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Healthy bank zeros in on small loans.

Few banks today can claim no problem loans and a strong capital position.

One of these rare animals is three-year-old New York Federal Savings Banks. Specializing almost exclusively in small loans to commercial and multifamily properties, the bank has grown from 0 to $35 million in assets having made $30 million of such loans.

Formed by partner's and clients of the law firm of Herrick & Feinstein, the bank's capitalization restricts them to a legal loan limit of $850,000. Their average loan is $450,000, but they will participate in loans of a few million dollars.

"That seems to create a niche for people who don't really get the attention they want at large banks," said Donald L. Shapiro, the bank's new chief executive officer and the former president of Vector Real Estate Corp.

According to John M. "Jack" Gillen, the bank's president: "If we can illicit that kind of borrower to us we'll get our share of a very large market."

Shapiro and Gillen believe this market is under-served because the large commercial banks that do real estate lending have a greater penchant for development and construction loans. And the savings banks, which have traditionally made the smaller commercial and multifamily loans and then sold them, are shying away because of declining values.

Their size and their strength enables them to cater to these customers.

"We don't own any property," Shapiro said. "We don't have an OREO department that distracts our attention. Therefore, we can be pretty responsible to our borrowers."

New York Federal has made residential and commercial acquisition loans, underlying loans for established co-ops with more than 50 percent sold to occupants, and they are doing a lot of refinancing.

"Many of the banks have said to borrowers |Pay up'," Gillen said. "So that creates an opportunity for us."

Local Approach

The bank has limited itself geographically to a 50-mile radius of Manhattan. The bulk of their loans has been in Brooklyn, Manhattan and the Bronx and they have also lent in such places as Staten Island and Hoboken. "There's plenty of business nearby," Gillen said, "you don't have to go looking for it."

While most of the values on Fifth Avenue or Park Avenue are beyond New York Federal's legal lending limit, he added, "Every address on a side street is a possible borrower for us."

In addition to the demand. Shapiro and Gillen agree, what is necessary to their lending is "a localized understanding of the marketplace.

"If you wander down a city street in the U.S. and see signs of out-of-state banks -- that out of state banks are lending, there's trouble ahead," Shapiro said.

The two say they are basically local people and they pride themselves on having seen every property they've lent on. "An understanding of what's here is not transferable to anywhere else," Gillen said.

Shapiro said they lend at about 60 percent loan to value, and, on income-producing property, they look for current and future cash flow.

"We haven't had to address property that is incomplete or not rented which takes some of the risk out," he said." ... If anything we are underwriters of cash flow on a completed building."

Developer Turned Banker

A graduate of Harvard Business School, Shapiro has served on the bank's board of directors since its inception. He was recently asked to become the bank's chief operating officer after 17 years as the head of Vector Real Estate Corporation, which he co-founded in 1974. Under his direction, Vector developed or acquired, and then leased and managed, commercial and residential properties in eight Eastern states and Texas. Its portfolio includes hotels, office buildings and shopping centers. Vector also developed and sold five condominium projects.

He got his start in real estate with the homebuilder Levitt & Sons, Inc., where he became vice president in charge of land acquisition. In 1971, be became executive vice president of Peerage Properties, Inc. in charge of the Roosevelt Field regional shopping center and other assets of the Lazard Freres real estate affiliate.

Shapiro concedes that the move from real estate developer to bank executive is a big, if not unusual, career change. The real estate market in the past three years, however, he said, hasn't been "much fun."

"I've been a real estate developer investor all my life ...." he said. "I hadn't switched careers or jobs in many, many years and certainly not out of real estate development or investment."

Shapiro said there is good synergy between himself and Jack Gillen, the bank's president and a fellow graduate of Harvard Business School. Gillen has always been in banking with two diversions into investment banking.

"We're both very complimentary in terms of background," Gillen said.

Located on the 24th floor of an office building, the bank's sole objective is making small commercial and multifamily loans and servicing depositors with a total staff of nine. The bank attracts depositors by advertising and being included on a number of rate lists in print media and wires. Borrowers find out about the bank by word of mouth and referral.

"The only reason to be on a street floor is to offer services that people walking in off the street would want," Shapiro said.

Part of Shapiro's mission is to grow the bank in other directions. He declined, however, to reveal any of the area's they are exploring.

As the bank looks to dispense its capital and diversify, Shapiro acknowledges that it will be tricky to maintain its robust health, but he accepts that challenge.

"I want to be in as good as shape as we are now," he said.
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Title Annotation:New York Federal Savings Bank
Author:Fitzgerald, Therese
Publication:Real Estate Weekly
Article Type:Company Profile
Date:Apr 15, 1992
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