Worries about how many new apartments are under construction, new bank regulations already on the books and new warnings from bank regulators are expected to drive up interest rates on loans for new multifamily residential construction projects.
A mid-December by three U.S. agencies that regulate banks – the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation – cautioned commercial banks about construction loans despite the hot multifamily market.
2015 was the first year since the boom that produced 300,000 multifamily units, and federal regulators are worried about overproduction and banks’ total risk.
Dodd-Frank Financial Reform and “Basel III” banking standards, provisions of which only recently came into full effect, limit how much risk commercial banks can take onto their balance sheets. Some small banks are already taking a break from making construction loans to seniors housing.
“I haven’t seen a contraction in available financing,” says Dave Borsos, vice president of capital markets for the National Multifamily Housing Council NMHC, an advocacy group for the multifamily industry. “However, your rates are going to go up and your spreads are going to go up.”
(more on new lender caution over multifamily construction loans...)
