The Bozzuto Group has a multifamily project coming up that could be ready to break ground in the next 60 or 90 days, according to president and CEO Toby Bozzuto. As it works to secure financing, "we have seen the debt market be very, very reticent to do anything," Bozzuto told listeners in a recent CBRE webinar. "Candidly, I understand we're all trying to build a castle on quicksand. I mean, we're trying to figure out where the bottom is and I'm optimistic. I do think things are getting better and will get better every single day, but there's just some uncertainty in the market right now."
Unfortunately that uncertainty is also playing out in the affordable housing space, a market that has huge demand as well as strong interest on the part of developers.
A two by four doesn't know if it's in a luxury high rise or an affordable dwelling building, Bozzuto said. "So, as the construction market continues to rise, it is very, very difficult for any developer to provide quote unquote affordable housing unless it's subsidized in one, one form or another. So, I see the future of this just even more complicated and murky because prices have just escalated now going straight since 2009 till today."
Construction financing in general has gotten more difficult to secure, according to Brian Eisendrath, vice chairman and managing director of CBRE, who also participated in the webinar.
"The banks are the major provider of construction financing and they're still there actually to service their best clients. So, you can still obtain construction financing. It just looks a little bit different than it used to."
Eisendrath said they want to focus on having moderate leverage and being able to exit the loan. And with uncertainty on lease-up and rental levels, leverage levels are declining and there are more hurdles in place post-closing from a performance perspective.
There have been changes with other lender categories as well, Eisendrath continued. For instance, the life insurance companies have the pick of the litter right now. "For example, deals that are in lease up, less appetite for that today, whereas two months ago there would have been a lot of bidding on a transaction like that on new construction class A.
Leverage is down a bit with the life companies, Eisendrath also said. "Maybe the old 60–65% is now 50–55% and the rates are up. They've instituted floors and the floors, they vary quite a bit, but they're up in the plus or minus upper threes to 4% range."
As for affordable housing finance specifically, Eisendrath pointed out that the agencies have had a great deal of appetite and financing these types of assets and will continue to do so. "At the same time, these assets are often rented to tenants that don't have significant cash reserves. So, what we're seeing is the delinquency rates during the Coronavirus and downturns have in general been higher for these assets."
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
