This Tiny Arkansas Bank Is Fueling America’s Skyscraper Boom


The most prolific lender to Manhattan property developers isn’t Well Fargo & Co. or Citigroup Inc.

or any of the other major global banks. This is OZK bank,

who not so long ago was an obscure moneylender from Little Rock, Ark.

The bank has become one of the country’s most aggressive financiers in building skyscrapers. OZK chief executive George Gleason said on a recent earnings call that the lender could issue its biggest construction mortgages in 2022.

OZK is nearing a deal to provide a $410 million loan to Rabina, the developer of a roughly 1,000-foot-tall Manhattan office and luxury residential tower on Fifth Avenue, which would be one of its biggest loans, the bank said.

The lender is part of a group of regional banks and loan funds that are propelling the recent surge in commercial real estate development. Proposed construction in New York in the fourth quarter, for example, totaled nearly 32 million square feet, according to the New York Real Estate Board, the most in the city for a single quarter since 2014, the association said. professional.

One of Bank OZK’s biggest construction loans is for developers of the massive Water Street mixed-use development in Tampa, Florida, seen in 2020.


Scott Keeler/Zuma Press

OZK and its peers “really are the engine that drives the construction industry,” said Steven Buchwald, senior managing director at real estate brokerage Mission Capital.

Seven years ago, these mid-sized banks held less construction debt than the biggest banks. Now they hold many more, according to data from the Federal Deposit Insurance Corp. Others fueling the boom include Centennial Bank in Conway, Ark.; Pacific Western Bank, based in Los Angeles; and the International Bank of Commerce based in Laredo, Texas, where construction loans make up 25% of its lending.

They help fill a void left by the biggest banks, which often shy away from development lending because such projects tend to be among the riskiest loans. Projects can take years to complete and produce no income in the meantime.

OZK’s $7.7 billion in construction and land development loans accounted for 42% of all loans on its balance sheet in September. This is the highest percentage of any bank with over $5 billion in assets, and more than 10 times the industry weighted average. The Little Rock lender holds more construction debt than Citibank, which is about 65 times larger in terms of assets.

Unlike big banks, OZK does not typically ask borrowers to pledge their personal assets or sell parts of a loan to other lenders, according to brokers who have worked with the bank. This helps him win business, but it also means that OZK is more exposed in the event of a default.

OZK said it can minimize this risk by financing about half of the cost of an average project, leaving the rest to other investors, as well as backing experienced developers and insisting on getting paid. first in case of default. Only 0.2% of the bank’s loans were non-performing in December. The bank’s profits hit a record high last year, according to company filings.

Mr. Gleason, born into a moderately wealthy family in rural Arkansas, began his career as a lawyer. At age 25, he bought a majority stake in a small community lender called Bank of Ozark for $10,000 and a $3.6 million loan, secured by his family estate and bank stocks. Over the years, the bank grew, winning over depositors through aggressive advertising and sales practices. He made it public in 1997.

George Gleason, CEO of OZK Bank.


Lori Hoffman/OZK Bank

The bank opened an office in New York in 2013. Since then, the value of construction loans on its balance sheet has increased about 10 times, according to public documents.

Mr. Gleason owned shares of the bank worth more than $260 million as of March, according to S&P Global Market Intelligence. He owns a 30,000-square-foot French-style mansion on more than 100 acres of land in Little Rock that has 14 bathrooms, a chapel, a fountain and an extensive collection of European art, according to property records and records. people who have been home.

Some economists worry about the rise of these small lenders. They say rules designed to reduce risk after the 2008 financial crisis simply diverted it elsewhere. Forced to hold more capital and hire more compliance staff, small lenders’ costs have risen and their margins have shrunk. Low interest rates and competition from non-bank lenders have also made it harder to make money from community bank staples like home mortgages and consumer loans.

This means that banks looking to expand their business have more incentive to issue construction loans, where competition is lower and returns higher.

“Think of it as a perverse effect of the broader regulatory crackdown on banks,” said Jonathon Adams-Kane, an economist formerly at the Milken Institute who has studied home lending by US banks.

Between 2013 and the third quarter of 2021, mid-sized banks more than tripled their construction and land development lending to $128.4 billion, outpacing the largest banks. These construction loans now represent 6.6% of their loans, up from 2.9% in 2013, according to FDIC data.

Bank OZK’s biggest deals include a $664 million construction loan in 2019 for a massive mixed-use project in Tampa backed by Tampa Bay Lightning owner Jeff Vinik and Bill Gates’ Cascade Investment LLC, and a loan to construction of $558 million in 2018 for a condo project in Sunny Isles Beach, Florida.

At the Manhattan site at 520 Fifth Avenue, private equity firm Carlyle Group is providing $130 million in addition to OZK’s loan. The development is on a street that has suffered from the absence of tourists and office workers during the pandemic. Still, Bank OZK Chairman Brannon Hamblen said the Manhattan apartment market has weathered the pandemic well. He expects strong demand for office space in newer, more modern buildings.

Write to Konrad Putzier at [email protected]

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