M&T digs deeper into multifamily lending ahead of expected office stress

CFO Darren King says charge-offs of most concern on fourth quarter earnings call.

M&T Bank anticipates spending the early weeks of 2023 rebalancing its commercial real estate debt focus toward the multifamily sector as stress becomes increasingly visible in its office loan portfolio.

Darren King, chief financial officer at the Buffalo, New York-based bank, told analysts and shareholders on M&T’s fourth quarter earnings call that an estimated 20 percent of its $5 billion office lending portfolio is in danger of default.

“If we talk about our expectations for charge-offs as we go into this year, that’s the place where we’d have the most concern,” King said of the earnings results shared January 19.

Most of the office stress resides in northeast US for M&T, who maintain a roughly 10 percent stake in office mortgages as part of the $45.7 billion outstanding commercial real estate lending book. King noted that about 15 percent of M&T’s office portfolio is in New York.

King said M&T was exploring options to make sure the bank has adequate coverage among its office portfolio, including stress-testing leasing and vacancy rates. The future of office space – and financing it – has been a pressing topic for lenders across the US since the onset of the covid-19 pandemic, especially pertaining to Class B and Class C assets in primary markets where tenant expectations have gradually evolved.

New multifamily avenues

For the bank, multifamily lending opportunities rank higher up the priority list in terms of finding sustainable business momentum in the current environment.

On January 20, the bank formally rolled out a multifamily bridge loan platform through M&T Realty Capital after slowly stepping into the niche in the last few months. The new unit is helmed by Joe Pizzutelli, who has worked across M&T’s commercial real estate lending business since 2008 and transferred over to run the new division in October 2022 according to his LinkedIn profile.

The multifamily bridge loan team is targeting $750 million to $1 billion of originations in 2023 with deals valued between $25 million to $250 million and a maximum leverage ratio of 75 percent. Loan capital will be derived from M&T Bank’s balance sheet.

The bulk of M&T’s real estate loans are already multifamily geared at present, typically in the form of senior mortgage stakes or through syndications to partnered banks and lenders. The new bridge lending program will focus on light transitional assets according to a Commercial Mortgage Alert report, which noted pricing is being offered in the low-200s over SOFR for select deals with M&T also willing to waive rate caps for loans that meet certain debt-service coverage ratios.

“We have a lot of capital through payoffs that we want to put out the door for safe, transitional multifamily assets,” Pizzutelli said. He noted the unit is looking to put out loans for key customers and prospects to ultimately drive more agency-fee business through M&T’s Freddie Mac and Fannie Mae platforms.

The bridge platform is eyeing two-year deals with one- to two-year extension options. M&T Realty charges a 1 percent upfront and exit fee, which can be waived if a borrower secures its permanent agency financing through the business.