(Bloomberg)—Banks exposed to New York City lending were rare decliners in Thursday trading, extending Wednesday’s losses as analysts dug into worries that Democrats eyeing rent control laws set to expire next month pose a risk to loans and deals.
New York Community Bancorp was the only falling stock in the KBW Bank Index in Thursday afternoon trading, sliding as much as 4.5%, to the lowest since January 17. Signature Bank was only decliner on the KBW regional bank index, with a drop of as much as 2.6%, also to the lowest since January 17.
Here’s a sample of what some analysts are saying:
Sandler O’Neill, Mark Fitzgibbon
Proposals floating around in Albany “revolve primarily around the idea that landlords should not be able to raise rents so quickly (particularly for capital improvements), and additional protections should be put in place to make it tougher for landlords to push tenants out of their rent stabilized units,” Fitzgibbon wrote in a note.
He sees a “slowdown in building sales for some period of time as both buyers and sellers reevaluate.” That dynamic has already begun, he said, citing a 50% drop in the number of NYC multi-family buildings sold in the first quarter of 2019 versus the prior year quarter, according to Ariel Property Advisors.
Fitzgibbon also expects lower property values for buildings with rent-stabilized apartments, and added that landlords will probably “spend less to maintain their buildings, perhaps causing some erosion of the quality of the housing stock.” Landlords may also seek to raise rents on non-regulated apartments to offset hits from rent-stabilized units.
Even so, credit quality may be “minimally impacted,” as lenders have been cautious with underwriting. “Even if building values decline, there should still be ample collateral value to support these loans,” he said.
KBW, Collyn Gilbert
The proposals include “changes to vacancy decontrol, vacancy bonus, preferential rent, major capital improvement related rent hikes” and “other important topics that have a lesser perceived financial impact,” Gilbert wrote in a note.
While the bills offer some “fairly drastic changes,” industry participants believe “there will be compromises on most of the major changes in order to maintain market stability,” she said.
There’s already been an impact, Gilbert said, flagging a first-quarter slowdown in multifamily lending activity, due to what some banks said was a “wait and see” approach by property owners and developers.
She expects property owners’ net operating income, or NOI, may be hurt, which might lead to lower real estate values, “depending on what proposals are passed and in what form.”
While she’s already accounted for slower loan growth in the first-half of 2019, “the impact of weaker long-term loan growth in this asset class or a more extreme credit event scenario is possible, albeit we believe not highly likely.”
She listed banks with the greatest exposure to the New York multifamily lending sector: NYCB, Signature Bank, Investors Bancorp, Dime Community Bancshares, Flushing Financial Corp., Oritani Financial Corp., Kearny Financial Corp., Northfield Bancorp Inc., Bridge Bancorp Inc. and First of Long Island Corp.
Bloomberg Intelligence, Jeffrey Langbaum
“We’ve been hearing apartment building transaction volume in the city has slowed, which would make sense since potential buyers may be waiting for more certainty in order to figure out how best to price assets,” Langbaum said.
At the same time, Langbaum added that if uncertainty over rent control were to lead to less new-apartment construction, that might “accelerate the decline in new supply.” That’s already started to help lift rent growth, he said. New York City-exposed apartment REITs AvalonBay Communities Inc. and Equity Residential were both gaining in Thursday trading.
To contact the reporter on this story: Felice Maranz in New York at email@example.com To contact the editors responsible for this story: Catherine Larkin at firstname.lastname@example.org Steven Fromm, Will Daley
COPYRIGHT© 2019 Bloomberg L.P