A new supertall building development is gaining momentum in Midtown Manhattan, one that’s faced its fair share of financial struggles. This isn’t breaking news in itself, but the lender who may be behind it is: Bank OZK, a once-obscure lender from Little Rock, Arkansas, that’s become one of the country’s most aggressive backers of American commercial real estate development.
Bank OZK is close to issuing a $410 million loan to Rabina, the developer of a 70-story mixed-use building at 520 Fifth Avenue. It would be one of OZK’s largest construction loans, but the bank has recently issued many such large loans.
OZK and more mid-sized regional banks like them are filling a void left by larger banks like Wells Fargo and Bank of America, who have been recently shying away from large development loans because they tend to be risky.
Bank OZK’s $7.7 billion in construction and land development loans accounted for 42 percent of all loans on its balance sheet as of September, according to the Wall Street Journal. The Journal says that’s the highest percentage for any bank with more than $5 billion in assets and more than 10 times the weighted industry average.
Banks like OZK are helping drive the recent surge in commercial real estate development, especially in New York City. But economists worry about the rise of small lenders like them. Rules designed to reduce risk after the 2008 financial crisis have simply diverted it elsewhere. And if this rise of small lender construction loans goes sour, banks like OZK may not be able to take the losses as well as larger institutions. We will see if the wind is blowing favorably for these banks that are not “too big to fail.”