COVID-19 is heavily impacting the way financing projects are closed these days, especially if projects involve any construction. Working with the right expertise can help you avoid pitfalls. Learn more about how projects are making it through successfully. M1 Capital Corp in White Plains, NY is here to help you understand the impacts of COVID-19 on real estate construction financing in this week’s blog.
Changes Emerging in Construction Projects
As investors and lenders feel uncertainty in the COVID-19 economy, we see some tightening restrictions on approval of construction and other mortgage financing. A few banks are declining to fund projects where they feel too much risk. Certain projects will need to restructure deals with new primary lenders. Some do not have the same credit freedoms that they did prior to the pandemic. The result is that underwriting is at a lower than normal percentage, and you may need to find ways to fund the gaps.
The Experience of a Construction Loan Borrower During COVID-19
During the second quarter of 2020, borrowers were finding that they had to take on more than expected. Now, some experts are saying that loans are becoming more competitive, as companies adjust to the new economy. Retail, hotel, and commercial construction loans are approached with more caution now. But, logically, multi-family apartments are still getting approvals. Banks that were conservative prior to the pandemic are still faring well and able to make similar loans.
Construction Loan Rates and Approvals
Depending on the type of project and the area, some lenders are now charging higher rates for construction loans. Many perceive financing to be harder to obtain. However, there are banks that were conservative prior to COVID-19. These lenders can keep the same standards during the pandemic. Certain people with distressed assets will need bridge loans to stabilize during the crisis; it is forecasted by some that this need will increase.
Many funders are seeing an injection of people with lots of money expecting to get cheaper prices on purchases due to the crisis. If an area has numerous buyers meeting this profile, it is doubtful that prices will fall much. This is a better scenario than during 2009, where little equity existed.
Financing for Construction Projects Through 2020
As stated, bridge loans may be on the increase through quarter four of 2020. Banks, knowing this, may try and leverage rates and become a bit more conservative in lending. Do your research and be sure to borrow from companies that are working with customers through their challenges. M1 Capital Corp is here to help you navigate this new world, if you have any questions, feel free to call our team in White Plains, NY.