Developers Seeing More Financing Choices

Cheaper Loans Give Building Projects a Lift(January 9, 2006) --

In the lending community, competition is intensifying to finance building construction, and developers are welcoming the increased attention, especially considering how high construction costs have risen in the last year.

Indeed, the U.S. Bureau of Labor Statistics reports that building materials spiked in 2005, with asphalt increasing 25 percent and plastic plumbing soaring 39 percent during the 12-month period ending on Nov. 30.

As the cost of building has climbed, so too has the cost of financing.

Entering the lending fray are several top Wall Street investment banks, offering loans at lower rates and more favorable terms than those offered by the commercial banks, which have played such a central role in construction lending over the years.

Mark Edelstein, head of Morrison & Foerster's real estate finance department, remarks, "When you talking about a large loan, paying 6.5 percent instead of 7.5 percent makes a big difference."

While bankers remain optimistic, the creation of a securities market based on construction loans faces a number of obstacles, including how these commercial mortgage-backed securities should be rated. However, these securities are expected to create a secondary market which could push down lending costs for borrowers.

Source: Crain's New York Business (01/08/06); Satow, Julie