Bank Failures Put Squeeze on Construction Loans
Date Posted: May 9, 2023
Posted In: Discussion, News,
From Construction Dive: On the surface, the recent collapses of Silicon Valley Bank, Signature Bank and First Republic Bank shouldn’t harm the multifamily sector as much as other commercial real estate asset classes.
Recent data from research firm MSCI shows that local and regional banks hold a relatively small percentage of apartment loans. Over the last decade, they have only made between 10% and 20% of first mortgage originations to multifamily borrowers. In comparison, the office, retail, industrial and hotel sectors all received a higher percentage of their loans from these lenders.
However, with tighter lending standards at local and regional banks after the recent collapses, one type of financing is being hit especially hard. Developers had a difficult time getting construction loans before the bank failures, but now the situation is even worse.
“Construction debt is hard to get,” said Matt Enzler, senior managing director for the North Texas division of Dallas-based developer Trammell Crow Residential, the nation’s No. 5 largest builder in 2022, according to the National Multifamily Housing Council.
Those problems promise to curtail the number of apartments being built. Ric Campo, CEO at Houston-based REIT Camden, expects to see a 60% reduction in starts due to these banking issues.
“I just think that developers are crafty enough to keep their legacy deals in place, and that’s why you haven’t seen a dramatic falloff in starts,” Campo said. “But it’s starting to happen, especially since the banking crisis has created, in essence, almost another 25 basis point or 50 basis point rate increase as a result of those banks just pulling out of the market altogether.”