February 13, 2018 Florida’s BankUnited Waves Goodbye to ‘Terrible Margins’ of NY Multifamily Market
Sometimes regional banks from outta town, like Arkansas-based Bank of the Ozarks and Florida’s BankUnited, elbow their way through the big international banks and New York-based lenders that dominate commercial real estate lending in New York City and make their marks on the Big Apple.
Now, though, what BankUnited seems to be more focused on making is its exit – at least from New York’s multifamily market, which CrediFi data shows declined 19% year-over-year in the first nine months of 2017.
“Terrible margins,” CEO Raj Singh said on the bank’s Q4 earnings call, explaining why BankUnited was slowing growth for New York multifamily lending.
“The underlying collateral which is New York multifamily loans, with the cap rates that they have, they are in stratospheric valuation categories and nothing good happens lending into that over the long haul,” he said.
(To read about who might be picking up the slack, see Why NYCB Q4 Earnings Could Spell Good News for Commercial Real Estate Finance in New York City.)
In 2016, CrediFi CEO Ely Razin asked in National Real Estate Investor if BankUnited was waltzing into the Bronx or merely stumbling through, whether the reverse snowbird was “engaged in risky business that could cause its second collapse since 2009” or was “poised to benefit from gentrification trends.”
With a new leader at its helm – Singh succeeded John Kanas as president and CEO in early 2017 – BankUnited now appears to be giving its own answer: not stumbling or waltzing, but slowly backing away.
But just because BankUnited has lost its affection for New York multifamily doesn’t mean the Florida bank is abandoning New York altogether.
After all, while its New York portfolio remained relatively flat in Q4, at year-end the New York region still constituted 29% of BankUnited’s non-covered loan portfolio (compared with 35% each for Florida and the national portfolio).
BankUnited’s New York commercial real estate business “won’t grow at an impressive pace like it did a couple of years ago, but it will be fairly stable,” said Singh.
In the fourth quarter, UnitedBank’s Florida franchise contributed non-covered loan growth of $465 million, compared with net growth of just $29 million for New York. Multifamily runoff in New York, or the reduction of loans in the portfolio, was $169 million in the quarter.
Non-multifamily CRE in New York, however, increased $198 million in Q4. And that’s where BankUnited expects to see its growth – outside multifamily.
“From a CRE perspective, we’re tilting towards other asset classes,” Thomas Cornish, the bank’s chief operating officer, said on the earnings call.
Indeed, while non-multifamily commercial real estate loans (excluding construction and land) took up a larger share of BankUnited’s total loan portfolio at year-end 2017 than they had a year earlier, the share of multifamily loans dropped, from 19.8% of the bank’s loan portfolio at year-end 2016 to 15% in 2017, BankUnited said in its 2017 financial results.
And the bank’s total assets increased year-over-year, from nearly $28 billion in December 2016 to over $30 billion at the end of 2017.
“We want more diversity on our portfolio,” said Singh. “We were really extremely heavily weighted into multifamily and we’re trying to build a more diverse portfolio.”
To find out more about the New York City commercial real estate market, get our latest NYC Lending Spotlight here.