Experiencing firsthand the pullback from banks, wrapping up entitlements on a ground up multifamily Opp Zone project in the LA area.
For anyone using non bank sources for construction, what kind of pricing and sizing are debt funds quoting these days? Total project size is roughly $35M, originally quoted bank loans in the low $20MM range over the summer, those quotes are now $16-$17M (mainly due to tighter DSCR calculations based on current rates).
Even with debt funds quoting 80% LTV, 70% LTC, I can't envision that level of debt here. For starters, the OZ investment means needing to refinance with perm debt upon stabilization. So nobody is going to provide loan dollars in excess of what they believe a perm lender will provide to pay them off in 24-36 months.
Appraisals came back with stabilized/leased valuation of $38MM. So the margin here is much thinner than a typical dev deal and only works due to the OZ benefits.
egold70, shame nobody has responded. Maybe one of these topics will help:
More suggestions...
I hope those threads give you a bit more insight.
Are you looking for a debt fund to come in for the full 70% LTC or someone to plug the 50-70% slot? Either way I don't have pricing, but it would probably be possible to work something out with mezz who might be less concerned about begin taken out entirely after lease-up (or at least they'd be comfortable with that risk and you can take them out once the capital markets return).
A debt fund may provide higher than perm construction financing given there's a redemption at conversion. Is this affordable?
Because this is an Opp Zone deal, the current equity investors do not want to invest additional equity because they don't have any more eligible gains.
They want to get max loan dollars for construction, refinance with agency debt in 24-30 months and then sell after 10 years.
We're a family office based in SoCal who occasionally provides pref and mezz. Feel free to DM.
C-Pace might be a good option if they're holding long term anyways. I just got a quote at 6.1%, 30% LTC, 30 year loan w payments starting after completion. No prepay penalty after 10 years. Way cheaper than mezz but your lender needs to approve.
Doesn't C-Pace create an additional above-the-line property tax special assessment?
I feel like the program can make sense in something like office, where the use is more energy intensive & the $ spent can generate real savings, but on MF it just sounds like a way to just cover up being under capitalized...
More than happy to get on the phone to discuss details and potential pricing. Work at a very flexible lender that can move up and down the stack with competitive pricing. We have a bridge to agency product that may suit your needs.
I work for a HNW family office that does mez lending for construction loans. We have been doing 60-80% LTC with interest rates from 9.5-14% depending on risk profile. A lot of the riskier projects we take on also throw in an equity kicker to compensate.
9.5-14%??
Fuck it would make more economic sense just to develop all cash lol.
Just on the mezz piece, not the entire debt stack.
Senior loan at 60% at senior rate
Mezz taking it to 80% at 9-14% rate
Blended somewhere 7-8%
Can someone help me understand how development can make sense when interest rates are now close to 8%+?
Unlike buying stabilized deals, where cap rates are (theoretically) rising to adjust for higher cost of debt, developers have very few levers to pull. Construction costs are what they are, rents are what they are, maybe you can get a discount on the land but that's just a small piece of total capital stack. So how does building to a 6-7% YOC make sense? Are developers just stomaching lower returns, trying to build all cash now, or just completely pencils down?
The answer is it doesnt, at least for multi. I can't make any multi dev work rn. Hotel dev still works, because its one of the only uses that can generate the $/SF to contend with the crazy rate and cost environment. Most multi I look at doesn't work if we got the land for free lol. God speed to anyone that is stuck with a parcel and needs to break ground in the next year.
Working with a construction lender now that is currently pricing floating rate debt @ 6.25%-6.5% w/ 65/70% LTC leverage. DM me for details.
I'm putting construction perm money out at 40-50% LTC at 215 bps over USTs and 195 bps over SOFR at the moment. Work for a large lifeco.
40% LTC, who tf taking that?!?!
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