Bill Text: NY A03275 | 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 15-0)
Status: (Passed) 2020-12-23 - approval memo.55 [A03275 Detail]
Download: New_York-2019-A03275-Amended.html
STATE OF NEW YORK ________________________________________________________________________ 3275--B 2019-2020 Regular Sessions IN ASSEMBLY January 29, 2019 ___________ Introduced by M. of A. EPSTEIN, SIMON, REYES, TAYLOR, GOTTFRIED, MOSLEY, D'URSO, CRUZ, BLAKE, M. G. MILLER, COOK, ORTIZ -- Multi-Sponsored by -- M. of A. NOLAN -- read once and referred to the Committee on Banks -- committee discharged, bill amended, ordered reprinted as amended and recommitted to said committee -- reported and referred to the Committee on Rules -- Rules Committee discharged, bill amended, ordered reprinted as amended and recommitted to the Committee on Rules 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: EXPLANATION--Matter in italics (underscored) is new; matter in brackets [] is old law to be omitted. LBD02520-06-9A. 3275--B 2 1 (a) whether and how financial institutions are considering the follow- 2 ing factors when reviewing a landlord's loan application: 3 (i) debt service coverage ratio; 4 (ii) capitalization rate; 5 (iii) gross rent multiplier; 6 (iv) loan to value; and 7 (v) net operating income, including income and expenses; 8 (b) whether and how financial institutions are including the following 9 factors in their underwriting calculations of debt: 10 (i) sources of income, including residential rent, commercial rent and 11 maintenance from cooperative apartment owners, and how financial insti- 12 tutions verify the accuracy of such information; 13 (ii) current rent charged and projected rent increases to be charged 14 in the future; 15 (iii) the number and size of units in a building and whether such 16 units are used for residential, commercial or another use; 17 (iv) whether any preferential rent is charged and any projections to 18 terminate such preferential rent in the future; 19 (v) the number of vacant units in a property, including whether such 20 units are classified as market rate, deregulated or rent-regulated and 21 how many vacant units are used for commercial or another non-residential 22 use; 23 (vi) whether individual apartment improvements will be performed on 24 any vacant units; 25 (vii) the number of rent-regulated units at the time of loan origi- 26 nation and how the financial institution verifies those numbers with the 27 division of housing and community renewal; 28 (viii) any projected construction or major capital improvements 29 planned for the property; 30 (ix) projections of any turnover in rent-regulated apartments; 31 (x) number of buildings financed in the loans; and 32 (xi) whether the property has received any government operating or 33 capital subsidies and explanation of any such subsidies; 34 (c) whether financial institutions are considering only currently 35 established rents and reasonable maintenance costs when determining the 36 net operating costs for the property such that they are acting in the 37 best interest of the long-term affordability and stability of the local 38 community; 39 (d) whether financial institutions are adequately examining the types 40 of capital improvements included in the landlord's plans for the proper- 41 ty; 42 (e) whether financial institutions are using accurate appraisal values 43 and appropriately doing so; 44 (f) whether financial institutions are ascertaining whether the land- 45 lord is taking on more debt than the property can support, including any 46 mezzanine debt on such property; 47 (g) whether financial institutions are considering a landlord's addi- 48 tional private equity including the source of such equity; 49 (h) whether financial institutions are considering a landlord's addi- 50 tional debt on the building or buildings including debt from other lend- 51 ers and whether financial institutions are considering any other 52 outstanding debt a landlord has outside of the loan applied for; 53 (i) how financial institutions are evaluating public records of land- 54 lords and property managers including, but not limited to liens and 55 violations against them;A. 3275--B 3 1 (j) whether and how financial institutions monitor the number of rent- 2 regulated units in a building prior to and after a loan disbursement; 3 (k) whether mortgages include clauses that require a certain debt 4 service coverage ratio or debt yield which are predicated on rent 5 increases or tenant turnover; 6 (l) whether financial institutions consider the use of additional 7 financing, including mezzanine debt, and how this financing is factored 8 into the underwriting of the loan, including examining the risks associ- 9 ated with transactions in which mezzanine debt is used; 10 (m) whether the use of mezzanine debt to finance projects involving 11 rent-regulated and/or small business tenants is advisable, and if there 12 is increased risk of foreclosure as short-term interest rates rise and 13 the cost of mezzanine financing increases; and what can happen to such 14 tenants and small businesses if there is more debt on a property than 15 the property can support; 16 (n) after consideration of the aforementioned factors in this section, 17 the primary reasons financial institutions deny landlords' loan applica- 18 tions; and 19 (o) any other criteria the department of financial services deems 20 necessary to understand the nature and frequency of predatory equity. 21 § 2. No later than eighteen months after the effective date of this 22 act, the department of financial services shall report to the legisla- 23 ture and the governor on the findings of the study conducted pursuant to 24 section two of this act including on the scope, nature and frequency of 25 involvement in predatory equity throughout the financial industry and 26 any legislative recommendations deemed to be necessary. 27 § 3. This act shall take effect immediately.
