Sluggish demand and mountains of sublease space are translating to tighter guidelines as the year opens. But prime existing and redevelopment projects with strong leasing and occupancy can still qualify for long-term 7% money, mortgage bankers tell GlobeSt.com.

"The Orlando office market continues to be a red flag on the radar screen for most lenders as the lack of demand for quality office space and the increasing amount of sublease space dampens class A and B occupancies, forcing lenders to tighten underwriting guidelines," Todd F. Cohen, vice president, Primary Capital Advisors, tells GlobeSt.come.

While the same applies to the Orlando industrial market, many non-institutional properties remain well-leased and can be financed at attractive rates. "It seems as though projects with tenants representing a wide spectrum of the economy are most attractive to lenders as the future rollover risk is lessened," Cohen says.

Financing for retail projects, like office ventures, is tough. "Institutional retail in Central Florida is becoming increasingly difficult to finance as the rating agencies continue to downgrade the credit of many of the traditional big-box retailers," Cohen tells GlobeSt.com. "Once again, those projects with a good tenant mix in excellent locations can command lender interest and attractive rates."

The Orlando multifamily market continues to gain strength as units coming on line continue to be absorbed. "Apartment demand over the past six months has outpaced new deliveries, resulting in slight upticks to occupancy," the mortgage banker says.

"Over the past two years or so, many lenders have characterized the Orlando apartment market as saturated," Cohen says. "However, with the amount of units under construction at less than 50% of where we stood last year, their appetite for good apartment deals has been brought back to life as the market is closer to reaching an equilibrium between supply and demand."

Citing a recent Moody's research report, Cohen says Orlando "exhibits one of the highest apartment ratings nationwide, fueled by reduced construction and continued growth in demand."

The Primary Capital Advisor executive says long-term interest rates for apartment financing remain in the 6.5% to 7.5% range, depending on loan to value and debt service coverage. "While many lenders have applied more prudent underwriting, most still expect growth in their apartment portfolios," Cohen says.

In the investment sales category, the past 12 months has seen brokerage deals "substantially down" from last year despite lowered interest rates, the mortgage banker says. For example, office building sales in 2001 were "about half of prior years' volume." He says "the expectations of sellers have not yet reflected the current status of the economy."

However, "with significantly more buyers than sellers, together with an abundance of capital and low interest rates, we expect to see more transactional activity in 2002," Cohen predicts. Reason: Debt capital remains "widely available at very affordable rates."

He adds, "Although apartment transactions in the Central Florida area are down as well, Orlando is home to one of the largest apartment acquisitions of the year statewide."

Another mortgage banker, Mark Findura, president, R.J. Twitty & Co. II, Orlando, agrees with Cohen on the office financing aspect. "Lenders are cautious with this product type, especially in second-tier markets," Findura says. "They want to limit leverage to 70%-plus in most instances." He notes insurance rates on properties have "at least doubled since 9-11."

Funding in other categories is equally tight. "The creditworthiness of tenants is very important" in retail, Findura says.

Industrial product "must be in proven markets" to catch a lender's attention these days, he says. "Most lenders are not interested in flex product and still prefer bulk" warehouse properties.

In the hospitality sector, "the majority of lenders are on the sidelines, awaiting a rebound from Sept. 11," Findura says.

Investment sales remain an active market with "high-quality assets still in demand," the mortgage banker says. "Cap rates are starting to fall, thus increasing values, especially in the apartment market."

Findura says funds are "readily available for most all tyupes of real estate" (investments) at reasonable returns."