Why specifically is New York Community Bank (NYCB) the one being tarnished first due to the coming CRE lending debacle? You would think that because NYCB isn’t so heavy in office building CRE, and instead specializes in multi-family CRE, that they would be suffering less than some other banks.
Turns out that it is mostly because of rent stabilization policies. NYCB is the lender with the largest percentage of loans to rent-stabilized apartments. And over the last few years, the costs of owning a rent-stabilized building have gone up substantially more than the rents have been permitted to go up. All sorts of costs have risen dramatically, direct labor, contract labor for maintenance, insurance, interest rates, etc, have all gone up substantially. Meanwhile rents have only gone up a very small amount. The way CRE is valued is almost always as a multiple of the net income. Since the net income is now lower, the value of those properties are now lower. And “the market” is worried that those new low prices are only going to get worse, especially in the rent-stabilized portion of the market (because the owner can’t raise rents to meet the higher costs).
It’s an interesting little wrinkle in the whole CRE lending issue.