Credit crunched buyers look to sellers for financing
It might seem like a tactic more common for selling cars than real estate, but as the tight credit market crimps property deals in New York City, sellers are beginning to offer help to their potential buyers in the form of financing for up to 80 percent of the purchase price, experts say.
According to the experts, the financing scheme, which sellers hope will spur sales, is a natural development in a down market as banks tighten lending requirements, demand more cash in deals or decline to offer loans altogether, leaving sellers few options.
The blockbuster example of the seller financing formula is the reported offer by Deutsche Bank to bankroll part of the sale of seven Macklowe Properties’ buildings that were once in the Equity Office Properties portfolio, which Harry Macklowe bought for $7 billion in 2007. Macklowe technically remains the properties’ owner, but he reached a deal with Deutsche Bank to give it control after he defaulted on his payments. A buyer would assume a portion of the debt with the bank’s assistance, sources familiar with the deal said.
But brokers say other significant deals could follow a similar model, albeit on a smaller scale.
Kelmar Co., which just sold the 417-unit rental apartment in Rego Park, Queens, known as Saxon Hall, financed $19.5 million of its $74 million sale that closed on May 28 to a group led by Vantage Properties, according city property records.
Robert Knakal, chairman of Massey Knakal Realty Services, said he was offering two development sites in the $50 million range where the owner was prepared to finance 80 percent of the price.
“There is seller financing being offered more so today than in the recent past, mainly because getting financing is a little more challenging today than it was a year ago,” he said. “And that is particularly true on larger transactions.”
Capin and Associates broker Lazer Sternhell said he has seen a greater interest in seller financing over the past several months in deals in Upper Manhattan, although for smaller percentages of the price, such as 10 percent. He said he has even started suggesting it to clients.
“What I am seeing is the sellers who want to get their numbers are starting to acknowledge they have to leave some paper,” he said. “It is a trend that is warming up. A lot of buyers are asking for it.”
During the real estate boom, there was very little need for seller financing, said Norman Ellis, president of Ellis Group Ltd., a real estate finance and consulting company. “This is traditionally cyclical,” he said. “We always see an upturn in seller financing whenever it gets difficult to sell.”
Jeffrey Roseman, executive vice president at Newmark Knight Frank Retail, said he recently became aware of several projects, including a retail condo in Manhattan priced below $10 million with seller financing.
“In a changing market people get creative. And creative is good,” he said.