Construction lenders providing own end loans
the credit crisis hurt buyers’ ability to get loans in new condos, many
in the industry hoped lenders would help by providing consumer
mortgages in the projects where they’d also done the construction
loans. But for a time, their hopes went unanswered as lenders —
concerned about a shaky market — largely stayed out of it.
That, however, is finally changing, industry experts say.
“It feels like these [construction] lenders have gotten to the
comfort level where they feel like the market is stabilized, and
they’re not lending on units that are going to decline in value,” said
Richard Martin, a senior vice president at DE Capital Mortgage, a
partnership between Wells Fargo and Prudential Douglas Elliman.
“They’re saying, ‘We have these projects that are built; let’s help
Before the real estate slump of the early 1990s, lenders often did
both construction financing and home loans (also known as end loans) in
the same buildings. But when the market crashed, those banks were
especially vulnerable to projects’ failures. So even as home sales
recovered, many banks avoided lending on both ends of the same
During the easy-credit days of the 2000s, that remained the norm,
explained Mati Weiderpass, the developer of 505 West 47th Street, where
the construction lender, HSBC, has done a number of the buyers’ home
“The construction lender was one side of the bank and consumer lending was another side,” Weiderpass said.
When the recent credit crunch made it nearly impossible for buyers
to get mortgages in a new condo with low presales, some looked to
construction lenders to save the day for the buildings they’d helped
“It does make sense,” said Alan Rosenbaum, the CEO of Guardhill
Financial. “If Fannie and Freddie won’t do it, and the construction
lender is putting out a $100 million loan, why wouldn’t they want to
make end loans on the units?”
But at the beginning of the slump, prices were declining and
construction lenders worried about recouping their initial investment,
let alone taking on more exposure in those same buildings.
“Six to eight months ago, [lenders] were thinking the market would
come down,” Martin said. “They looked at these projects last year and
said, ‘Oh my god, maybe these are not viable anymore.'”
Now that prices seem to have stabilized, lenders are more willing to help out — in completed buildings, at least.
“As long as they’ve already approved the building as part of their
commercial portfolio, they feel it’s not a big step up for them to give
residential loans,” said Michael Namer, the developer of new condo
Village Green at 311 East 11th Street.
When the market crashed in 2008, Namer had just begun constructing
Village Green. When sales began in the spring of 2009, he approached
his construction lender, M & T Bank, and asked if they would
provide mortgages for early buyers.
M & T agreed, Namer said, because they recognized that it was
to their advantage to see the project succeed. “They already have the
exposure,” he said. “If I fail, then they fail.”
It helped that M & T, a regional bank, tends to keep loans on
its books rather than selling them on the secondary market, so it
wasn’t bound by Fannie Mae’s presale requirements.
The building is now nearly sold out, Namer said.
“Anyone who came in [to the building], we said, ‘Go see our
lender,'” he said, noting that once Village Green was 50 percent sold,
other banks were much more open to issuing mortgages.
It’s not just developers who benefit when their construction
lenders offer consumer mortgages. Each time a unit is sold, the lender
gets a small part of its loan repaid. “In a sense, they’re paying
themselves off,” Martin explained.
Banks also see opportunities for their retail divisions in
buildings where they are privy to the intimate details of the
said he was surprised when he was approached by representatives from
the retail banking arm of HSBC, his construction lender. The
construction lending and retail divisions of the bank “were trying to
work together to find buildings that HSBC was comfortable with,” he
HSBC ended up doing a number of 505 buyers’ jumbo mortgages, which
are often harder for consumers to get because they exceed Fannie Mae
and Freddie Mac’s lending limits. HSBC was willing to hold the loans on
their books, he said.
“HSBC already knew the building and the finances of the building,”
Weiderpass said. “There wasn’t a question of, ‘Is this building going
to go under?’ They knew exactly what was happening with closings and
At the time, there had been very few closings in the building; now, some 50 percent of the units have closed, he said.
Securing mortgages through construction lenders isn’t an option at
all projects, especially since some lenders don’t have retail banks.
But buildings where end loans are available through the construction
lender seem to have a leg up.
“Every time I meet with a new client, I tell them, ‘If you’re doing
a project, try to make the lender part of the process,'” said the
Marketing Directors’ Andy Gerringer, “because it will give you a