Technically, this day should have arrived a year ago when a Basel III rule requiring banks to place construction loans in the so-called High Volatility Commercial Real Estate (HVCRE) category went into effect on Jan 1. That meant they were to assign a 150% — instead of a 100% — risk weighting. However, the apartment market remained a very enticing to lenders, and regulators were not enforcing the rule all that strictly in the beginning. Neither is true anymore.

Indeed, Fairchild more often came up against credit committees' reluctance to lend to new apartment construction than anyone citing the Basel III rule, although that too played a role. For example, Fairchild tells of one bank that has red-lined all of Northern Virginia because of apartment over-development, with the activity in Tysons' a key factor.

Also, this late in the cycle some lenders have over-allocated to multifamily, he added, which also proved to be problematic.

“A Sense of Place”

All that said, Greenwich Group reports it is still bullish on construction financing in the DC metro area for the right locations, product types and sponsors, as Rivergate Phase I illustrates. It is a 20-minute drive from downtown Washington DC, and close to the major employment centers of Fort Belvoir and Quantico.

It also is the first project to break ground in the North Woodbridge Master Zoning Plan. John Moriarty & Assoc., the general contractor, began construction on Aug. 1 and the property is scheduled to deliver and begin leasing in February 2018.

When the entire project is complete there will be 720 units, with phase II programmed for 318 residential condominiums. Phase II financing will be far easier to secure as, to state the obvious, it will be a different product type all together. But the groundwork laid by phase I will also be important, says Greenwich, as it is creating a sense of place.

Rivergate is next to the Occoquan Harbour Marina, making it one of “a handful of Class-A residential rental communities in the entire DC Metro area that will offer direct access to the water and the lifestyle that coincides with it, but at a price-point that is affordable to the majority of households in the DC area,” Fairchild said.

WOODBRIDGE, VA–IDI Group Cos., a developer based in Arlington, VA., secured $73.8 million in construction financing for Rivergate Phase I, a 402-unit residential apartment building that will be located along the Occoquan River here. The funding, which consists of a $60.3 million senior construction loan, and $13.5 million in subordinate mezzanine construction financing, was arranged via Greenwich Group, a real estate capital advisory firm headquartered in New York and with offices in Washington DC, San Francisco and Los Angeles.

Placing the financing took a bit longer and required more effort than initially expected, Duke Fairchild, a principal with Greenwich who represented IDI Group along with Peter Witham, tells GlobeSt.com. It took about eight months — the company had originally thought it would around six months — and during that time period it went perhaps 70 banks and lenders, Fairchild estimated.

The project's underwriting and fundamentals are solid, he said. The problem was that in general, construction financing is becoming harder to secure — especially for apartment buildings.

Construction Finance Finally Reacts to Market Forces

Technically, this day should have arrived a year ago when a Basel III rule requiring banks to place construction loans in the so-called High Volatility Commercial Real Estate (HVCRE) category went into effect on Jan 1. That meant they were to assign a 150% — instead of a 100% — risk weighting. However, the apartment market remained a very enticing to lenders, and regulators were not enforcing the rule all that strictly in the beginning. Neither is true anymore.

Indeed, Fairchild more often came up against credit committees' reluctance to lend to new apartment construction than anyone citing the Basel III rule, although that too played a role. For example, Fairchild tells of one bank that has red-lined all of Northern Virginia because of apartment over-development, with the activity in Tysons' a key factor.

Also, this late in the cycle some lenders have over-allocated to multifamily, he added, which also proved to be problematic.

“A Sense of Place”

All that said, Greenwich Group reports it is still bullish on construction financing in the DC metro area for the right locations, product types and sponsors, as Rivergate Phase I illustrates. It is a 20-minute drive from downtown Washington DC, and close to the major employment centers of Fort Belvoir and Quantico.

It also is the first project to break ground in the North Woodbridge Master Zoning Plan. John Moriarty & Assoc., the general contractor, began construction on Aug. 1 and the property is scheduled to deliver and begin leasing in February 2018.

When the entire project is complete there will be 720 units, with phase II programmed for 318 residential condominiums. Phase II financing will be far easier to secure as, to state the obvious, it will be a different product type all together. But the groundwork laid by phase I will also be important, says Greenwich, as it is creating a sense of place.

Rivergate is next to the Occoquan Harbour Marina, making it one of “a handful of Class-A residential rental communities in the entire DC Metro area that will offer direct access to the water and the lifestyle that coincides with it, but at a price-point that is affordable to the majority of households in the DC area,” Fairchild said.