Ah for the good old days of financing a project way back in, say, 2007.
That lament reflects an economy turned upside down in the wake of the Great Recession, with lingering aftereffects of devalued homes and property making banks and lending institutions more cautious in making loans and more demanding in seeking collateral and guarantees.
“The whole ball game has changed,” said Richard Gerentine, a Marlboro-based developer who has created four affordable senior-living centers in the Highland-Marlboro corridor in Ulster County. They include the $10 million Milton Harvest, a 47-unit affordable housing complex, expected to be completed by the middle of next year, which already has a waiting list. That will make a total of 164 senior apartments that Gerentine has built in recent years.
But it”™s a new arena, he said. “You used to have leverage as the developer,” referring to times as recently as 2007 when perhaps a dozen lending institutions would vie to provide the private financing portion of a senior affordable housing project. Now, he said, perhaps four institutions will offer financing, but not on any terms but their own. “They have told us they are in the driver”™s seat,” Gerentine said. “You need them more so than they need you.”
He said financing from private sources is only possible due to his strong track record, the demonstrable need for the product, in this case senior housing, and the fact that the state will kick in some portion of the financing to support creation of senior housing.
For many other projects, self-financing is the only route to get the project done, said Brendan McAlpine, general counsel and project manager for the Roundhouse at Beacon Falls, a privately financed project in Dutchess County.
The project includes converting a former dye factory in Beacon into a boutique hotel with 58 rooms and an 82-seat restaurant, a catering hall, and artist living and working areas, a creek-side trail and eventually residential condominiums.
The facility will be operated by the McAlpine family when completed. McAlpine said the decision to self-finance wasn”™t really any decision at all, but a necessity. McAlpine Construction, the family firm, has broad experience in building hotels, motels and shopping centers among other projects, but right now, “The money is not out there,” McAlpine said.
Even easy to conceptualize mainstream projects such as corporate chain hotels “have an inability to get financing. And that”™s for cookie-cutter easy to appraise coming out of the box projects like a Holiday Inn.”
He said a unique boutique hotel and eatery project is even more problematic. “It”™s almost impossible to put a value on” the Roundhouse in a way that a bank feels comfortable, McAlpine said.
Tricks on paying the bills, he said, are simple and stark. “We phased our project so there is a residential phase at the beginning. So we will sell that first and help finance the project.”
“We”™re not doing loans for any spec construction, we”™re out of that business right now with the real estate market being what it is,” said Michael Shaughnessy, the chief lending officer and executive vice president of Ulster Savings Bank.
He said the bank will still make a loan to help finance a house that has a signed buyer, but that speculation is not an option when so many foreclosed homes are on the market at well-below market rate. “The problem right now, it”™s very difficult for a builder to compete with the market,” he said.
There is a silver lining available for those who can find financing to start constructing a project, agree both McAlpine and Shaughnessy. The construction industry needs projects, and so a developer could find himself fielding reasonable bids from a variety of companies.
