Following up on yesterday’s Monday LEEDoff, an article on the cover page of this week’s edition of Crain’s ominously noted that “[t]he credit crunch [stemming from the subprime meltdown] is paralyzing the New York real estate market. In the past few weeks, financing for almost all large commercial and residential projects in the city has dried up.” Authored by Tom Fredrickson, the article reports that the large investment banks have essentially halted issuing loans for any type of real estate project. Fredrickson also notes that nervous investors consider the residential real estate market “overbuilt,” and banks are hesitant to invest in any new condo projects other than in “prime Manhattan locations.”
He also reports that the banks are altering loan terms on the deals that are still moving forward, raising interest rates by an entire percentage point above 10-year Treasury notes and requiring equity contributions of thirty percent or higher (versus the ten or fifteen percent that’s standard. This is interesting given Cuozzo’s report that SJP and Prudential put up thirty percent equity at 11 Times Square, hopefully keeping that project immune from whatever ultimately results from the subprime fallout.). The bulk of those loans that are proceeding are being held by smaller banks and institutional investors rather than being packaged, securitized, and sold on the secondary market. Crain’s also cites a report from Real Capital Analytics that 37 commercial deals in Manhattan worth a total of $9.5 billion are being held up due to lack of funds, one of which is a $53 million hotel project on West 21st Street.
As I discussed yesterday, it’s clear that the turmoil in the residential subprime mortgage market is impacting lending practices throughout the real estate industry. Green building will obviously not be immune to the restrictions of a reshuffled lending environment, and developers seeking funding for sustainable projects must pay even closer attention to their budgets and managing the green premium when investigating their financing options.