By Jane Smith
In the last 18 months, more than 100 condo projects were announced and approved in South Florida, but few have found construction financing, Jack McCabe, a real estate consultant, said recently.
Lenders now want potential condo buyers to put between 40 and 80 percent down, McCabe of Deerfield Beach explained. During the real estate boom between 2003 and 2006, those condo buyers needed to put only 10 percent down at signing and another 10 percent before construction started.
“Developers now need an equity stake, skin in the game, of about 30 percent,” he said.
That’s because lenders — regional and national banks and institutional investors — got burned when the commercial real estate market crashed in late 2000s, said Ken Thomas, an independent bank consultant and economist, based in Miami. They were left holding the bag when developers defaulted on construction loans and didn’t have any personal equity in the projects.
“Banks are flush with cash right now from low-cost deposits, but they are more cautious about lending,” Thomas said. Tougher regulations and regulators and the changing sentiment in Washington, D.C., combined to make lenders leery of extending loans to most commercial real estate projects.
“Appraisals are meaningless right now,” he added. “Lenders want to see cash-flow in the form of rent rolls.”
McCabe agreed that cash is king right now. “Investors, hedge funds and foreigners bought the new condo units, then turned and rented them out,” he said. That is not the same, he said, as an owner who actually lives in the unit.
Mortgage rates are at their lowest in 50 years, but banks tightened their lending criteria for those home loans, he said. “Most (buyers) can’t qualify for the strict criteria.”
A healthy real estate market has a home-buyer to renter ratio of 66-35, McCabe said. ”Our ratio in South Florida was 71-29 in 2007,” he added, “dropped to 63-37 in 2012.”
He thinks the real estate market will stabilize this year, but won’t be on the upswing until another two to three years.
Large banks and institutional investors want to finance apartment projects right now, but still using the stricter lending criteria, McCabe and Thomas said.
Even so, South Florida remains a desirable location to people in other parts of the country, McCabe said. “We will have Baby Boomers retiring for the next 20 years.” Ú
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