Bank Of The Ozarks Aims To Remain A Construction Lending Powerhouse Despite Market Warning Signs

Bank of the Ozarks has ascended to the top of the construction lending world in recent years, and it has no intentions of slowing down.

The Little Rock, Arkanas-based bank, despite being smaller than national powerhouses such as Wells Fargo and JPMorgan Chase by several degrees, is the largest construction lender in the Miami region and the third-largest in New York City, even as fundamentals in both markets are trending downward, Bloomberg reports.

The bank, led by George Gleason since he took over a single-branch operation in Ozark, Arkansas, in 1979, has doled out multiple triple-digit construction loans for projects in South Florida, New York, Houston and Seattle, to name a few, since the start of 2016. Within that time, other banks have become more reticent in the market, allowing private equity funds and even other developers to gain ground.

In Miami and New York, the bank's aggressive lending activity has raised some concerns, Bloomberg reports. Among Bank of the Ozarks' financial deals is Turnberry Ocean Club, a high-rise condo tower under construction in the Sunny Isles Beach town near Miami for which the bank provided a $259M loan.

“We’re getting back to what we saw 12 years ago,” consultant Jack McCabe told Bloomberg Quint, referencing the bubble in Florida real estate that preceded the Great Recession. “Any lender making condominium loans for near-future construction is in a world of trouble.”

Gleason's bank also provided $108M in construction financing for a condo project in Manhattan's Hell's Kitchen neighborhood at a time when the luxury condo market had slowed down considerably in the past two years due to an abundance of supply. The same is true of the city's hotel market, where Bank of the Ozarks has also given a massive loan for a Midtown Hyatt Place.

Gleason remains confident in maintaining his bank's rapid growth in the lending market due to the standards its lending department keeps. It mainly refuses to provide more than 49% of the financing for any project and takes the senior lending position in nearly all of them, both reducing exposure and providing the easiest way to recoup capital if a developer fails to deliver.

The fact that Bank of the Ozarks holds the liens on most of the properties it finances does have its risks. Should developments go south, selling an unfinished or under-occupied asset may not be enough to fully recoup a bank's investments, a distressed property consultant told Bloomberg.

Regulations put in place by the Dodd-Frank Act in the wake of the recession have prevented banks from overexposing themselves, but a recent bill relaxing or erasing many of those regulations puts more of the responsibility on banks to prevent another crash.

Gleason said that the bank's internal standards are more strenuous than the original regulations, but it must balance its caution with its ambition — the latter of which is reflected in the bank's upcoming rebranding as Bank OZK, which Bloomberg reports will cost around $25M.