The Real Deal New York

Amid skyrocketing land prices, lenders hesitate

January 16, 2014 04:45PM

As land prices continue on their skyward trajectory, lenders are increasingly challenged to determine how much they can — and should — supply a developer.

The amounts they lend, banks say, have to have solid returns. If not, other banks won’t do business and developers will have to dig into their own checkbooks to pay back the money owed. While luxury developments have nabbed record sales per square foot over the past year, lenders are nonetheless hesitant to shell out cash in the case of developers who have acquired land recently and must snag high sales prices just to break even.

“The deals that make the most sense are where they acquired the deal in the last five years — those tend to work,” Jenna Gerstenlauer, founder and managing partner at Sound Mark Partners, told the New York Post.

A mix of unit types is also key in a financially solid plan, Gerstenlauer told the Post, as the inclusion of some affordable units removes the pressure of having to depend entirely “on the 1 percent of the 1 percent to be the buyers.”

Meanwhile, commercial mortgage-backed security lenders, in an environment where many lenders are increasingly hesitant, are aggressively moving into the void, Ari Hirt, director in the debt and equity finance group at Mission Capital Advisors, told the Post. With CMBS lenders, developers can get as much as A 70 to 75 percent loan-to-value ratio, he said, thanks to an amalgamation of financing that can include institutional investors such as pension funds, or even families with cash.

Still, all lenders remain somewhat cautious for fear of an end to the current high-end boom.

“Tread lightly, because if there is a condo boom and the music stops, the first to suffer will be those projects in not a great location,” Davis told the Post. [NYP]Julie Strickland