In the high-flying days of New York’s real estate boom, developers worried more about Italian marble and Bosch dishwashers than adjustable-rate and fixed-rate mortgages. In the rush to buy Manhattan real estate, buyers were left to navigate the confusion of financing for themselves.
But now, the tables have turned as the credit crunch has made mortgages difficult to obtain, and as the Wall Street meltdown has zapped the pool of available buyers. Suddenly, buyer financing is one of the primary obstacles to real estate sales.
As a result, developers are increasingly relying on their preferred lenders and mortgage brokers to help their buyers navigate the complex world of mortgages and increase their chances of closing deals.
Qualified buyers, now highly sought after, are benefiting from an array of new options specifically tailored to help them get loans, as developers and brokers work to make purchases in their buildings easier to finance.
“It’s not just about connecting the buyer with the property,” said Tony Goldman, CEO of Goldman Properties and the developer of 25 Bond Street. “Now, it’s about connecting the bank with the buyer with the property.”
Until very recently, financing was “very much an afterthought” for both homebuyers and developers, said Brooke Jacob, CEO of the Suffern, N.Y.-based mortgage company Everest Equity. “It was something to do
after buying.”
In an environment where money was cheap, even if developers designated preferred lenders or mortgage companies for their projects, buyers often preferred to shop around for the best deal.
“Traditionally, there were a lot of buyers who didn’t want to deal with a preferred lender,” said Ross Weinstein, a managing partner at the newly formed Union Square Mortgage Group.
But as mortgages grow more elusive, buyers are increasingly eager to work with a developer’s designated lender, Weinstein said. “Today, I find buyers looking to the developer and saying, ‘Who’s the preferred lender on the building?'”
A lender or mortgage broker working
specifically with a project not only has an incentive to help buyers get mortgages, they
are also more likely to be successful since they’re already familiar with the development’s strengths and weaknesses, said Melissa Cohn, president of Manhattan Mortgage.
“You have to work harder to find a bank that will approve a building, since the banks have tightened their guidelines,” she said. “In this day and age, it’s more important to go with someone who knows the building.”
Daren Hornig, the developer of the Prime in Chelsea, has partnerships with Topdot Mortgage, GuardHill and First Republic Bank, he said.
“They understand the condo documentation, the value, how many apartments have been sold,” Hornig said.
David Von Spreckelsen, the vice president for development at Toll Brothers, said a subsidiary of the company, TBI Mortgage Company, is available to provide financing for buyers if they opt for it. The relationship, he said, has proved to be the saving grace
for some recent deals after some buyers’ lenders went out of business in the wake of the subprime crisis.
“We’ve had people who have been in contract for months, and then when it’s time to close, their bank doesn’t exist,” he said. “They’re definitely very interested in doing a transaction with TBI.”
Mortgage brokers say they have also started becoming more aggressive and working proactively with developers to make purchases in their buildings easier. In the past, a buyer visiting a sales office might be handed a card for a local bank. But, for the last year, that has changed.
A few days after buyers visit a development, for example, Everest Equity approaches them to ask about their financing options, Jacob said. “We contact them — they don’t have to contact us,” she said. “We want to make sure that people who are interested in buying can buy.”
But that’s only the beginning. After identifying buyers who are well qualified (those with good credit and adequate assets), Jacob works extensively with developers to help close deals with them, suggesting mortgage contingencies or even changes to purchase prices to help finesse the financing structure.
“I’ll come back and make a suggestion. Like if we keep it below a certain number, the loan works because I have a program I can [get] it into,” said Jacob, who once convinced a developer to let her client choose replacement countertops. “We see ourselves as dealmakers.”
One of Jacob’s clients is Harry Jeremias, principal of the Harch Group, the developer of the Renwick condo in Soho. Jeremias said he has lowered prices on units at his developments at Jacob’s suggestion. “I always crack up because she’s not even my broker,” he said.
The Renwick’s relationship with Everest helps buyers feel more confident about buying in the building, said Adrienne Young, director of development for Harch.
“There are a lot of buyers who are not sure what’s going on with the financing,” Young said. Everest, she added, gives buyers a “second level of comfort in this market.”
This kind of kowtowing to a buyer’s
financing needs has been unheard of until now, Weinstein said.
In the past, financing “was never the concern of the developer,” he said. “Now, the developer has to have that thought in his mind from the early stages of planning: ‘Who are buyers, and how are they going to get loans?'”
David Maundrell, the president of the Brooklyn-based brokerage aptsandlofts.com, recently teamed up with Weinstein to create Union Square Mortgage Group, which has now become the preferred lender on most of the buildings marketed by the firm.
Union Square Mortgage works with the developer on his or her pricing to preempt possible financing problems for buyers. If it’s a lower-end building, for example, the firm may remind the developer that the prices must be under a certain amount to qualify for Federal Housing Administration loans.
Another buyer-friendly strategy is for a developer to buy down mortgage rates, a move that doesn’t cost the sponsors much, but can lower buyers’ payments by hundreds of dollars a month. The strategy will soon be used by the Pad at 196 South 2nd Street and at Warehouse 11, both in Williamsburg, Weinstein said.
In addition, Von Spreckelsen said several of Toll Brothers’ projects, including Fifth Street Lofts in Long Island City and Northside Piers Tower 1 in Williamsburg, have
offered interest rate buy-downs.
Meanwhile, BFC Partners co-founder Joseph Ferrara, one of the developers of the 240-unit Toren rising in Downtown Brooklyn, said that agents from the building’s preferred lenders, Chase Home Mortgage and Wells Fargo, are stationed in the sales office, where they host buyer events and one-on-one meetings with customers. Wells Fargo also sends out thrice-weekly e-mail alerts to potential buyers, making them aware of new programs like Wells Fargo’s “Builders Best,” which allows buyers to lock in their mortgage rates a year in advance.
“There’s a lot of hand-holding going on,” Ferrara said.
Maundrell said his buyers seem eager for mortgage contingencies. “This is one of the things that buyers want — they want mortgage contingencies,” he said. “And the buyer controls the market right now.”