The Importance of Relationship Lending
- Jul 25, 2012
New York—For Investors Bank, timing is everything. MHN recently interviewed Joseph Orefice, senior vice president of Investors Bank’s Commercial Lending Group, about the lending trends in multifamily and how, despite being relatively new to the market, his company was able to become a major player in the real estate lending industry.
MHN: What are some of the current investing trends in the industry, particularly for multifamily?
Orefice: Our focus is the tri-state [New York] area, so it’s probably easier to focus regionally. Multifamily is an interesting story in the last three or four years. It’s been an up and down turn—from the activity standpoint and from the financing standpoint it certainly is a very hot area. From the lending standpoint where we mostly compete, there are more and more competitors out there and the terms are becoming a little more aggressive. The underwriting really hasn’t changed so much, which I think is good from the credit side. In terms of pricing, it is really at historic lows, which I never thought I’d see in my lifetime. From a standpoint from the overall market, I’d say it’s hot and getting hotter, and I think people are seeing multifamily as a safe haven, certainly relative to the condo market or single-family purchases. That market has cooled off and stabilized and multifamily has increasingly become the investment of choice—a lot of equity dollars are chasing it. New York offers a unique opportunity in that it has statuary upside, such as rent stabilization and rent control, which offer artificially low rents, so a lot of folks have a business plan to convert those to free market and have a significant pop in value and cash flow.
MHN: What are some challenges you’re seeing?
Orefice: In terms of our financing book, our challenges are certainly our competition. We don’t necessarily want to be a super-low cost provider out there. Our challenge is to be out there in the market. We try to drive our business through relationship lending versus what I’ll call “jumble” lending, where the lowest price wins. We’ve all got a lot to offer. Our flexibility and our ability to listen to a business plan and come up with a financing product that fits it very well is one of our strengths. But the competition and pricing pressures are certainly my biggest worries these days.
MHN: Please expand on the pricing worry. Why is that such a big concern right now?
Orefice: We have a certain cost of funds. I think it’s easy at these levels of historically low interest rates to over-leverage properties. Not that we expect a knee-jerk interest rate change, but five or seven or 10 years is a long time, and things could happen. You could artificially support quite a bit of debt while you’re paying 3 percent, but if your average is supposed to be 5 or 6 percent, it’s easy to get yourself in trouble. We try to mitigate that a little bit by sizing it at higher rates, but it’s still an issue.
MHN: How do you distinguish yourself from the competition?
Orefice: Relationship lending, that’s how we do it! We try to get to the meat of the issues. We can offer competitive pricing as cheap as anybody, but our preference is to really develop some relationships with these borrowers and become not only their lender, but also their banker and advisor.
MHN: So you’re in it for the long term.
Orefice: That’s our preference. We certainly have the flexibility to do it, unlike some of our competitors, so it’s a real advantage for us. And I think we’re good at it. That’s how we keep in business.
MHN: Is there anything else you’d like to add?
Orefice: Really for us, it’s the investors’ bank story. We’re pretty new to the market. I opened an office here in New York and we closed our first loan in January 2010. We’ve become very active in the market over those two and a half years—we’ve closed in excess of a billion dollars in loans and we’re on pace to do just short of a billion dollars this year out of just New York, and not including New Jersey, where their base is. I think our story is a great one! We’re big enough to do large loans, big enough to be real players for large property owners. Where a lot of banks are limited by loans to one borrower or transaction sizes, we have the ability to do large and really take a big chunk of portfolio from large owners.
MHN: That’s great, especially in an area such as New York where there’s so much competition.
Orefice: I’d like to say it was all of our charming personalities, but really we came in, in 2010, when everyone was running for the hills, and we were trying to make smart loans. And we’ve done that, but it also allowed us to gain some market share. People know who we are now; they know we close, they know we stand by the deals we cut, and now it’s paying that dividend. We were able to get in when the market was really in shambles in a lot of ways—very few players were out of there. Now we’ve been given the opportunity to become established.