With the financial crisis in its waning days and financial institutions’ stock rallying, investors can expect an increase of construction and development lending with conventional rates. Pessimism in the commercial real estate market is dissipating, thus opening the doors for new investors to reap the benefits in a reemerging market. Miami-Dade County has already gotten on board with more and more lenders willing to take a chance on solid construction projects. There was a point in time where construction projects were scoffed at, and turned away regardless of how sound the project was. Today, banks are weeding out flimsy investors who are not thorough with their projects and do not provide banks with the one thing they value in a reemerging market – security.
At the height of the recession, banks like Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), and Bank of America (NYSE:BAC) were begging the federal government for financial assistance in the form of TARP funds. These banks virtually shut down their lending departments and used what little available capital they had in safe investments like Treasury bills and bonds. As consumer confidence slowly emerged from the recessionary abyss, these institutions slowly have been recovering their losses from the recession, and have begun lending once again. Citigroup was at one point trading for just under $3.00/share. After a tumultuous year, Citigroup has rallied to almost double that amount and have repaid the government most of their TARP funds. Other firms have followed suit, including Goldman Sachs which had amazing quarterly earnings for the last two quarters. Lending is back, and will soon be as competitive as ever.
Construction lending in Florida, once thought to be but a fantasy of your everyday investor, is now a very real reality. Lenders in South Florida have begun to lend on what was once thought to be the rotten apple in investors’ portfolios – construction. These are legitimate loans as well: 5 – 10 year terms, 50% LTC, rates under 8%, DSCR requirements of 1.40, no exuberant origination fees, etc. Such terms are not the things dreams are made of; however, they are the things reasonable rates of returns come from. Lenders today are wiser than they were five years ago; they will not accept gross estimations of development costs, or “hope for the best” scenarios. They want real results, and the key with real results is meticulous preparation. Lenders need to see investors who have done their market homework and have prudently assessed market conditions that are conducive towards their projects. Lenders need to work with investors that have, interested tenants on board (pre-leased, at least contingent upon financing), favorable market studies, and professionally compiled financial documents. These are signs of veteran investors who know the lay of the land, and can adapt to any financial market, thus making relationships with their lenders mutually financially beneficial.
The capital for commercial real estate construction projects is available to the right investor, the prudent investor, the serious investor.
