Another residential loan wave swells in NYC

Another residential loan wave swells in NYC

The Real Deal. Written by E.B. Solomont.

Another residential loan wave swells in NYC

As all-cash buyers disappear, banks have a wider net of borrowers to choose from — and the deals are getting bigger and bigger

Two years after going into contract on a sky-high condo at 432 Park Avenue, Hong Kong casino mogul Lawrence Ho finally closed on the $65.2 million purchase in late March. The same day, he sewed up a $30.5 million mortgage from Citibank — the second-largest loan to close on a residential property in the five boroughs in the first half of 2017.

Wealthy investors like Ho are helping fuel another residential mortgage boom in New York City. While the lending market picked back up in 2013, six years after the subprime mortgage crisis, the recent drop-off in all-cash buyers has created an even larger pool of individuals in need of financing. And despite regulations put in place after the downturn, residential brokers and loan officers told The Real Deal that banks and other financial firms have regained their appetite to lend to qualified borrowers — even as large construction and commercial loans become increasingly rare.

Lenders provided roughly $8.9 billion in residential mortgages in the five boroughs in the first half of 2017, according to an analysis of public records by TRD. While that’s 32 percent below the $13.1 billion originated during the first half of 2007, deal flow has certainly rebounded from the throes of the crisis in 2009, when residential loans plummeted 26 percent in a 12-month period, according to New York University’s Furman Center.

Though few expect residential lending to hit the highs it did just before the crisis, sources say banks and other mortgage underwriters are increasingly willing to work with borrowers to make deals happen.

“We’re very bullish on mortgages,” said Bob Donovan, a senior vice president in Bank of America’s home mortgage division. “We have the money to lend,” he told TRD, noting that the bank leans on home loans as a “core product” to drive market share.

And it’s a two-way street. Buyers lured by the prospect that interest rates will continue to hover below 4 percent are eager to finance deals — whether it’s a $1 million starter apartment or a multimillion-dollar mansion in the sky.

“Money still seems cheap,” said Brown Harris Stevens agent Lisa Lippman, who estimated that 70 percent of her buyers get financing when only about 20 percent of them need it.

“I have a guy buying an apartment for $5.5 million, and he could easily pay cash,” she added, “but he’s getting a 10-year, interest-only mortgage at 2.5 percent.”

The sweet spot

Residential lending across the board is on the upswing, from Manhattan penthouses to three-family homes in the Bronx. Banks underwrote 55,053 mortgages in 2016, a 6 percent increase from the prior year, according to data from the New York City-based title insurer OneTitle. Loan volume totaled $27.3 billion in 2016 — including $18.8 billion worth of new loans and $8.5 billion in refinancings.

And though the first half of 2017 saw a 6 percent slip in the number of new mortgages and a 5 percent dip in volume, experts say the market has already started to pick back up.

Stuart Siegel, CEO of Engel & Völkers’ New York City operation, attributed the pause to “price fatigue” in the sales market earlier this year. 

“There was a disconnect between price and value,” he said. “Things that are trading now have sold because prices were adjusted. The market is now catching its breath.”

Meanwhile, refinancings are down as interest rates have held steady. “If you already refinanced at 3.5 percent, there wasn’t a lot to do last year,” OneTitle CEO Dan Price pointed out. “There weren’t any dramatic swings in rate if you look at the year as a whole, and rate is really what drives refinancings.”

But a more micro look at New York’s residential financing market shows that there’s a growing demand for large loans. TRD’s analysis found that mortgages above $2 million skyrocketed 177 percent to $2.5 billion during the first half of 2017, up from $903 million ten years prior.

“Under $1 million used to be the sweet spot, but banks have been following the price increases in the city,” said mortgage broker Melissa Cohn of Brooklyn-based FM Home Loans. “The true sweet spot in the market is for properties selling around $2 million or less. The rates are really attractive, and you don’t have to be God to qualify.”

One area of growth in particular has been jumbo (and super jumbo) loans on the city’s priciest residential properties. Those deals are getting done — and they’re actually larger than in years past — despite being disconnected from the market’s bread and butter.

For example, the five largest mortgages for the first half of 2017 totaled $134.7 million. That was up 27 percent year over year and a whopping 241 percent from 2007.

The largest mortgage — for $45 million — was snagged by a mystery buyer who paid $50.9 million for Russian financier Andrey Vavilov’s penthouse at the Time Warner Center. Ho followed with the loan for his 432 Park Avenue condo purchase, followed by an anonymous buyer, who through a corporation dubbed Parklight LLC scored a $24 million mortgage on a $65.6 million pad in the same building. Rounding out the top five were a $19.5 million loan at 30 Park Place and a $15.75 million loan at 56 Leonard Street.

“There is a perception that all very high-end purchases are all-cash, and that’s just not the case,” said Price. “We certainly see a healthy number of high-end buyers who finance a portion of the transaction.”

While that’s been true for some time, record-low interest rates have motivated borrowers to seek financing in order to free up cash for tax purposes or other investments, said Patrick Keane, sales director at the mortgage brokerage Green World Financial.

“The smartest people in the world make money by borrowing other peoples’ money,” he said, “putting it to work, making a capital gain and returning it.”


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