With apartment vacancy at historic lows in the New York area, many community banks are focusing more on loans to landlords, based on a belief that it is among the few options for growth.

Astoria Financial Corp., Investors Bancorp Inc., and New York Community Bancorp Inc. are among the metropolitan New York banking companies to report gains in multifamily lending in the third quarter, and most said they expect to make more loans for apartment projects.

"Multifamily is the one asset class in New York that has stood up extremely well from a credit standpoint," said Mark Fitzgibbon, an analyst at Sandler O'Neill & Partners LP. "So more institutions have started to pile into the multifamily market."

Kevin Cummings, the president and chief executive of Investors Bancorp in Short Hills, N.J., said renting has become increasingly more appealing to those who live and work in metro New York.

"The attraction to buy a home isn't as great as it was 10 to 15 years ago," Cummings said in an interview Tuesday. "People continue to move into New York and they have to live someplace, and they live in apartments."

The overall vacancy rate in Manhattan was 1.08% in September, according to data from New York residential real estate brokerage Citi Habitats. That compares to 1.19% a year earlier and 1.83% in September 2009.

Multifamily lending this year has been "significantly more robust" than the past two years, said Joseph Ficalora, the president and CEO of New York Community, in a Wednesday interview. Still, he said margins have shrunk due to competition and because of multifamily lending activity by Fannie Mae.

"Our pricing in the secondary market is entirely driven by market factors, based on the quality of the underlying assets and the risk we are assuming," Fannie Mae spokesman Andrew Wilson said. "The market share of other multifamily market participants . . . shows that our loans are competitively priced in the market, particularly in the New York region."

New York Community's multifamily portfolio has grown 2.8% over the past nine months, to $17.3 billion, or 58% of total loans.

Flushing Financial Corp., with $4.3 billion in assets, said last month that it continues "to focus on originating multifamily mortgage loans while at the same time deemphasizing the origination of non-owner occupied commercial real estate and construction loans." The Lake Success, N.Y., company's total multifamily originations rose 58% in the second quarter compared to a year earlier, to $61 million.

The $17 billion-asset Astoria, also in Lake Success, said it recently resumed accepting multifamily loan applications and that its pipeline was $252.7 million and growing at Sept. 30.

Provident Financial, a $7 billion-asset company in Jersey City, N.J., said its multifamily loan book grew $109.8 million over the first nine months of this year.

Multifamily lending is booming nationwide, too. For the second quarter, such originations grew 114% from a year earlier, according to the Mortgage Bankers Association. A report said that primary drivers included "greater stability in property fundamentals and prices, and an improving sales market."

The typical multifamily loan at $10.5 billion-asset Investors ranges from 5-10 years at rates between 4.125% and 5.125%, Cummings said.

Big banks are also active in New York multifamily lending, including JPMorgan Chase & Co., Capital One Financial Corp. and Banco Santander SA's Sovereign Bank.

Not everyone is eager to add multifamily loans.

Standing in contrast to other banks is Dime Community Bancshares Inc. Though the Brooklyn, N.Y., thrift reported a third-quarter profit, Dime said in a press release last week that it will forgo "any significant growth in its loan portfolio for the time being." The company said its decision was largely based on intense competition in the New York multifamily market.

Fitzgibbon said he was not surprised by Dime's cautious response. "It's not uncommon for Dime to do something like this," he said. "Dime is, without a doubt, the most conservative bank I follow. They feel like pricing on multifamily loans isn't sufficient to justify the risk or earn a fair return."

There may be more behind Dime's decision. In its third-quarter earnings release, the $4 billion-asset company detailed a "mismatch" between its funding source and multifamily loans. Rates on new 12-month certificates of deposits range from 50 to 75 basis points, and rates on multifamily loans in New York range from 3.75% to 4%.

"Although the resulting spread between those instruments is wide, the duration mismatch could be between four and seven years," the release said.

A pull back suggests that Dime "expects interest rates will rise from their historically low levels as the overall economy continues to improves," said Matthew Clark, an analyst at KBW Inc.'s Keefe, Bruyette & Woods.

Dime is probably not alone in this strategy, Fitzgibbon said. "Certainly banks do this all the time, but very few will come out and say they're doing it," he said.

Still, multifamily is by far Dime's biggest loan category. At Sept. 30, its multifamily book was $2.55 billion, up slightly from June 30 and representing 74.6% of net total loans. (Dime's pipeline at Sept. 30 was 22% lower than it was six months earlier, falling to $95.6 million.

Dime did not return calls seeking comment.

Investors intends to keep building its multifamily book because it needs to grow as it pursues a possible second-step conversion, Cummings said. In contrast, Dime is a well-established company. "We're in a different spot from them," Cummings said.

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