Lending rules now more rooted in reality

The rules of the game have changed for an investor to obtain mortgage financing, according to the majority of the 12 lenders who participated at the New York Real Estate Summit I hosted last month.

Forget deals with project rent growth assumptions; the only way a bank or insurance company is going to lend money is with hard facts. Transactions must show the hard realities of today.  

Gino Martocci, a senior vice president at M&T Bank, made a comment that was echoed by all of the traditional lenders on the panel: “We are lending to our best customers, customers who have worked with the bank for years, who have a strong financial statement and the capability to support a loan even in the worst of times.”  

Wendy Silverstein, executive vice president at Vornado Realty Trust, noted: “The larger the loan size, the harder it is to get it financed.”  

With the exception of Capital One Financial, Helaba Bank, PB Capital and Bank of America, no one is interested in providing construction financing. 

But there is a caveat, said Richard Lyon, senior vice president of commercial real estate banking at Capital One.  

“The borrower has to have at least 40 to 50 percent in equity, have a loan basis for the cost of the land, personally guarantee the loan and be willing to pay a high price for the financing,” Lyon said.  

If you are seeking any financing for a hotel, you should wait a couple of years when the recession has ended and hotel occupancy has stabilized. There are few lenders around the country who will entertain financing for any hospitality asset, especially if it is for new construction.  

Financing for transactions of more than $50 million is akin to finding a needle in a haystack. Not one financial institution is interested in providing that amount of financing, and the only way to secure such an amount is with a syndication of banks.

Insurance companies like TIAA-CREF, Prudential, MetLife, the Guardian Life Insurance Company of America and Northwestern Mutual Financial Network are interested in providing financing for stabilized assets. When and if an insurance company makes an offer for a loan, the rates will be in the range of 7 to 9 percent.  

The majority of the lenders participating in the New York Real Estate Summit said that financing for multi-family, rent-regulated apartments remains the number one asset class for financing.  

Joseph Harpster, executive vice president and chief credit officer at Herald, a bank that began operations in November 2008, said, “We are open for business and [are] very interested in providing financing for multi-family residential [buildings] for terms of five years at rates ranging from [5.75] percent to low 6 percent.”

Capital One, M&T, New York Community, Marathon Bank of New York, Signature Bank, Flushing Savings Bank, Oritani Bank and Intervest National Bank are other lenders who remain willing to provide multi-family financing.

But not all borrowers can get that financing.

In the summer of 2009, only established borrowers who are financially strong and have well-seasoned assets and cash flow will be able to obtain financing.

Michael Stoler is a columnist for The Real Deal and host of real estate programs “The Stoler Report” and “Building New York” on CUNY TV and on WEGTV in East Hampton. His radio show, “The Michael Stoler Real Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is a director at Madison Realty Capital as well as an adjunct professor at NYU Real Estate Institute, and a former contributing editor and columnist for the New York Sun.