As 2020 winds down and I think about multifamily construction lending in 2021, I expect to see sidelined construction lenders re-enter the market amid more efficient capital markets.  Multifamily has been a desirable asset class, and as concerns of exposure to COVID -19 subside, projects in this sector will continue to attract favorable financing terms especially when they are in a growing or high demand market with an experienced development team.  We are optimistic that we will see diminishing numbers of COVID hospitalizations and deaths, encouraging vaccine news and better therapies in early 2021.

Loan terms, rates and LTC for multifamily construction lending vary from project to project and amongst types of lenders. Two to three-year initial terms are typical along with extension options. Rates for a recourse construction loan is currently below 4% for the right sponsor and project.  Non-recourse is approximately 100 basis points higher. LTC on a non-recourse construction loans will stop at 60% LTC, however additional players can be added on to bring the total solution to north of 75% LTC.  Recourse financing will push leverage higher and pricing lower. Recourse lenders requirements typically include a full or partial repayment guarantee in addition to debt service, bad boy, environmental and completion guarantees.  Non-recourse lenders do not require repayment guarantees and typically do not require a debt service guarantee.

I expect to see the most multifamily construction financing activity in the top 25 MSA’s and gateway cities. Some of the MSA’s with growing demand drivers are Austin, Denver, Salt Lake City, Phoenix, Nashville, North Carolina.  Sunbelt states especially continue to see solid growth. 

Lenders are looking for experienced sponsors with a strong balance sheet and track record.  However in some cases we have assisted in bringing in partners to subsidize any deficiencies in the sponsor.