The Lender’s Dilemma: Lending Decline in NYC Real Estate
With dropping sales and current issues in the multifamily sector, lenders have pumped less money to real estate projects in 2016, according to CrediFi, a commercial real estate data startup. Based on their data, it was found that commercial real estate lending in New York fell down by 17% year over year.
“Overall liquidity in the market is down substantially,” said CrediFi CEO Ely Razin. “If you can still get the loan, it may take you longer — that’s a pretty substantial change.”
CrediFi’s report found both the top lenders as well the lower ranked ones for year 2016. Deutsche Bank, despite having a difficult year which included a $7.2 billion fine from the U.S. Justice Department, secured the spot as the largest commercial real estate lender for the year. This can be attributed to its growth in its origination volume by a rate of 46% as well as it increase in dole outs towards more NYC real estate projects by 37%. One of these projects includes a $396 million loan to Related Companies which is in charge of refinancing 85 10th Avenue—a Google Office which was also a former Oreo Factory.
Other top lenders, according to CrediFi, include Citigroup with its increased loan value of 111% compared to 2015 and Blackstone which is a sign that non-bank lenders are becoming more active players in commercial real estate.
On the other hand, a number of lenders have encountered declines in either dollar amount origination (such as Morgan Stanley and M&T Bank) or in loan origination such as the New York Community Bancorp (NYCB) and Signature Bank. Out of these four lenders, the biggest fall in the ranks comes from NYCB with its 53% decline in lending volume.
This latest development comes as a sign of other issues related to commercial real estate lending. For one, it reflects the efforts of many lenders and financial institutions in monitoring their total assets in order to avoid stricter regulations under the Dodd-Frank Act.
This is also a sign of a slowdown in multifamily lending that began since 2015 when federal banking regulators cautioned banks that overexposure to multifamily loans can threaten their financial stability. Since then, lending on NYC apartment buildings went down by 23% and primary lenders for the multifamily sector such as NYCB have cut their loan volumes. Signature Bank, another lender for multifamily real estate projects experienced a 13% drop in loan amount due to these regulations.
Ultimately, caution among financial institutions and the strict avoidance for further regulations continue to shape real estate activity. It also appears to have a direct impact on both the type and amount of loans that lenders provide. It remains to be seen how these actions will affect the overall health of different sectors of commercial real estate—especially the multifamily sector—in the future.
Image sourced from CrediFi 2016 Lending report.