Banks Not Feeling the Love for Apartments

More apartments are expected to be completed nationwide in 2017 than any other year since 1987, which is contributing to a situation in which supply will exceed demand for the first time in years and rents appear ready to stall or decline. That has banks nervous and they’re beginning to keep the industry at arms length. From the Wall Street Journal:

Now banks are in retreat, forcing developers to look to nontraditional lenders and seek more expensive types of financing to complete projects, said apartment executives, industry analysts, mortgage brokers and bankers.

 “We had fairly robust growth in our construction, real estate construction book, and that’s slowing now,” said P.W. Parker, chief risk officer of Minneapolis-based U.S. Bancorp, during an earnings call last month. “Multifamily is an area that, if you look at the forecasts, there are forecasts pretty broad-based of potential rent declines in a lot of the major cities. So we’re being more cautious there.”

Executives at North Carolina-based BB&T Corp. and Pittsburgh-based PNC Financial Services Group Inc. in December said they, too, are being more conservative about apartment loans…

Even builders with proven track records are getting smaller loans than they used to, said Peter Donovan, executive managing director of multifamily capital markets at real-estate brokerage CBRE. While a couple of years ago most could get loans for about 65% of the cost to build a project, today they are getting closer to 55%, said Mr. Donovan.