Multifamily Builders Report Summer Credit Tightening
A recent NAHB survey finds that credit tightened further this past summer for multifamily builders who were looking for acquisition, development and construction financing.
Seventy-nine percent of those polled reported that the availability of new credit for building multifamily rentals or condominiums had worsened during the June-to-August period compared to conditions in April and May. About 48% said they sought credit for multifamily construction this summer, primarily from commercial banks.
The availability of credit for land acquisition and land development showed even greater tightening, with 100% and 90% of the respondents, respectively, reporting worsening in June, July and August. Roughly one-third of those participating in the survey sought credit for land acquisition or land development during the three-month period.
Of the 28% of multifamily respondents who said they sought credit for single-family production, 57% said they encountered greater constraints on borrowing.
Among the changes in credit availability noted this summer by those who encountered tightening:
- 81% of the respondents said that lenders were reducing the amount of credit they were willing to lend.
- 81% said that lenders were lowering the loan-to-value ratio they would allow.
- 77% said that lenders were not making new loans.
- 58% reported that lenders were requiring personal guarantees or collateral not related to the project.
- 42% said that lenders were increasing documentation requirements.
Half of the respondents said they were putting new multifamily rental construction on hold until the financing climate improves. Multifamily condo construction was reported to be on hold by 73% of the respondents, land acquisition by 80%, land development by 86% and single-family construction by 60%.
No repayment problems were cited on outstanding multifamily rental construction loans. However, 42% said they had problems repaying condo construction loans, 14% land acquisition loans, 26% land development loans and 19% single-family construction loans.
To resolve problems in repaying outstanding loans:
- 62% were using company or personal resources to repay.
- 54% were seeking a workout with the current lender.
- 38% sought another lender to take over the loan.
- 31% allowed the current lender to foreclose.
Asked if their lender was tightening the terms or conditions of outstanding loans prior to maturity, the percentages responding in the affirmative were 25% on multifamily rental construction loans, 45% on condo construction, 20% on land acquisition, 35% on land development and 24% on single-family construction.
Of those who indicated lenders were tightening on loans prior to maturity:
- About half said that lenders were demanding additional assets as collateral.
- 57% said lenders were requiring partial pay-downs based on appraisals.
- 57% said lenders were refusing to allow additional draws.
- 29% said lenders were terminating lender-funded interest reserves and requiring out-of-pocket interest payments.
For more information, e-mail Ann Marie Moriarty at NAHB, or call her at 800-368-5242 x8350.