"In borderline markets, or cases that are borderline in how lenders look at sectors, regions or property types, you're going to be hit with restrictive covenants and risk-based pricing the likes of which you've never seen before," Gordon says.
Other considerations adding to the cost of capital are fees going in, lower loan-to-values and higher debt coverage ratios, Gordon says.
One irony Gordon sees in the current capital environment is that mezzanine lenders are enjoying a "great opportunity" to step up their business, and are doing so by being more risk-tolerant than more conservative first-mortgage holders. Those mezzanine lenders, Gordon adds, are bridging the gap between required senior mortgage LTVs from as low as 60% up to 85%.
The other good news: the cost of capital is around 7% for projects meeting the more conservative hurdles.
"There's plenty of debt capital around," Gordon says. "The problem is, there are strings attached. Even with the falling interest rates and falling cost of capital, lenders are very cautious."
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