Market poses challenges for residential construction loans

The financing market has changed dramatically during the past few months, with fewer lender options available for large scale projects and greater difficulty in securing favorable terms for the borrower. Where previously we would speak with 20 lenders to secure funding for large residential projects, we are now speaking with 40 to 50 financial institutions for each loan. 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 borrower. 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. Demand for new residential housing in New York remains strong and shows no sign of diminishing despite concerns over the national economic picture. On the rental side, demand remains high for residential units and condominium projects continue to do well. High land and construction costs make new rental development a challenge, and with 80/20 financing scarce and with tax certificates no longer available after June 30, fewer projects are being developed and financed. While there is still capital available for top quality projects, even the best developers will have difficulty securing financing for marginal projects over the next few years. Now more than ever, owners and developers need the services of a full-service real estate finance and brokerage firm to structure their transaction to secure the most favorable pricing, proceeds and terms. The Singer & Bassuk Organization (SBO) specializes in providing construction and permanent financing for real estate projects for our clients. In the case of both construction and permanent loan financing, our objective is not only to secure financing, but to do so with a structure that is most advantageous to our client. To achieve these objectives, we solicit a broad range of qualified lending institutions and then create competition among the institutions who are seeking the business. While this requires extensive effort by us, it is the approach we use for all our clients, most of whom could go to several funding sources on their own and obtain a construction or permanent loan-but who decide to use our services because after paying our fee, we add substantial value by obtaining optimal terms, highly competitive pricing and structure, and insight into project dynamics. We have extensive experience in obtaining large scale financings for both ground-up and conversion projects, closing billions of dollars in residential multifamily financings covering new construction and large conversions for both luxury condominium and rental projects. The Singer & Bassuk Org. has also obtained substantial permanent financing for our clients' projects. We acted as the mortgage broker on these projects, and more importantly, as a financial and real estate advisor in each transaction. This provides our clients with added value and services for a standard brokerage fee. The credibility we have developed over the years with lenders and the attention to project detail reflected in our financing packages makes the lender's job easier. Now more than ever, as financing becomes more constricted, deals become more complicated and lending criteria change rapidly, this creates substantial economic value for our clients' projects. Richard Bassuk is the president of The Singer & Bassuk Organization, New York, N.Y.