With interest rates going down 50 basis points already this year, money is readily available. Still, competition is stiff among banks for financing new construction in the county. Functioning strictly as a construction lender, Avison says he looks to cultivate relationships with only the most successful developers. They don't take on spec builders of one or two projects, nor do they use the shotgun approach to the market, taking on any assets just to pile on exposure in the marketplace.
"We don't try to compete with the permanent market for doing long-term mortgages, and we don't do hospitality or special use financing," Avison says. "We want to be banking the top four or five producers in any market. Those are the entities that are going to be successful. As a consequence of that strategy, our portfolio of customers tends to be smaller and more focused."
As for the Orange County office, it exceeded its planned objectives in terms of growth in 2000, Avison says, and he expects the office to achieve its targeted growth for 2001 as well. However, the bank's underwriting guidelines may be a bit tighter this year, due in part to a projected slowdown in the economy--which has yet to be seen.
"It's more of an emotional reaction so far," Avison says. "The concerns about a slowdown in real estate in 2001 don't compare with the concerns lenders had because of oversupply in the early 1990s. That condition doesn't exist right now. There's a slowdown, but not a large overhang of space."
Two key concerns continue to be job growth and lack of available, entitled land in the county. Job growth creates a demand for housing, and even on the ranches owned by the county's two biggest landowners--The Irvine Company and the Rancho Santa Margarita Company--there is not a lot of available land left, he says.
"With a 4% vacancy factor in apartments, if you have an entitled site you'll have lenders lined up to provide a construction loan because of the tightness of the market which doesn't exist in some other sectors of the commercial market," he says.
Additionally, vacancy rates are still in single digit territory, and even if job growth levels off this year, demand will not dry up completely, he believes. "It just means that your lease-up and absorption periods will be longer than projected. If I was looking at a completely spec project right now, it would require more equity than it would have required 12 months ago."
Overall, Avison is looking for interest rates to remain flat this year, with little if any downward bias affecting the value of real estate in the county. "Overall, we're pretty sanguine about the Orange County property market," he says.
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