Banks Prefer Rental Apartments Over Condos

LOS ANGELES—George Smith Partners has completed three construction loans in the Koreatown submarket totaling $30.7 million. The loans will fund the construction of three separate development projects, one for-rent apartment community and two for-sale condo communities. Although the leverage on the three loans ranges from 75% to 81%, banks would only leverage as high as 75% on the condo properties.

“Banks are more comfortable with the for-rent projects. The rental market is really easy to prove up because there is a lot of demand and a lot of banks chasing limited deals. There are also a lot of exits for the rental market—Fannie Mae, CMBS, and so on, will take out an apartment loan once it is stabilized,” Jonathan Lee, a principal at George Smith Partners, tells GlobeSt.com. “On the condo side, the challenge is that you have to believe you will have multiple buyers. In this case, what helped get people over the hump is that you can’t buy a new product for $500,000 at 1,100 square feet. So, the thinking is that there will be demand, but because no new condos have been built recently, there are no comps. There is still hesitation for banks to push through to 80% leverage on a condo deal.” Lee secured the funds on behalf of each of the borrowers.