New rules for large-scale loans

Richard Bassuk

The new year is in full swing and lending institutions are taking a new approach to large-scale loans. Developers seeking construction loans are finding that banks are generally no longer willing to firmly commit to loans of $250 million or more without participants committed to holding a substantial portion of the loan.

Lenders are now joining together to co-lead loans and then are bringing in additional participants prior to loan closing.

Syndicated loans show similar changes. Where in the past, one lender committed to the loan and then, at its risk, syndicated the loan, the risk of a lender successfully completing a syndication of a loan has shifted to the buyer.

Market flex language in a commitment gives the lender the right to vary the underlying loan terms in order to complete the syndication. It is certainly not the same game it was last year and changes are continuing.

Under these new guidelines, I have found a few lead banks that are willing and able to undertake these transactions and team up with other similar lenders.

These lead banks include foreign lenders from countries such as Germany, Canada, France, Ireland and Scotland willing to arrange large-scale construction loans if they like the project, the location and the development team.

The above changes reflect the volatility in the credit markets. In periods of little volatility, risk is downplayed or factored out of the lending equation.

What's occurring now is the re-pricing of risk for debt instruments across the credit spectrum. In general, future real estate deals will require more equity, loans will be made at higher interest rate spreads and deals will be scrutinized more closely to make sure they are soundly underwritten and make economic sense.

While the lending climate has become more conservative, some lenders are willing to make and retain loans on their balance sheets (rather than securitize the loans) if the project is well-planned and presented. In this evolving lending climate, it's important to have an experienced financial advisor to help you identify the most advantageous lender for your project and to secure the most favorable terms.

Richard Bassuk is president of the Singer & Bassuk Org., New York, N.Y.