Banks Becoming 'Much More Aggressive' In Financing Boston Multifamily Projects

Multifamily construction starts have been slow in Greater Boston and beyond over the last two years, in part due to hesitation in the lending market, but it appears banks are becoming more eager to finance projects.

Several local commercial real estate executives, speaking Thursday at Bisnow’s Boston Capital Markets event, said they have seen banks becoming more active in the market.

That activity could help accelerate the construction pipeline. However, at the same time, they have seen equity investors become more cautious about putting money into projects due to the economic uncertainty caused by the Trump administration’s tariff policies. 

"We actually launched a deal that we thought had really compelling economics for the equity markets," Steven Spinale, senior vice president of capital and investments at Samuels & Associates, said at the event, held at the Boston Marriott Long Wharf.

"What we saw was the banking markets showing up in a meaningful way. Boston is a really well-banked region, and so the banking market showed up. They understood the opportunity, they understood the risk, and we received several term sheets."

JLL Senior Managing Director Brett Paulsrud, co-head of the brokerage firm’s Boston office, said the biggest surprise to him over the last 12 months has been the resurgence of banks in construction lending — he described them as “extremely active.”

"Their credit box is tight, but they are deploying capital into the system,” he said.

He said banks are especially interested in financing multifamily, as the Boston area faces a dire shortage of housing and has seen a slow pace of construction starts over the last two years.

Around 2,200 new multifamily units received construction permits in Boston last year, and 2,000 units did so in 2023 — both down from the 2022 total of 4,000 units and well below the number of units that received planning approvals during those years.

"There is universal recognition that the housing market needs more supply, so we are seeing bank lenders be much more aggressive on nonrecourse construction lending as it relates to multifamily,” Paulsrud said.

CrossHarbor Capital Partners principal Robin Ibbetson, whose firm provides equity and debt for real estate projects, said it is most confident in multifamily lending due to the supply-demand imbalance in the housing market. And she is seeing more competition in the space for issuing construction loans.

"We're seeing the banks come back," Ibbetson said. “They're looking for additional yield. We've got a lot of private lenders that are sitting on a lot of capital that, again, are looking for yield, and construction is a way to get that for a lot of these lenders."

Across the country, commercial real estate lending has begun to accelerate, according to CBRE. In the fourth quarter of last year, CBRE-originated commercial loan closings rose by 21% from the prior quarter and 37% year-over-year.

Total construction starts in the U.S. jumped 6% in April, according to Dodge Construction Network, including a 13% increase in multifamily starts.

DXD Capital principal Cory Sylvester noted that many banks became more conservative in their commercial real estate lending following the collapse of Silicon Valley Bank in 2023. But since then, regional players have begun to reenter the construction lending market.

"The construction lending environment feels pretty good," Sylvester said. "Construction lending is — for us — we're actually seeing a little bit more tightening if we can find the right regional bank, because there's a lot of hunger for quality development."

While banks have become more active in construction lending, they typically only finance 65% to 75% of a project’s capital stack — and the equity investors that make up the rest appear to be pulling back.

Samuels’ Spinale said that equity investment in the space had been strong up until the Trump administration's April 2 "Liberation Day" announcement, in which it placed sweeping tariffs on over 100 countries across the globe.

"It felt like someone dropped a vacuum in a room and sucked all air out of it," said Spinale, whose development firm is finishing work on an air-rights project over the Massachusetts Turnpike and in February joined the team on a redevelopment project in Somerville.

JLL’s Paulsrud said that from an equity investment perspective, it would have been a "much different" conversation if the panel were held six weeks earlier.

"We saw a lot of tailwinds in the first quarter as it relates to [limited partner] capital specifically related to development," he said. "We're still having very productive conversations with groups, but again, they're migrating back into price discovery, which way is up. So it's been a challenging market."

Nuveen Green Capital Senior Director of Originations Mike Doty said that equity investors aren't seeing attractive pricing, making it harder to invest in construction projects. Equity investors bear more risk than lenders and are looking for a higher return on their investment.

"I think where the bottleneck is in the market is on the equity front," Doty said.