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Together with
Good morning. NYCB’s multifamily loan portfolio, heavily tied to New York’s rent-stabilized sector, is under mounting pressure. Plus, Bismarck, North Dakota, tops a recent WalletHub ranking as the most affordable rental market in the country.
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Today’s issue is sponsored by Redwood Living—explore real estate investments in the Midwest BTR market.
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🎧️ No Cap Podcast: Josh Sasouness sits down to share his journey about how he and his brother built Dwight Capital from the ground up into one of the top multifamily FHA/HUD lenders in the US.
Market Snapshot
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*Data as of 7/25/2024 market close.
MULTIFAMILY EARNINGS
NYCB Suffers Q2 Loss, Sells More Assets, Blames Multifamily
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New York Community Bank (NYCB) reported its second consecutive quarterly loss as it struggles to stabilize operations and reassure investors.
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Boost liquidity: Hours before its earnings call, NYCB announced it sold its mortgage warehouse loan business to JPMorgan Chase for $5.9B and its residential mortgage servicing business to Mr. Cooper Group for $1.4B. NYCB’s CFO stressed that the bank now holds a “fairly strong liquidity position.”
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Multifamily mess: NYCB’s multifamily loan portfolio, heavily tied to New York’s rent-stabilized sector, is under scrutiny. The bank reviewed 80% of this portfolio, revealing a troubling increase in delinquencies (up 767%), charge-offs (up 590%), and non-accruals (up 134%). Yikes.
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Zoom in: NYCB has undergone significant leadership changes, including replacing its CEO twice and revamping its C-suite. Current CEO Joseph Otting highlighted a comprehensive review and re-underwriting of multifamily loans, particularly those around breakeven. This review led to an expanded credit loss allowance of $1.2 billion, a 113% increase YoY, following the adjustment of interest rates on maturing or repricing loans from 3% to 8%.
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Delinquency spike: In Q2, charge-offs surged to $349M from $81M in Q1, and non-accrual loans almost tripled to nearly $2B. Despite a 468% surge in delinquencies to $1.2 billion from the previous quarter, NYCB managed to reduce this figure to around half a billion dollars by July 24, thanks to repayments. The bank maintains liquidity of about $40 billion, enough to cover its $13 billion in uninsured deposits…for now.
➥ THE TAKEAWAY
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Looking ahead: NYCB reported a Q2 loss of $1.14 per share, better than Q1’s $1.36 per share loss, with a 6% revenue increase to $671M. Despite this, Wall Street remained unimpressed, sending the stock down 17% on Thursday. In response, CEO Joseph Otting announced plans to sell $2B to $5B in non-core businesses to further boost liquidity.
TOGETHER WITH REDWOOD
Don’t Miss this BTR Equity Deal in the Detroit MSA
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Known for its multifamily neighborhoods of single-story, two-bed, two-bath apartments with attached garages, Redwood Living, Inc. has a new equity deal currently accepting investors.
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Offering investors a 10% preferred pay rate, 20% in equity, plus long-term income potential, and potential future refinances, Redwood Orchard Brook 3 may be the Midwest BTR deal investors have been looking for.
✍️ Editor’s Picks
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Across the pond: Deutsche Bank (DB) expects more pressure in 2H24 due to CRE exposure, particularly to the office sector, and expects provisions for credit losses to top 30 bps.
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Unemployment uptick: The national unemployment rate rose to 4.1% in July, renewing recession fears with a 43 on the Sahm indicator. Let’s see what the Fed does now.
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Lending leader: Invesco CRE Finance Trust (INCREF) is taking advantage of the bank lending gap and has surpassed $1.4B in originations, adding 22 loans since May 2023.
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Market squeeze: After years in the limelight, the once white-hot US housing market sees new home sales hit a seven-month low in June amidst rising inventory, high rates, and inflated prices.
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Commercial comeback: The CRE market in Canada is rebounding, with Q2 transactions exceeding $12B, driven by multifamily, industrial, and retail properties.
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Mexican movement: Interest from wealthy Mexicans in Miami condos surges post-election, with concerns about complex taxation and the rule of law escalating.
🏘️ MULTIFAMILY
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Top markets: Bismarck, ND, tops a recent WalletHub ranking as the most affordable rental market in the country, with renters spending just 15% of their income on rent.
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Hand it over: Ballast Investments and Goldman Sachs (GS) gave up 82 buildings in San Francisco after owing nearly $730M, and transferred 1,211 units to RBC Capital.
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Slinging deals: Multifamily apartment deals in NYC surged 108% quarter over quarter to $2.83B, largely driven by maturing loans that positioned sponsors to be saddled with higher interest rates.
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Rent rebound: The LA apartment market saw asking rents rise to $2.22K per month in Q2, up 11.5% since 2Q20, with steady occupancy.
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Workforce makeover: Bridge Investment Group Holdings and Bridge Workforce Funding purchased a 418-unit complex for $101M, planning workforce housing upgrades.
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Apartment innovations: Nonprofit and impact investors raised $135M to buy apartments, aiming to combat record-high US homelessness numbers.
🏭 Industrial
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Bursting pipeline: Denver’s industrial availability rate surged to 9.5% in Q2 thanks to 2MSF of new construction, with 42.9% already preleased for 2H24.
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Warehouse workhorse: Jacksonville saw a jump in its industrial market supply, thanks in large part to a 550 KSF Primark facility fully leased and sold by VanTrust to INDUS Realty.
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High-flying financing: Goldman Sachs (GS) and Triangle Equities secured an $85M refinancing loan for NYC’s Terminal Logistics Center, a fully leased industrial space.
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Industrial blues: Cleveland’s industrial market leasing activity dropped to a decade-low at roughly 880 KSF in Q2, down from 1.6 MSF last year.
🏬 RETAIL
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Swipe right: Tinder founder Justin Mateen and his brother acquired the Wilshire Rodeo Plaza for $211 million, marking Beverly Hills’ largest property transaction since 2019.
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Brooklyn boom: Empire State Realty Trust (ESRT) expanded its retail presence in Brooklyn with two North 6th Street building acquisitions for $195M.
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Furniture fallout: Conn’s HomePlus (CONN) plans to close over 100 of its stores as it faces liquidation after filing for Chapter 11 bankruptcy.
🏢 OFFICE
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Financial reinvention: Miami’s 830 Brickell, a 57-story tower covering 640 KSF managed by a JV between Cain International and OKO Group, secured a $565M loan to pay off debts.
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Building more homes: San Francisco Mayor Breed proposed a new ordinance to allow housing development in SoMa, where office vacancies are at a record 37%.
🏨 HOSPITALITY
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Boutique bonanza: Hyatt (H) is still in advanced talks to acquire Standard International, which would significantly expand its worldwide offering of luxury and resort rooms.
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Top hoteliers: Houston leads the US hotel market in YoY occupancy (+29.6%), ADR (+20.3%), and RevPAR (+56.0%) increases.
📈 CHART OF THE DAY
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Moody’s Analytics predicts that by the end of 2024, vacancy rates in the self-storage sector will be in the mid- to high-12% range, dropping to the low-12% range by the end of 2025. The pandemic-driven boom is over, and the sector is expected to stabilize over the next 12 to 18 months as the labor market gradually cools.
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