Eliminating bad habits, offering realistic rent propositions and taking advantage of federal programs that encourage remodeling existing properties over erecting new ones are ways developers can secure cash in this down market, a mortgage executive said today.
The current climate may not change for months, but instead of standing pat and waiting for the market to turn around, John Edwards, vice president of origination at Arbor Commercial Mortgage, recommended seeking assistance, and funds, from the Department of Housing and Urban Development (HUD).
Speaking at a roundtable event in Boston this morning, Edwards said it isn’t the time for investors to look for loans to build new buildings. The go-go construction world is gone, Edwards said, and we’ve returned to the market of 1994.
"The bad habits in the market and the expectations have to be eliminated," Edwards said. "Those calls I used to receive from a lot of borrowers, ‘Let me paint you a picture, let me tell you a story;’ we’re not painting a picture, and I don’t have a time for stories. We need to have actual rents – no projections – I’m not looking for the cap rates that are so far below interest rates where you’re borrowing. That doesn’t make sense for the industry anymore."
Where there is money available is to refurbish properties under HUD’s mark-to-market green initiative, run by the Office of Affordable Housing Preservation.
"The trends that we’re seeing now are in the multifamily market and are driven more by HUD deals," said Dave Stewart, senior program director of EBI consulting. "We’re seeing a tremendous increase in HUD sponsored initiatives that are focusing particularly on energy audits, green initiatives, focusing really on saving tenants and building owners money, and the secondary thing is creating green jobs.
"There is a sliding scale of borrower financing," Stewart said. "If the borrower accepts 75 percent or more of the recommended green items in a green initiative deal, HUD will finance up to 97 percent of that. That’s pretty sweet. I’ve always said myself, ‘I’m going to increase my debt service for the good of my tenants. How does that work for me?’ Well, one of the ways it works for me is I get a vastly improved piece of property, because it’s still my real estate."
Edwards said that Arbor Commercial will work with property owners looking to use HUD’s program, which does include an affordable housing component, to finance the work with either a secondary mortgage, a supplemental mortgage, or both.
