Lending discussed at NRC.

Two bankers targeting smaller loans discussed their lending requirements at the National Realty Conference luncheon held at the Williams Club in March.

Both Richard Wald, president of Emigrant Funding Corp., and Donald Shapiro, president of New York Federal Savings Bank, said they make money by servicing the needs of the smaller client.

While Emigrant, a $600 million subsidiary of the larger $6 billion Emigrant Savings Bank, handles loans up to $3 million, New York Federal, with its smaller capitalization of $75 million, works with loans up to $1 million.

Shapiro noted, however, that they lent out $30 million last year, primarily on loans of around $500,000 each.

Wald also likes those "bread and butter" $500,000 loans. Emigrant Funding Corp. is "taking market share from Greenpoint and other market thrifts," he bragged to chuckles, with "better rates, lower fees, more products and a hands-on approach."

They concentrate on the five boroughs and work with multi-family, mixed-use properties and taxpayers, along with Manhattan brownstones. They are also particularly seeking owner-occupied properties.

"This is a terrific opportunity to develop business with smaller bread and butter loans and create relationships," Wald said.

He says the five full-time loan officers have worked hard to create relationships with residential loan brokers by providing superior underwriting advice and helping them make money.

Emigrant has also created an "ESC 100" group that has access to senior management for lending decisions, and one-third of the loan business comes from that group, Wald said.

The Emigrant Mortgage Company, a subsidiary with 80 full-time residential mortgage consultants in a half dozen locations in the tri-state area, handles smaller residential loans.

But if such an Emigrant broker identifies a commercial loan, the parent company works with them to get a quote and "help them bring in the business," Wald said.

Wald believes the enormous competition among lenders has led to lower mortgage rates but makes it harder to be a banker and mortgage broker. Additionally, there is a "dearth of quality, income-producing property," so the lack of supply has led to an increase in prices and a re-mortgaging of existing properties.

"It's good to be a borrower," Wald said, because there are more products to choose from. The most popular loans for Emigrant customers are a 15-year self-liquidating loan and a 10-year loan that is renewable for another 10 years.

They see owners seeking longer term loans and also have created adjustable products for owner occupied situations.

Shapiro says New York Federal has higher rates and its loan limit of $1 million is only good fora three- to five-year loan. If a customer wants a 10-year, "we want a reset later in the middle," he said.

There are three people working the loans and they have found a niche in the marketplace dealing with owners of income-producing properties, Shapiro said.

"We'll do the $500,000 loan and have developed some expertise in the marketplace to do that," he said.

The niche, Shapiro says, comes from seeing value. He said the bank only has two non-performing loans and both are currently under contract, with one at a profit.

"A non-performing loan is a non-performing borrower," Shapiro explained. "We catch that quickly. If the borrower is more than one month behind we come down on them very, very hard. We go after late fees, too and we make sure we stay on top of that."

Because the market is "hot," and rent stabilization creates a "floor" for tenant rents, almost all the borrowers are doing better, he said.

Many of Shapiro's borrowers have fully rented buildings which are self-managed, but since New York Federal adds in a 5 percent vacancy allowance and 5 percent management fee to the numbers, "they are all doing 10 percent better than what we show on our books."

Turning to the cost of properties, Shapiro said he'd "like every appraiser to buy something at the price they appraised," and since most borrowers are buying at a higher cap rate than the appraiser indicates, buildings end up being worth less and the bank therefore underwrites using that criteria.

He is also concerned about the velocity of the current market and what could happen in the future.

"We all know that in 1988 and 1989 - all the banks that made prudent loans at 65 percent of value did the right thing and no one dreamt there would be a 30 to 40 percent meltdown," Shapiro recalled, warning, "the seeds of change are there and we ought to all keep our eyes open."