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June 2017   Volume 43, Number 6      
 

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Multifamily Construction Loans Are Getting Harder for Developers to Find

Developers are finding it harder to obtain construction loans to build new apartment properties. Bank lenders — the traditional source of construction capital — are offering smaller loans in comparison to the cost of development, when they offer to lend at all.

Banks are still the largest player when it comes to financing. However, the loans they issue that once covered up to 75 percent of development costs now go only as high as 65 percent. Interest rates have increased also, typically floating between 275 basis points to 325 basis points over LIBOR.

Banks have become more cautious due to new regulations. Lenders of all types are concerned about rising vacancy rates in apartment projects. Despite increasing restrictions, developers can still rely on other sources of capital to fill in the gaps. Alternative financing options include life insurance company lenders, private equity debt funds, and the Federal Housing Administration (FHA) programs.

In addition, developers can potentially turn to new sources for money to build. “As banks face higher regulatory scrutiny and capital requirements due to Basel III HVCRE standards, non-bank lenders are entering the market with more ease,” says Justin Bakst, director of capital markets at research firm CoStar. Basel III’s “High Volatility Commercial Real Estate” (HVCRE) risk-weight requirements for lenders requires commercial acquisition, development, and construction (ADC) loans to be risk-weighted at 150% — up from pre-Basel III levels of 100%.

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In this issue:

Virtual Reality Shakes Up Real Estate

All-cash Chinese Buyers Disappearing From U.S. Real Estate Markets

Consumer Confidence Falls after Record High

Immigrant Households Impact Success of Real Estate Market

Multifamily Construction Loans Are Getting Harder for Developers to Find

Survey NAR Survey Finds Increase in Consumer Confidence in the Midwest and Rural Areas

Purchases of Vacation Homes Declined for Second Straight Year in 2016

Rising Home Prices Drive Up Homeowner Debt

The 10 States Investing the Most in Commercial Real Estate

How Sellers Can Avoid the Downsides of Hot Real Estate Markets


 


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