LOS ANGELES—Walker & Dunlop has secured $77 million in financing for three unrelated condo developments in the Los Angeles area. The projects include Element 436 in Koreatown, Enclave in Oxnard and ONYX located in the Beverly Hills. Condo development had come to a standstill after the recession with few lenders willing to financing for-sale projects, but Gabe Weinert, SVP at Walker Dunlop, who secured the funds on behalf of the borrowers, says that these loans show the resurgence of the condo market.
That isn't to say that funding a condo project is suddenly easy. “The origination process was tricky because there is not a lot of financing for for-sale product,” Weinert tells GlobeSt.com. “It is not a very liquid market, and borrowers are looking for maximum debt because they view debt as cheaper than equity, but there weren't that many places to go for the debt. There aren't a lot of banks that will do non-recourse construction loans, probably less that you can count on your hand. We really targeted banks, private debt funds and family offices for these deals.”
In the past leverage for a condo project topped out at about 60%, but today, Weinert says the range is 50% to 80%. “For the right project and the right sponsor, it is kind of back to where it was before the recession, but the lender really has to understand the project and understand the sponsor,” he adds. “They are still very selective. They will do the same deal that they would have done in the past, but they won't do as many deals as they would have done in the past. They will probably look at 10 deals before they do one or two of them.”
The challenge is in educating lenders on the project, market and business plan. In this case, the developments were the first of their kind in each market, presenting an additional challenge. “The challenge is making the argument that the business plan and the market really make sense. Proving that can be difficult and was somewhat difficult in our situation,” says Weinert. “The projects we financed were really the first movers in their markets, so we really had to demonstrate the demand of where the product would clear.”
Lenders still see condo or for-sale product as a riskier investment, especially compared to multifamily, which has ample capital chasing deals. Weinert says that multifamily and condo projects aren't mutually exclusive, however, and that some of the capital chasing multifamily is also starting to look at condo projects. “I think everyone realizes where we are in this economic cycle and that consumer confidence is increasing and there has been a limited supply of housing in a number of markets, especially in New York and Los Angeles,” he adds. “I think that capital understands that these are solid deals and that this isn't what happened in 2007 where there was too much money and too many homes being financed because of loose lending standards. I think that everyone understands that and because of that, a lot of projects are getting financed and it is an attractive space to be in.”
While lenders are starting to consider more condo deals, the condo market in Downtown Los Angeles has become extremely volatile, with prices dropping 12% in January of this year.
LOS ANGELES—Walker & Dunlop has secured $77 million in financing for three unrelated condo developments in the Los Angeles area. The projects include Element 436 in Koreatown, Enclave in Oxnard and ONYX located in the Beverly Hills. Condo development had come to a standstill after the recession with few lenders willing to financing for-sale projects, but Gabe Weinert, SVP at Walker Dunlop, who secured the funds on behalf of the borrowers, says that these loans show the resurgence of the condo market.
That isn't to say that funding a condo project is suddenly easy. “The origination process was tricky because there is not a lot of financing for for-sale product,” Weinert tells GlobeSt.com. “It is not a very liquid market, and borrowers are looking for maximum debt because they view debt as cheaper than equity, but there weren't that many places to go for the debt. There aren't a lot of banks that will do non-recourse construction loans, probably less that you can count on your hand. We really targeted banks, private debt funds and family offices for these deals.”
In the past leverage for a condo project topped out at about 60%, but today, Weinert says the range is 50% to 80%. “For the right project and the right sponsor, it is kind of back to where it was before the recession, but the lender really has to understand the project and understand the sponsor,” he adds. “They are still very selective. They will do the same deal that they would have done in the past, but they won't do as many deals as they would have done in the past. They will probably look at 10 deals before they do one or two of them.”
The challenge is in educating lenders on the project, market and business plan. In this case, the developments were the first of their kind in each market, presenting an additional challenge. “The challenge is making the argument that the business plan and the market really make sense. Proving that can be difficult and was somewhat difficult in our situation,” says Weinert. “The projects we financed were really the first movers in their markets, so we really had to demonstrate the demand of where the product would clear.”
Lenders still see condo or for-sale product as a riskier investment, especially compared to multifamily, which has ample capital chasing deals. Weinert says that multifamily and condo projects aren't mutually exclusive, however, and that some of the capital chasing multifamily is also starting to look at condo projects. “I think everyone realizes where we are in this economic cycle and that consumer confidence is increasing and there has been a limited supply of housing in a number of markets, especially in
While lenders are starting to consider more condo deals, the condo market in Downtown Los Angeles has become extremely volatile, with prices dropping 12% in January of this year.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.