Lender Skittishness Spreads to Retail, Office

"It's case by case," says DWINN-Shaffer Co. vice president Barry Axelrod, who is president of the Illinois Mortgage Bankers Association. "It doesn't mean lenders won't do either (health care and certain retail properties). But they'll going to take a little harder look at retail, nursing homes and assisted-living facilities."

E. James Keledjian, a principal with Pathway Senior Living LLC, knows first-hand about assisted-living facilities. "Because of the condition of the national market the last couple of years, there are no lenders except for the Department of Housing and Urban Development, Section 232. They are the lender of only resort," Keledjian says.

Besides overbuilding, Keledjian says most lenders are unfamiliar with the product, which besides real estate includes an operating business, similar to a hotel property. Meanwhile, his company has found a niche with assisted-living facilities for Medicaid patients under a state program.

Len Deering, vice president of Oakbrook-based Arcs Commercial Mortgage, shares the same view on assisted living facilities. But the multifamily rental and senior housing specialist adds that news of the rising office vacancy rates and increasingly plentiful sublease space across most submarkets has not gone unnoticed.

"Everybody's reading the newspapers and reading about the softening office market," Deering says. "When it comes to retail, lenders are getting a little more conservative."

Deering adds lenders are getting more cautious about limited service hotels, which have been easier to build than keep occupied.

Meanwhile, a solid industrial market has kept lender interest strong in that property type, Deering says. And both he and Axelrod agree lenders continue to love apartment projects.

"Nobody's wiped out. They'll listen to a story," Deering says. "But if you take a limited-service hotel to Wall Street, there better be a pretty good story out there."