Third-quarter REO and non-performing loan numbers are beginning to come in from U.S. banks. So how does New York’s real estate landscape stack up? Are the best gains already gone, or is the “center of the universe” just now ripening for distressed property investors?
New York has recently found itself on strange ground: boasting both some of the most expensive real estate in the country and some of the longest lines of foreclosures. Yet, the state’s property market has remained out of the headlines during the last couple of months as those racking up more foreclosures or seeing overheating like Nevada, Florida, and California have hogged the news.
So what does the data show happening with New York’s bank-owned REO pool and which way are non-performing loans trending? Perhaps even more importantly where can distressed debt and property investors find the most value and rewards in the Empire State?
Q3 New York Bank & Non-Performing Loan Figures
Moving into the second half of 2013, some notable New York bank stats include:
- As of June 30, New York held one of the highest percentages of multifamily REOs in the country at 19.52%
- NY also boasts one of the highest ratio of residential REOs in the nation
- 173 NY banks held $3.74 billion in non-performing residential loans
New York’s Top 10 Banks by Total Assets
- The Bank of New York Mellon
- Goldman Sachs Bank
- Manufacturers and Traders Trust Company
- Deutsche Bank
- New York Community Bank
- First Niagara Bank
- Signature Bank
- Astoria Federal Savings and Loan Association
- Morgan Stanley Private Bank
- Apple Bank For Savings
The Top 10 NY Banks for Foreclosed Multifamily REO
- Banco Popular
- Carver Federal Savings Bank
- Community Federal Savings Bank
- Flushing Bank
- Intervest National Bank
- Maspeth Federal Savings
- New York Commercial Bank
- New York Community Bank
- Ridgewood Savings Bank
- Sawyer Savings Bank
The first three New York banks with REO and non-performing loans were Ulster Savings Bank, First Federal Savings of Middletown and BPD Bank. The average of these banks’ holdings show a massive 60% of REOs being residential. The public-facing REO percentage of this distressed debt is barely over 10% of the volume of non-performing residential loans coming down the pipe behind them.
Entering July 2013 NY non-performing residential loans were double the entire country’s residential REOs on hand. From the digits being revealed by banks for the 3rd quarter there appears to continue to be a choke point for 1-to-4 family defaulting loans in the “non-accural” stage.
This suggests a sweet spot to be found in non-performing loan notes from banks and among motivated sellers that are 89+ days late on their first lien mortgages.
However, it is no secret that New York is home to an extremely diverse market with some unique trends.
The New York Real Estate Landscape in October 2013
Notable New York real estate stats:
- The Real Estate Board of New York reported Brooklyn leading the five boroughs in July, with 1-3 family transactions up 21% in the five boroughs
- Manhattan Association of Realtors highlights Australian, Irish, Chinese, and Indian buyers as the top global home buyers chasing NY properties.
- NYSAR data shows closed sales up 10% y-o-y as of August 2013
- NYSAR reports days on market fell 5% in August, and average sales price up 7%
There may still be a foreclosure backlog in the state, but there is also no question that demand for New York real estate is among the best in the world, with no indication that this will wane anytime in the foreseeable future.
The real question is: where are the sweet spots for cashing in on REOs and non-performing loans right now?
6 real estate trends to watch and bank on:
1. Startup NY
The new bill signed in by Andrew Cuomo creates new funding opportunities for new businesses in the state. Even more significantly Startup NY creates new tax-free zones offering no income, business, or property tax for 10 years in order to spur growth. Investing in these tax-free zones could offer significant boosts to yields.
2. Property Tax Reductions
Obviously New York is home to not only some of the most expensive property in the U.S. but also some of the highest property tax rates. The system is seriously broken and many are seriously overpaying. The good news is that almost 90% of property owners who have applied for tax reductions on Long Island have received them. For investors willing to file the paperwork this can add thousands to the spread on distressed property and increase cash flow.
3. Modular Apartment Buildings
A unique multifamily property trend has been emerging in the Northeast which could offer even better returns. Investors taking out teardowns and lots may be able to cash in on modular apartment buildings which can be constructed for far less, yet still deliver top dollar rents.
4. Mixed Use Developments
Local governments want to encourage new development and revitalization as well as the repurposing of some properties. However, many are stuck on the need for mixed-use projects to act as buffers between commercial and residential zones. Investors ready to step up and deliver could benefit from additional support and breaks from the city and county.
5. “Spiritual Spaces”
A new report from the Wall Street Journal suggests “spiritual spaces” are trending as one of the most in-demand home improvement additions today. Therefore, those looking to flip distressed bank REOs could benefit from incorporating yoga, meditation, and quiet areas that increase demand for their units.
6. Outrageous Rehabs
In a bizarre new twist on fixing and flipping homes, some investment firms are leveraging tens of millions of dollars in private equity and hedge fund money to acquire properties that are not in distress, only to invest as much as 100% of the purchase price in luxury upgrades before reselling them. Not a very savvy or profitable strategy by most investors’ criteria, yet it does signal that many end-buyers have the cash and appetite to buy up everything you can feed them – even at top dollar.
Dig into the data and find which New York banks have the REOs and non-performing loans you want. Then, apply the above techniques for finding yield others have overlooked or flip them for significant spreads.