Bill Text: NY S01476 | 2019-2020 | General Assembly | Amended


Bill Title: Directs the department of financial services to study, evaluate and make recommendations concerning lending practices by financial institutions to landlords acquiring property that includes small business and/or rent-regulated tenants; requires a report on the department's findings and recommendations for legislative action within eighteen months.

Spectrum: Partisan Bill (Democrat 4-0)

Status: (Introduced) 2019-06-07 - PRINT NUMBER 1476B [S01476 Detail]

Download: New_York-2019-S01476-Amended.html



                STATE OF NEW YORK
        ________________________________________________________________________

                                         1476--B

                               2019-2020 Regular Sessions

                    IN SENATE

                                    January 15, 2019
                                       ___________

        Introduced  by  Sens.  HOYLMAN, BAILEY, KRUEGER, SEPULVEDA -- read twice
          and ordered printed, and when printed to be committed to the Committee
          on Banks -- committee discharged, bill amended, ordered  reprinted  as
          amended  and  recommitted  to  said committee -- committee discharged,
          bill amended, ordered reprinted as amended  and  recommitted  to  said
          committee

        AN ACT to direct the department of financial services to study, evaluate
          and  make  recommendations  concerning  lending practices by financial
          institutions to landlords acquiring property that includes small busi-
          ness tenants and/or rent-regulated tenants

          The People of the State of New York, represented in Senate and  Assem-
        bly, do enact as follows:

     1    Section 1. 1. For the purposes of this act:
     2    (a)  "financial  institution"  shall include, but not be limited to, a
     3  commercial bank, trust company, savings institution,  credit  union,  or
     4  any other entity authorized to originate and service loans;
     5    (b)  "small  business" shall mean a business that meets the definition
     6  of a small business as defined  by  the  United  States  Small  Business
     7  Administration; and
     8    (c) "mezzanine debt" shall mean debt carried by a borrower that may be
     9  subordinate  to  the  primary  lien and/or common shares and reported as
    10  assets for the purposes of financing such primary lien.
    11    2. The department of  financial  services  is  hereby  authorized  and
    12  directed  to  prepare  or have prepared a study to review the process in
    13  which financial institutions provide loans  to  landlords  acquiring  or
    14  refinancing  property that includes rent-regulated and/or small business
    15  tenants. Such study shall examine and report by type of lender, range of
    16  building sizes, and any other criteria, trends in predatory  equity  and
    17  shall include, but not be limited to:
    18    (a) whether and how financial institutions are considering the follow-
    19  ing factors when reviewing a landlord's loan application:

         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD02520-07-9

        S. 1476--B                          2

     1    (i) debt service coverage ratio;
     2    (ii) capitalization rate;
     3    (iii) gross rent multiplier;
     4    (iv) loan to value; and
     5    (v) net operating income, including income and expenses;
     6    (b) whether and how financial institutions are including the following
     7  factors in their underwriting calculations of debt:
     8    (i) sources of income, including residential rent, commercial rent and
     9  maintenance  from cooperative apartment owners, and how financial insti-
    10  tutions verify the accuracy of such information;
    11    (ii) current rent charged and projected rent increases to  be  charged
    12  in the future;
    13    (iii)  the  number  and  size  of units in a building and whether such
    14  units are used for residential, commercial or another use;
    15    (iv) whether any preferential rent is charged and any  projections  to
    16  terminate such preferential rent in the future;
    17    (v)  the  number of vacant units in a property, including whether such
    18  units are classified as market rate, deregulated or  rent-regulated  and
    19  how many vacant units are used for commercial or another non-residential
    20  use;
    21    (vi)  whether  individual  apartment improvements will be performed on
    22  any vacant units;
    23    (vii) the number of rent-regulated units at the time  of  loan  origi-
    24  nation and how the financial institution verifies those numbers with the
    25  division of housing and community renewal;
    26    (viii)  any  projected  construction  or  major  capital  improvements
    27  planned for the property;
    28    (ix) projections of any turnover in rent-regulated apartments;
    29    (x) number of buildings financed in the loans; and
    30    (xi) whether the property has received  any  government  operating  or
    31  capital subsidies and explanation of any such subsidies;
    32    (c)  whether  financial  institutions  are  considering only currently
    33  established rents and reasonable maintenance costs when determining  the
    34  net  operating  costs  for the property such that they are acting in the
    35  best interest of the long-term affordability and stability of the  local
    36  community;
    37    (d)  whether financial institutions are adequately examining the types
    38  of capital improvements included in the landlord's plans for the proper-
    39  ty;
    40    (e) whether financial institutions are using accurate appraisal values
    41  and appropriately doing so;
    42    (f) whether financial institutions are ascertaining whether the  land-
    43  lord is taking on more debt than the property can support, including any
    44  mezzanine debt on such property;
    45    (g)  whether financial institutions are considering a landlord's addi-
    46  tional private equity including the source of such equity;
    47    (h) whether financial institutions are considering a landlord's  addi-
    48  tional debt on the building or buildings including debt from other lend-
    49  ers  and  whether  financial  institutions  are  considering  any  other
    50  outstanding debt a landlord has outside of the loan applied for;
    51    (i) how financial institutions are evaluating public records of  land-
    52  lords  and  property  managers  including,  but not limited to liens and
    53  violations against them;
    54    (j) whether and how financial institutions monitor the number of rent-
    55  regulated units in a building prior to and after a loan disbursement;

        S. 1476--B                          3

     1    (k) whether mortgages include clauses  that  require  a  certain  debt
     2  service  coverage  ratio  or  debt  yield  which  are predicated on rent
     3  increases or tenant turnover;
     4    (l)  whether  financial  institutions  consider  the use of additional
     5  financing, including mezzanine debt, and how this financing is  factored
     6  into the underwriting of the loan, including examining the risks associ-
     7  ated with transactions in which mezzanine debt is used;
     8    (m)  whether  the  use of mezzanine debt to finance projects involving
     9  rent-regulated and/or small business tenants is advisable, and if  there
    10  is  increased  risk of foreclosure as short-term interest rates rise and
    11  the cost of mezzanine financing increases; and what can happen  to  such
    12  tenants  and  small  businesses if there is more debt on a property than
    13  the property can support;
    14    (n) after consideration of the aforementioned factors in this section,
    15  the primary reasons financial institutions deny landlords' loan applica-
    16  tions; and
    17    (o) any other criteria the  department  of  financial  services  deems
    18  necessary to understand the nature and frequency of predatory equity.
    19    §  2.  No  later than eighteen months after the effective date of this
    20  act, the department of financial services shall report to  the  legisla-
    21  ture and the governor on the findings of the study conducted pursuant to
    22  section  two of this act including on the scope, nature and frequency of
    23  involvement in predatory equity throughout the  financial  industry  and
    24  any legislative recommendations deemed to be necessary.
    25    § 3. This act shall take effect immediately.
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