MIAMI—With multifamily interest rates rising, will lender appetite for construction loans change? And how do adaptive re-use strategies fit into the shifting market? We caught up with Walt Mercer, executive vice president and head of the Commercial Real Estate Line of Business for SunTrust Banks, to get his thoughts on lender appetite for multifamily construction loans and his take on the opportunities adaptive reuse projects are offering developers.

GlobeSt.com: Do you see any major changes occurring in multifamily development with interest rates rising?

Mercer: Historically speaking, interest rates remain relatively attractive. While the recent rise in rates certainly puts pressure on proceeds, we at SunTrust continue to anticipate a significant amount of capital deployment for multifamily deals across the country.

GlobeSt.com: Is SunTrust doing more multifamily development this year than last year? If so, why? If not, why not?

Mercer: SunTrust's CRE division is looking to finance approximately the same number of multifamily developments as last year. While in 2012 we saw these deals concentrated in certain markets, such as Washington, D.C., this year they are more spread out. Although concerns over excess supply have led some in the industry to shy away from multifamily, we believe in its strength nationally. We will continue to focus on working with clients who have quality property they are looking to develop.

GlobeSt.com: How are adaptive reuse projects creating opportunities for developers?

Mercer: Many renters in major markets are moving closer to the central business district and employment opportunities. At the same time, land acquisition in these markets can be prohibitively expensive. Adaptive reuse of existing structures can balance these trends and provide opportunities for multifamily developers. They're also terrific projects from an architectural and functional standpoint.

SunTrust has been involved in many historical adaptive reuse developments over the past several years. While these projects can incur unanticipated costs, they are an attractive option because they often qualify for Historic Tax Credits and New Market Tax Credits that bring the leverage down.

GlobeSt.com: When does the adaptive reuse strategy work? When does it not work? What factors help you decide whether to pursue the opportunity?

Mercer: Adaptive reuse projects are especially helpful when the commercial real estate industry is in a period of recovery because they create opportunities for developers. We examine a variety of factors when evaluating potential developments, including the size of the facility, the market, density of the surrounding area, parking options, proximity to both residential and commercial areas, access to roads and public transportation and how well its architecture fits into the existing community. Adaptive reuse is not as effective when the development is too small; the development needs to have sufficient scale to recognize operating efficiencies.

Come back this afternoon for part two of our exclusive interview with Mercer, where he'll dive deeper into the adaptive use story.