What Lenders Look for in Condo Deals

MIAMI—Capital is flowing more freely for condo developers than it has in recent years, which is at least little surprising given the stalls and even bankruptcies in the not-to-distance past. Still, challenges remain for condo developers in the current cycle working to secure construction financing.

“The main challenge is distinguishing your project from those in the rest of the market so that a lender—which probably has a limited number of projects it may green light in South Florida—chooses your project over another,” Luis Flores, an attorney in Arnstein & Lehr's Miami office and chair of the firm's Florida Commercial Practice Group, tells GlobeSt.com. “Developers have to come up with very unique designs and a flawless business plan to capture a lender's attention in today's competitive market, with nearly 200 condo towers approved or proposed in South Florida.”

The numbers are at least somewhat staggering. Lenders have to be concerned about the supply-demand issue even in a region where the population is outpacing most of the rest of the nation. Flores says the competition for construction financing is, in part, giving way to some of the most luxurious and sophisticated condo developments in the history of South Florida.

Indeed, Flores' firm has two clients that serve as prime examples. Dezer Development is building the Porsche Design Tower and PMG, in partnership with S2 Development, is building Muse.

“Another challenge is doing business with the right lender,” Flores says. “Developers must reach out to lenders that are intimately familiar with the nuances of the South Florida's real estate market, otherwise they must invest a lot of time educating the lender about the idiosyncrasies of our market.”

As Flores sees it, South Florida's market is uniquely different to any other condo market in the country. For one thing, he says, a lender must understand our deposit structure, the buyer demographic and the importance of strong sales teams, among other things. 

“In many instances new lenders to our market may try to supervise a project's development by imposing unnecessary conditions,” Flores says. “A lender with experience in Miami or Fort Lauderdale understands that seasoned South Florida developers can be given flexibility and freedom to run the construction and development of a project with minimal interference.”