As banks are hamstrung by regulation, developers turn to alternative lenders

Los Angeles /
Jul.July 14, 2016 12:00 PM

From the New York website: Banks, faced with new regulations aimed at reining in risk, are pulling back from providing construction loans, so alternative lenders are stepping in to fill some of the gaps.

Alternative lenders, including private equity funds and mortgage real estate investment trusts, originated 68 percent more loans in 2015 than in 2014, according to the Mortgage Bankers Association. Banks are grappling with the High Volatility Commercial Real Estate (HVCRE) rule, which was implemented as part of Basel III reforms in January 2015. Under the rule, banks must retain 150 percent of risk weight on a loan, which effectively prevents banks from being as aggressive in lending, according to the Commercial Observer.

One particularly sore spot for developers: The new regulations don’t allow borrowers to use the appreciated value of land toward the 15 percent in cash equity required before banks can provide funds.

“A lot of the provisions are fairly nonsensical and counter decades and decades of practice,” Christina Zausner, vice president of industry and policy analysis at CRE Finance Council, told Commercial Observer.

As a result, private lending platforms — like ACORE Capital and Mack Real Estate Credit Strategies — have sprouted up in the past two years. Developers like RXR Realty and Kushner Companies have also stepped in to provide mezzanine loans to developers to help fill out their capital stacks.

In the July, The Real Deal took a look at the lending climate for luxury condo projects and office buildings.  [CO]Kathryn Brenzel


Related Articles

arrow_forward_ios
Relevant Group scores $63M to build Thompson Hotel

Relevant Group scores $63M to build Thompson Hotel

Relevant Group scores $63M to build Thompson Hotel
Starwood provides $213M loan for redevelopment of Museum Building in DTLA

Starwood provides $213M loan for redevelopment of Museum Building in DTLA

Starwood provides $213M loan for redevelopment of Museum Building in DTLA
Waterbridge venture seeks $500M loan for Museum Building

Waterbridge venture seeks $500M loan for Museum Building

Waterbridge venture seeks $500M loan for Museum Building
Property tax appeals may show Trump’s financial disclosures to be overstated

Property tax appeals may show Trump’s financial disclosures to be overstated

Property tax appeals may show Trump’s financial disclosures to be overstated
Redfin's Glenn Kelman

Redfin’s latest challenge: Defending its employment practices in court

Redfin’s latest challenge: Defending its employment practices in court
Howard Schwimmer and Michael S. Frankel with 3629-3963 Workman Mill Road (top) and 13943-13955 Balboa Boulevard (Google Maps)

Rexford pays $340M for 2 industrial parks

Rexford pays $340M for 2 industrial parks
Nile Niami and 1175 N Hillcrest Road (Getty, Redfin)

Niami’s Opus megamansion sells to prolific SoCal investor

Niami’s Opus megamansion sells to prolific SoCal investor
Villa Blanca in Beverly Hills and Le Pain Quotidien's West Hollywood location are just two restaurants to recently close due to the coronavirus pandemic (Getty)

LA County orders restaurants to suspend outdoor dining

LA County orders restaurants to suspend outdoor dining
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...