When the lending environment gets bad, large construction loans are often the first on the chopping block. Not only are these loans expensive for borrowers (loans get more expensive the further the building is from being stabilized), but they are also an administrative burden for the lenders. Construction loans get paid off in “tranches” that correspond with the completion of certain milestones. Inspecting each part of the project in order to make those payments can mean more work and more risk of error for construction lenders. Like commercial mortgages, the construction loan market is also seeing a lot more activity from non-bank lenders. With a few exceptions like NYC, the majority of construction lending comes from regional banks, which has all but dried up after the bank closures earlier this year. “Now that bank lending has all but dried up in some cities, we are seeing a lot more lending coming from other entities; even life insurance companies that generally only buy already developed properties are leaning into development lending,” said Riley Thomas, Senior Vice President of Markets at Built Technologies, a construction finance technology platform.
Source: How High Interest Rates Are Changing Commercial Property Lending – Propmodo
