Developers report that although money is still tight for new commercial development, money is far more available that it was a year ago, especially for new multiunit development.
“It’s a good time to be a multifamily developer,” says David Cardwell, vice president of Capital Markets for the National Multi-Housing Council. “I don’t know of any who are not pursuing new construction of substantial rehab.”
Permits for new apartments have reached an annualized rate of 250,000 per year since the summer and that’s twice the rate from a year ago when the only source of funds was the federal housing subsidies.
Both debt and equity financing are more available, according to the National Multi Housing Council’s October 2012 Quarterly Survey of Apartment Market Conditions. The survey’s indexes measuring equity financing (56) and debt financing (65) all measured at 50 or higher, indicating growth from the previous quarter.
“The members I’ve talked to are bullish and have been able to secure pretty good terms,” says NMHC’s Cardwell. Well capitalized developers can once again find low find non-recourse loans, for example, provided they put equity equal to 30 percent or 35 percent of the development costs into the proposed project. Investors such as insurance companies once again joint venture to provide equity for many deals. Interest rates are much more affordable. “Spreads have tightened,” says Cardwell.
Once again, commercial banks are fulfilling their tradition role as a primary source for construction financing now that they have recovered sufficiently from the recession. This has made the arduous process of securing financing form the FHA much less important although the interest rates at near 3 percent are still attractive plus the banks can close much more quickly.