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Lending Conditions Favorable for New Construction

Digested from “Construction Lenders All-In for Apartments”
National Real Estate Investor (8/18/15) Anderson, Bendix

With 230,000 apartment homes scheduled to come on the market this year — nearly double the average in prior years — it has been unclear how tight lending restrictions may be for future developments. But lenders are eagerly embracing new apartment-community construction as demand continues to remain strong.

Banks are the primary financing source for apartment-community developers and offer lower-leverage options to provide at least partial funding. Many seem eager to lend in most markets, barring trouble spots, such as Houston and Washington, D.C. And floating interest rates currently average 200 to 250 basis points over the London Interbank Offered Rate (LIBOR).

Although it’s likely that the Federal Reserve will raise interest rates this year, an increase shouldn’t affect LIBOR rates greatly. The industry expects another 161,000 apartment homes to come online in 2017, but that number could rise amid these favorable lending conditions. 

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