Developers facing tougher multifamily lending landscape
- Traditional bank loans for multifamily projects are becoming more difficult to secure, but lending options are still available for projects with sound fundamentals, according to National Real Estate Investor.
- Regulatory requirements regarding reserve cash, higher vacancy rates and existing underperforming loans are contributing to higher interest rates, as well as a 10% drop in the average dollar amount of loans relative to project value.
- The hesitancy on the part of banks, however, has made room for other developer loan options such as private equity debt funds, life companies and Federal Housing Administration programs, although these alternatives could be pricier than their traditional counterparts.
Even though there are loan options other than traditional bank financing, lenders across the board are scrutinizing applications for multifamily developments more carefully. Economists have long predicted a looming slowdown in the red-hot multifamily market — a trend that is starting to emerge in recent housing starts data.
It should come as no surprise that the strongest projects have the most lending options, even high-end luxury condominiums. Miami developer CMC Group secured a $236 million construction loan earlier this month for its 64-story Brickell Flatiron condominium tower, despite a reported glut in that segment of the market. Unlike some other floundering projects in Miami, however, CMC Group has been able to put 60% of the building's units under contract — a good sign for lenders.
While multifamily could be seeing saturation in some regions, the market is still strong in many areas. Dan Whiteman, vice chairman of Miami–based Coastal Construction, told Construction Dive earlier this month that the mid-level rental market in Florida is particularly strong — a result of millennials who want to have their own living spaces but aren't ready to commit to homeownership. This younger demographic also enjoys the flexibility that renting provides.
The millennial influence, downsizing baby boomers and limited home inventory have made renting a popular option for many people. In fact, U.S. demand for rentals has resulted in a long stretch of rising rents. Earlier this month, Zillow predicted that the average rent would increase to $1,420 by February 2018 and that U.S. renters would have to make $168 more per year in 2017 to keep up. However, Zillow also reported that the difference in the cost of owning a home and renting is starting to close, making homeownership more attractive.
- National Real Estate Investor Multifamily Construction Loans Are Harder to Find
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