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.

 

 

Today’s Commercial Lending Standards in the Triad and Why Multifamily is the ‘Darling’

PTAA Vendor Partner Jay Harris (Premier Commercial Bank) was interviewed for a story on commercial lending standards:

A high level of equity typically results in a low loan-to-value percentage in a deal. And well-structured deals with low loan-to-value percentages also tend to be serious financing contenders, says Jay Harris, executive vice president and senior lender with Premier Commercial Bank.

“The lower the loan-to-value, the better the numbers work,” Harris says.

Most banks want no more than 80 percent loan-to-value in a deal, but the deals that are getting done have closer to 70 percent loan-to-value or less, he says.

In a related story in TBJ on the lending process for a new Walgreens project in north High Point, PTAA member David Couch was also interviewed:

One of the central reasons why the 15,000-square-foot, $2 million Walgreens   project at the Shoppes at Deep River in North High Point received lending approval?

In a word: credit.

“The primary driver of financing today in the retail world is the creditworthiness of the tenant, and in retail development, Walgreens carries with it a very high quality of credit worthiness,” says property owner David Couch.

Couch, a local real estate veteran, is one of the owners of the Walgreens site in High Point that was financed by Premier Commercial Bank.

Finally, PTAA member Chris Parr is featured in an article titled Multifamily Market Becomes Darling of Commercial Lending:

Wells Fargo isn’t the only large bank looking to capitalize on strong local demand for apartments.

Cantey Alexander, BB&T’s Triad regional president, says the bank’s current commercial pipeline is greater than it’s been in the past four to five years. More than half of that demand is coming from multifamily apartment projects, he says.

One example of demand is from local developer Chris Parr, who has a sizable portfolio in Winston-Salem, including an $18.5 million Stafford Place development that will boast more than 300 units. The first phase of the complex, located off Peters Creek Parkway, will be complete in 2013.

Parr says location has been a huge component in being able to secure financing.

“Banks are willing to lend on (multifamily) because they think it’s going to be a good investment for them,” he says.