“Extra pain”: Developers with maturing multifamily construction loans face woes

While extension options allow some developers to wiggle out of expensive refinancings, they also bode poorly for banks’ abilities to make new loans. The more borrowers that extend instead of paying off debt, the less liquidity banks have to refinance maturing construction mortgages that don’t have extension options or other fallback plans. Recent bank collapses (see page 28) also may strain mid-sized banks’ deposits, as clients opt to move their funds to big banks or treasuries.

“Banks typically lend as a factor of how much they have in deposits,” said Alex Horn, founder of bridge lender BridgeInvest. “When their deposits shrink … it has this domino effect on really the supply of loans in the market today.”

In a sign that banks’ refinancing abilities are strained, the phones at BridgeInvest have been buzzing, he said. Developers with maturing multifamily construction loans are asking about bridge loans.

The Miami-based firm expects to issue $400 million in bridge loans nationwide this year, with a good chunk of that for South Florida multifamily projects with maturing debt, Horn said.

“That is one of the areas that we are most bullish on,” he said.

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