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Multi-Family Construction Lending Idea Proposal (HOMB, OZRK)

Multi-Family Construction Lending Idea Proposal (HOMB, OZRK)
 

Are Bank of the Ozarks and Home Bancshare taking on outsized risk in order to gain share in the NYC and south Florida multi-family and condo construction markets?

Report Available: April 6, 2017

 

Blueshift’s initial research found OZRK and HOMB expanding through strategic acquisitions of other banks and new loans, especially in the multi-family and condominium construction markets. Both companies have enjoyed revenue and earnings growth and are well-regarded for their credit quality. However, there are some signs of a slowdown in two markets where OZRK and HOMB have been most aggressive – New York City and south Florida.

 

Observations

  1. OZRK and HOMB, two Arkansas-based banks, have been moving aggressively in recent years to expand their footprints with a series of acquisitions and a particular focus on growing their portfolios of real estate construction loans in areas such as New York City and Miami. The value of OZRK’s non-purchased loans and leases grew 47% in 2016 to $9.6 billion, with New York-area loans representing almost $2 billion of that total. HOMB’s loan receivables grew 11% to $7.4 billion in 2016.
  2. OZRK’snet income rose 71% in Q4 to a record $87.8 million, buoyed by its acquisitions and its high-yield loans in segments such as the multi-family and condo construction markets. HOMB’searnings were up 30% in Q4, though its revenue growth slowed to less than 9%. Both banks were in the top 15 of the Forbes Best Banks in America list for 2017, based on metrics related to growth, profitability and credit quality.
  3. The banks, however, may be taking on significant risk by investing so heavily in multi-family and condo development. After several white-hot years that saw the average price of a NYC condo top $2 million for the first time ever in 2016, there are signs of a slowdown: The target offering price for new condos approved for sale by August 2016 was down nearly 35% year-over-year, and demand for high-end units is falling. Meanwhile, rents for studios and one-, two-, and three-bedroom apartments in Manhattan all fell year-to-year in February, the first time that’s happened in at least five years. In South Florida, an oversupply of high-end condos in Miami-Dade County is leading to predictions of falling prices in 2017.
  4. Nationally, apartment units under construction will fall in 2017 from their peak last year, according to CoStar, while there should be an increase in conversions of apartment building to condominiums.

 

What is the overall health of the NYC and Miami multi-family and condo markets? How do OZRK’s and HOMB’s underwriting standards compare to local competitors? What types of loan terms are real estate investors getting from OZRK and HOMB? Are OZRK and HOMB taking on more risk than other lenders are willing to accept? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Real estate investors, Competing lenders, Loan brokers and Industry specialists.

 

Companies: Bank of the Ozarks (OZRK), Home Bancshares (HOMB)

 

Research Begins: March 20, 2017