New York Community Bancorp Gets $1B Bailout

NYCB secures over $1B investment led by ex-Treasury Secretary Mnuchin’s Liberty Strategic Capital.

Jordan B. & Han-Gwon Lung
March 07, 2024

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Good morning. Troubled New York Community Bancorp (NYCB) secures over $1B from a Mnuchin-led group. Meanwhile, a real estate manager invests $500M to buy single-family rental homes directly from builders due to limited supply from homeowners.

Today’s issue is brought to you by Pace Loan Group — a national lender offering owners non-recourse, long-term, fixed-rate C-PACE financing.

Market Snapshot

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CONFIDENCE BOOST

New York Community Bancorp to Get More Than $1B Investment and New CEO

In a bold effort to restore investor confidence, New York Community Bancorp (NYCB) has secured a $1 billion cash infusion led by three groups, including former Treasury Secretary Steven Mnuchin’s Liberty Strategic Capital.

Crucial capital: The investment aimed to bolster the bank’s financial standing included significant contributions from Liberty Strategic Capital (founded by Mnuchin), Hudson Bay Capital, Reverence Capital Partners, and Citadel Global Equities. The bank’s management and board will also see sweeping changes.

Leadership shift: Joseph Otting, a former Comptroller of the Currency, will step in as NYCB’s CEO, marking the third leadership change in recent weeks. Mnuchin, Otting, Milton Berlinski from Reverence, and Allen Puwalski from Hudson Bay are set to join the NYCB board, reducing the board to nine members and removing all legacy NYCB directors.

Some background: NYCB has been under scrutiny since January, following revelations of issues within its commercial real-estate portfolio, leading to a fourth-quarter loss and a dividend cut. Further complicating matters, the bank disclosed “material weaknesses” in its loan assessment and monitoring processes last week, sparking credit downgrades and fears of a wider banking crisis. This situation echoes the troubles faced by other regional lenders, including the dramatic collapse of Silicon Valley Bank a year prior.

➥ THE TAKEAWAY

Pivotal decisions await: This $1 billion investment, led by Steven Mnuchin’s Liberty Strategic Capital, which contributed $450 million, significantly boosts New York Community Bancorp’s survival chances. Although this move may dilute current shareholders’ stakes, Mnuchin’s track record in financial turnarounds promises a solid foundation for recovery. Awaiting regulatory nods, this crucial step is targeted for completion by March 11.

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✍️ Editor’s Picks

Tighten those belts: In his latest takeaways, Powell emphasizes that U.S. CRE challenges are manageable, but expects many sectors to work through issues for several years.
Diversify your portfolio: Percent is making private credit investing available to everyday accredited investors. Get started today with just $500. (sponsored)
Urban tax deflation: Urban tax collections pose challenges due to CRE devaluation, impacting 30% of local revenue, with major cities hit hardest.
Senior surge: Senior housing sees strong absorption, with over 11K units absorbed in 4Q23, a five-quarter high, according to Marcus & Millichap.
Shifting costs: NYC is considering a bill that would shift rental broker fees to landlords, with support from key unions in the city.
Handing off billions: DFS Group co-founder Robert Miller’s family office, SAIL Advisors Ltd., disperses its investment team, with a $2B portfolio now managed externally.
Extend and pretend: Chicago’s Prudential Plaza owner spent $40M for a two-year loan extension on a $386M CMBS loan.
Market stability: The Green Street Commercial Property Price Index was steadily going down in February, with a 7% annual decline and a 21% drop from its March 2022 peak.

🏘️ MULTIFAMILY

Shiny and brand new: Despite transaction declines of 50%, NYC and LA remained the top markets. The Big Apple led portfolio deals totaling $1.6B.
New Space Race: During the pandemic, people across the country sought out larger living spaces, with the mean distance to employer offices rising from 10 to 27 miles.
Riding the wave: Texas apartment development has plummeted as builders face high rates, slowing rent growth, and a 75% drop in starts.
Density wars: Arlington, VA’s ‘Missing Middle’ reform faces fresh lawsuits, with similar battles in Alexandria challenging densification.
Resistance ceiling: High lending standards and costs continue to pressure multifamily, with mixed sentiment among professionals in different market segments.

🏭 Industrial

Double or nothing: Blackstone (BX) plans to double its India warehouses, aiming for 100MSF and a potential IPO, despite real estate trust struggles.
Filling up fast: Fort Worth’s Fort West Commerce Center is now 70% leased, with Lockheed Martin (LMT) and Big Ass Fans as major tenants.
Airborne acquisitions: Distribution By Air acquired a 66.59KSF warehouse in Hanover, MD for $13M to consolidate three facilities.

🏬 RETAIL

Urban retail resurgence: Consumer spending and tourism growth in 2023 boosted prime urban retail demand, with foot traffic returning to pre-pandemic levels in half-surveyed corridors.
Targeting the bullseye: Target (TGT) plans to open 300 traditional large-format stores in the next 10 years, aiming for $15B in annual revenue.
Foot traffic fever: Rumors of the demise of retail were greatly exaggerated. Investor demand for retail assets in the U.S. is at an all-time high, with a low vacancy rate of 4.6%.

🏢 OFFICE

Remote revolution: Big companies push a return to offices, while small- and mid-sized opt for hybrid or remote work, according to a new report.
Tech giants shrink: Google (GOOGL) will shrink its office footprint in Seattle, following other tech giants in subleasing space instead of getting rid of it entirely.
All roads lead to NYC: Gannett (GCI), owner of USA Today, is relocating its national HQ from Virginia to NYC, vacating a 176KSF space to do so.

HOUSING SHORTAGE

BGO Earmarks $500M to Buy SFRs From Builders, Not Homeowners

BGO, backed by Sun Life Financial Inc. (SLF), has allocated $500M to purchase communities of single-family rental homes directly from builders, aiming to capitalize on the housing shortage and robust demand in the market.

The A-Team: Teaming up with 1Sharpe Capital, the real estate manager is pursuing a strategic approach to acquire groups of homes, deemed more manageable than dealing with individual scattered properties. The partnership, initially debt-free, successfully completed its first transaction with a 64-home community in Phoenix.

Crunch time: The JV comes at a time when single-family landlords are strapped due to rising rates and limited inventory from traditional homeowners. The collaboration is part of a rising trend, with Pretium, the largest U.S. single-family rental owner, recently raising close to $1B for a similar initiative. Meanwhile, Fundrise secured a $770M credit facility to purchase build-to-rent homes across the Sun Belt.

Pricing dilemma: Builders, as noted by AMH CEO David Singelyn, present a multitude of available homes but often at price points deemed unattractive to potential buyers. This dynamic highlights the current tension between supply and demand in the single-family home market, as builders hold firm on pricing amidst growing interest from institutional investors.

➥ THE TAKEAWAY

Investment appeal: With a strong focus on financing new residential projects, real estate managers see an opportunity to drive innovation and growth in the housing sector. The $500M commitment signals a strategic move towards expanding the portfolio of single-family rental homes, aligning with investor confidence in the long-term viability of the rental housing market.

📈 CHART OF THE DAY

According to 2023 data from CompStak, the average effective rent, factoring in lease concessions like free rent and tenant improvement allowances, for prime Class A office lease transactions in gateway markets is leveling off.