Richard Swartz, a principal with Sonnenblick Goldman in New York City, says there are no signs of a slowdown in capital availability. For instance, he says, spreads continue to compress--a development that has been happening for a while, but has become even more apparent during the past six months.

Another sign that capital continues to flow into the market unabated, says Ron Shapiro, director of lender services at the Schonbraun McCann Group in New York City and Roseland, NJ, are entrances of brokerage firms into the lending space. "I know of some brokerage firms that have dipped into the lending market," he says. "They are either offering their own money or teaming up with a third party to do so."

Community banks are also becoming more aggressive with their products and lending, in some part due to innovations in the capital markets. Frank Baldassarre Jr., a senior vice president with Fox Chase Bancorp of Hatboro, PA, says he has been able to offer much more favorable terms to developers now that he has been accessing derivative-based products to support the loans.

"We are more creative in the way we are structuring our deals. Instead of offering just Libor or prime-based financing, we can use floors and caps to offer longer term fixed rates. We can customize loan solutions for our clients and compete with anybody that provides financing for larger real estate customers," he says.

Baldassarre says the bank recently offered construction financing to a developer. When it converted to permanent financing, it was at a 10-year fixed rate--a term that typically community banks will not do. "By accessing the derivatives markets, we are able to offer a 10-year, fixed-rate loan and swap that fixed rate for the variable rate we would prefer to have."

There are market changes in various submarkets that are giving lenders pause. For instance, says Swartz, "right now in the Dulles Corridor, given current market conditions, it would be very difficult to have a building financed on spec."

"We are cynical on speculative development right now," adds Ari Altman, vice president of mezzanine finance provider Huntington Capital Markets in Columbus, OH. "We would look for a healthy amount of pre-sales before we would take on a spec development." Another change in the market, Altman says, is a subtle shift in preference for medical office, as opposed to other sub-sectors in office space. "Right now, medical office projects seem to be the most attractive with a strong value creation story."

He tells of a recent deal the firm just financed--a 40,000 sf medical office building under construction that will be attached to the Middletown Regional Hospital in an Ohio town between Dayton and Cincinnati. Huntington Capital Markets financed the building, which was under a ground lease. The land was owned by the hospital. The total loan amount was $1.3 million, with mezz taking up 10%. The LTV was 85% at a 7.75 cap rate.