When A Bank Can No Longer Extend And Pretend

What You Need To Know

Following a near collapse earlier this year, New York Community Bancorp’s new leadership has brought in a dose of reality.

The regional bank — with a massive rent-stabilized multifamily loan portfolio — is undergoing a review of its books, with the CRE portion nearly done. The results are not pretty.

NYCB had $2.5B worth of nonaccrual loans at the end of the third quarter, $1.5B of which were tied to multifamily properties, according to its latest earnings report. The bank's portfolio review skyrocketed that figure up by nearly $600M from the second quarter and up 487% from December 2023.

It’s something that you’d think an institution like NYCB would have wanted to pay attention to before, given the recent banking crisis that shuttered Silicon Valley Bank, Signature Bank and First Republic Bank.

But when extend-and-pretend has been the norm, why stray from it??

It's likely that many more banks are unaware of how widespread distress is in their commercial mortgage portfolios, according to a study released last week by the Federal Reserve Bank of New York.?

The authors estimate that the banking sector has $400B in near-term CRE loan maturities, representing 27% of bank capital, up 11 percentage points from 2020. Meanwhile, the habit of handing out extensions has resulted in a 4.8% to 5.3% drop in CRE mortgage origination since the first quarter of 2022.

Smaller banks, like NYCB, are the most likely to ignore distress.?

Weakly capitalized banks assign a lower probability of default compared to their well-capitalized counterparts, indicating that they are giving more leeway to nonperforming loans. Those weakly capitalized banks also have a higher probability of providing a maturity extension compared to their peers, according to the study.?

The fear is that a large number of defaults will soon hit like a tsunami. Solvency concerns could cause a bank run by depositors along with a flood of property foreclosures and fire sales.?

NYCB narrowly avoided that fate once already, thanks to a $1B rescue at the eleventh hour. Other banks slow to come to grips with their real estate distress might not be as fortunate.

— Sasha Jones

Send tips, love letters and hate mail to [email protected] or message me via Signal @SashaJones.06 to keep it encrypted.

What I Want To Know

We are, however, seeing some lenders take action against defaults. Last month, commercial foreclosure activity spiked again, surging 15% from the month before and 48% from last year.

In total, there were 695 foreclosures, 92 of which were in New York . That’s a 59% rise month-over-month and a 48% increase year-over-year for the state, according to a report by ATTOM.

Concerns of a mass number of bank seizures, which paved the way for government intervention and servicer negotiations, have kept activity at historically low levels in 2020 and 2021. However, it’s been on the rise since June 2023, peaking at 752 in May.?

It’s possible that we have yet to see the worst of it.

As loans mature, how much does greater foreclosure activity in the market impact discussions between borrowers and lenders? Have servicers become more aggressive in negotiations?

First Look

Wicked, the film adaptation of the Broadway play, is going on an all-out marketing blitz, releasing a massive amount of merchandise through a plethora of collaborations, ranging from Absolut Vodka to Starbucks to Crocs and Betty Crocker Cake Mix.?

It was only a matter of time before real estate would get involved.?

New York Hilton Midtown is redecorating a select few rooms in the decor and colors of the film's main characters, Glinda and Elphaba — otherwise known as Glinda the Good and the Wicked Witch of the West. The movie, which reportedly has a $145M budget , comes out Nov. 22.

Can I Give You My Number?

$220M

The amount of a CMBS loan tied to 285 Madison Ave. set to mature next month. Earlier this year, RFR Holding negotiated a short-term extension for the loan. Thursday, a judge ruled that Aby Rosen and Michael Fuchs had to pay up $18M after defaulting on two mezzanine loans for the same property which in all is tied to roughly $450M in debt. The next day, Crain’s New York reported that RFR is 90 days delinquent on the mortgage for a different property at 90 Fifth Ave.

They Said What??

“There's no way to add density and apartment buildings where none currently exists and say that that doesn't change the character of a neighborhood,” City Council Minority Leader Joseph Borelli, who represents Staten Island, told my colleague Ciara Long when asked about the City of Yes zoning amendment being deliberated on by the council.

Hang Out With Me

• Tuesday: Bisnow’s webinar on mitigating renter defaults .
• Also Tuesday: The Conference Board Consumer Confidence report for September will be released. Last month’s report showed the public’s doubts of the economy were on the rise as the index had the greatest fall in more than three years. ?
• Wednesday: Across the river will be Bisnow’s New Jersey Office event.
• Also Wednesday: Earnings season continues. BXP, formerly known as Boston Properties, is among the big REITs to report earnings this week, with a conference call at 10 a.m.
• Thursday: The personal consumption expenditures price index, excluding food and energy, will be released . The index provides insights on inflation trends.
• Also Thursday: Happy Halloween! ??
• Friday: In case Halloween wasn’t spooky enough for you, the job report for October is scheduled for release .? Last month’s report dimmed hopes for another 50-point rate cut.

Drop The Hot Goss

The Slice is produced by Bisnow Senior New York City Reporter Sasha Jones and is edited by Deputy Managing Editor Ethan Rothstein. Got an answer to my questions or info that you think I’d be interested in? I’m always happy to chat, on or off the record. Reach me at [email protected] or @SashaJones.06 on Signal, an encrypted messaging app.