Warnings that the hot multifamily-lending market might cool became more concrete after three New York banks reported first-quarter results Wednesday.

Granted, multifamily lending continued to drive profits at the likes of BankUnited, Signature Bank and New York Community Bancorp, but all warned of a softening at the high end of the market.

Regulators have been cautioning lenders for months to be ready for a shifting market and to refrain from low-ball rates or risky underwriting.

After the financial crisis more people flooded the rental market at a time when there was little new construction, creating a supply problem, said Collyn Gilbert, an analyst at Keefe, Bruyette & Woods.

But now some banks are beginning to pull back because competition has driven loan terms to unfavorable levels. Additionally, apartment sales are expected to decline as sale prices have become unsustainably high and foreign investors have been affected by the downturn in energy. 

In New York that means a smaller number of players are fighting hard to preserve market share.

"The big competitors there are New York Community, Signature and us," BankUnited Chief Executive John Kanas said during a conference call with analysts. "Loan pricing remains very competitive in all our markets."

Here is an overview of their view of the market — and their backup plans.


It might have been less than what some analysts expected, but BankUnited reported an increase in loans originations in New York during the first quarter, and it expects that growth to accelerate the rest of this year.

"We continue to see strength in our primary markets — that is Florida and New York — with the only exception being the high-end condo markets in Manhattan," Kanas said.

Still, the pace of loan growth slowed compared with the fourth quarter, which Kanas blamed largely on the pricing competition on multifamily loans.

Growth was also affected by several large payoffs, he said.

But, he added, "don't judge us on a quarter-by-quarter basis, because these things are unpredictable. We do know that the second quarter will grow significantly more than the first."

It is certainly the case that New York is growing faster than BankUnited's Florida market. Its New York operations generated $274 million of new loans in the quarter, compared with $28 million in its home base of Florida.

Flattening rents and higher vacancies have weakened multifamily loan demand some at some banks, but not BankUnited, Kanas said.

"Rent growth has slowed for the first time due to the softness at the top of the market. But the middle and the bottom, and where we operate, remain very firm, and in fact are improving," he said.

Signature Bank

Joseph DePaolo, the CEO at the $35.9 billion-asset Signature, said that while competition in multifamily lending is indeed fierce, he is not seeing a slowdown in demand, in part because some smaller players have pulled back some due to tightening spreads.

Like BankUnited, Signature lends primarily on lower-end multifamily properties, where vacancies are low and rents range from $800 to $1,200. He told analysts on a conference call Wednesday that Signature's pipeline of multifamily and commercial real estate loans is as strong as it has ever been.

Still, Signature is committed to diversifying its loan book and adding more commercial and industrial loans to the mix. It recently appointed a new head of C&I lending to help its banking teams develop new business lending to a range of companies in manufacturing, health care, accounting, law and other industries.

In an interview, DePaolo said that Signature had de-emphasized C&I lending in recent years as competition heated up and banks started lowering their rates in order to win business. That competition still exists, of course, but DePaolo said he is willing to give a bit on yield now to add floating-rate loans that could generate bigger yields as interest rates rise. Perhaps more significantly, C&I customers tend to hold large deposits with the bank and often need other services, like cash management.

C&I loans "used to be priced at Libor plus four; it's half that now," DePaolo said. "If you want to play in that game, you've got to deal with thin margins."

In the first quarter, Signature reported record earnings of $104 million as average loans increased 6% from the prior quarter and 32% year over year, to $24.4 billion. Net interest income increased nearly 56% year over year, to $278.3 million, while its net interest margin rose 6 basis points, to 3.32%.

But profits were actually down by a spike in nonaccrual loans — mostly taxi medallion loans — which tripled from a year earlier, to $105 million.

Jared Shaw, an analyst at Wells Fargo Securities, said it is wise for Signature to pursue more C&I loans given the tightening spreads on multifamily loans and regulators' growing concern about concentration risks in CRE lending.

Regulators are urging banks to limit CRE concentrations to no more than 300% of capital, and Shaw said that Signature's CRE loans are equal to about 500% of capital after the bank's most recent capital raise.

New York Community

New York Community has seen demand for multifamily loans become "lethargic," though the Westbury company has been able to book loans by picking up market share from other banks that have pulled back, President and CEO Joseph Ficalora said during a conference call with analysts on Wednesday.

Originations in the first quarter declined by 25% from the same period in 2015, but overall its covered loans held for investment were up 10% year over year, to $36.2 billion.

Ficalora agreed that demand for certain multifamily credits is waning but predicted that experienced lenders like the $48.5 billion-asset New York Community, which have established relationships, will continue to thrive. Its quest to grow market share will also be aided by its pending acquisition of the $15 billion-asset Astoria Financial.

Astoria's multifamily portfolio totaled roughly $4 billion at Dec. 31, according to Federal Deposit Insurance Corp. data.

"Whatever's happening in the market to others and to whatever degree the market may change, we believe we will gain share," Ficalora said.

New York Community earned $129.9 million, up roughly 9% from a year earlier, as net interest income was boosted by a lower cost of borrowed funds. 

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