www.housingfinance.com/aft/articles/2008/feb/SQUEEZE020 -
[Cached Version]
Published on: 2/1/2008
Last Visited: 3/8/2008
"Just like with Hollywood celebrity bodies, it's all about back-end for construction lenders," said Mike Guterman, principal and CFO with Los Angeles-based Highland Realty Capital, which secures construction financing for developer clients."They're focusing on what take-out lenders are likely to provide on the back-end, and that's one of the primary guidelines restricting construction loan proceeds."
With permanent lenders adhering to more conservative debt-coverage requirements, the maximum construction proceeds available for any given development are typically down by 5 percent or more, according to Guterman and other multifamily finance pros.
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"Now they're really focusing on rent-growth assumptions, taking a much more conservative approach," Guterman said.That means developers applying for construction loans and take-out quotes are required to provide more objective and thorough market analyses, he added.
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Developers were getting used to construction facility structures with little if any personal recourse beyond the standard completion guarantee, Guterman said.But now lenders are looking for repayment guarantees amounting to at least 25 percent of the loan amount, he added.
And entrepreneurial types should expect heavier scrutiny of their credit histories, added Sevier."Lenders are still reviewing credit reports, litigation searches, financials, and resumes, but they have raised the bar in terms of what is acceptable" when it comes to funding a construction facility, he continued.