Apartment Developers Turn to Non-Bank Lenders for Construction Loans
Jul 25, 2023 | Bendix Anderson | Wealth Management
Apartment developers are finding ways to pay for new construction projects–without using loans from traditional banks.
For years, multifamily developers have relied on large, short-term loans from banks to finance the construction of new apartment buildings. But rising interest rates and a string of banks failures—most prominently Silicon Valley Bank, Signature Bank and First Republic Bank—have thrown a shock to capital markets. Other banks are encumbered with existing real estate debt that they are concerned about—particularly on the beleaguered office sector. As a result, many local and regional banks simply are not originating new construction loans. And the loans that are in the market are much more conservative with higher interest rates and covering a lower loan-to-cost ratio than previous cycle norms.
However, other types of lenders have been willing to step in the breach allowing apartment developers to find new ways to finance development projects.
