Construction lending--a hit-or miss proposition over the past several years--has rebounded to levels not seen in decades, said panelists at the Mortgage Bankers Association's (MBA's) Commercial Real Estate Finance/Multifamily Housing Convention & Expo in February.
"I've been doing this for 25 years--I haven't seen this much development since I first got into the business," said Jay Marshall, senior managing director with H FF, Pittsburgh.
Kent Daiber, senior banker with Starwood Property Trust, Greenwich, Connecticut, agreed. "A year ago we had no construction loans on the books," he said. "By the end of last year we had a little over $1 billion and by the end of this quarter we'll have another billion on the books."
"We also like construction lending," said Ronald Prunesti, senior vice president with HSBC, New York. "We did about $5.5 billion last year. We like urban gateway centers and luxury condos--boutique properties with strong sponsors and stories to tell."
Panelists agreed that they like apartment financing. But other property types get attention as well. John Waldeck. CMB, managing director with Pacific Life Insurance Co., Newport Beach. California, said his firm has done some retail deals in addition to multifamily deals, "but we look at everything. We're looking at credit-lease office buildings."
"We would never do speculative office," Daiber said. "We are doing some hotel and condo loans right now. We pretty much will do anything at the right basis--basis is the main driver for us. We're open to everything."
Of course, construction costs have increased as construction has grown--especially in major cities. "We're definitely starting to see construction costs go up," said Ted Starkey. senior vice president of commercial real estate with San Francisco-based Wells Fargo & Co. "The last couple of deals we've quoted on have gone out for final bid and come back with higher-than-expected construction costs. You need to be conscious of it. It definitely helps when you've got a borrower with a good track record of building over time."
Daiber said construction costs have gone up considerably in the current building cycle. "But if a borrower comes to us...