NEW YORK, USA – Investors are showing concern over the stock of New York Community Bancorp (NYCB) due to the changing economics of rent-stabilized apartment buildings in New York City. The regional bank’s prominent loan exposure is to these apartments, with half of its portfolio linked to numerous multifamily complexes in the Big Apple where annual rent increases are regulated by the government.
Investors are worried that these properties could decrease in value due to high interest rates and new limits on rent increases. This could potentially lead to significant losses for the $116 billion lender over time. However, NYCB’s new executive chairman, Alessandro DiNello, has stated that the bank is working to reduce its commercial real estate exposure and has made efforts to convey to investors that the situation is under control.
Despite efforts from the bank, the stock remains down by 53% since January. NYCB slashed its dividend and reported a net quarterly loss of $252 million, leading to concerns about its ability to withstand potential losses tied to office properties and multifamily apartments.
The bank, which was founded in 1859 as the Queens County Savings Bank, went public in 1993 and over the years became one of the city’s leading lenders to the owners of rent-stabilized buildings.
A major concern arises from a 2019 change by the state of New York that limited rent increases, affecting profits for building owners and their incentive to maintain these properties. Furthermore, the squeeze on profits has made it more challenging to manage the maintenance and debt associated with the buildings.
The bigger question now is whether NYCB’s problems are unique or if they represent a much larger issue for regional banks across the US. According to the Mortgage Bankers Association, banks hold half of all outstanding commercial real estate loans, with smaller banks holding the majority. Additionally, interest past-due for non-owner-occupied commercial real estate loans rose in the fourth quarter to its highest level since 2013.
While it’s not a crisis across the country, there are concerns about potential stress on smaller banks as Treasury Secretary Janet Yellen hopes it will not end up being a systemic risk to the banking system. Nevertheless, former FDIC Chair Sheila Bair suggests that there might be a few more bank failures if lenders have not reserved enough to absorb potential commercial real estate losses.
In order to boost investor confidence, NYCB needs to address its exposure to rent-regulated apartment properties and find ways to diversify its book to mitigate potential future losses. The uncertainties surrounding the commercial real estate market in New York City continue to pose challenges, leaving investors worried about their stock.