branch out and lend to charter schools.
Manhattan & NYC Mortgage Market - Lending Programs
Another Manhattan mortgage lender said that they had three real estate divisions: 1) handled $10 to $100 million bridge loans for construction projects, 2) handled $100,000 to $10 million for multi-family or mixed use buildings and 3) handled one to four unit condo or co-op buildings. He noted that the multi-family unit of the three was the biggest piece of the business. Someone said that they had quit doing construction loans.
All in all it was a very informative panel. After the panel I moved around and dropped in on a few of the workshops and seminars.
There was a talk by a Manhattan real estate developer about how real estate development boosts the local economy. In another conference room there was a financier talking about reverse mortgages.
And in my final conference room visit there was a publicist instructing folks on how to get their name out there through networking, publishing, public relations and advertising. She noted that when you do things through public relations channels you have limited control because the decisions about what's published is in the hands of the editor, whereas when you communicate via advertising you have complete control.
After the program I shot a few more photos and exited the Roosevelt Hotel in Midtown Manhattan.
Special Thanks to NYC Finance Expo & NYC Real Estate Expo Founder Anthony Kazazis
Special thanks to Anthony Kazazis, Founder & Director of NYC Finance Expo & NYC Real Estate Expo, and his staff for organizing an interesting and informative program. Anthony Kazazis is shown in the photo above.
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