Exploring The Past, Present And Future Of CRE Financing With Arbor's Chief Credit Officer
In April, a survey of 250 U.S.-based general contractors conducted by real estate and construction finance platform Built found that 35% of respondents had seen projects canceled or “significantly delayed” due to financing gaps. That same month, ConstructConnect found that the number of private developments placed on hold had increased 40% from last year.
While these numbers may spell trouble for CRE, some private lenders are seeing brighter times on the horizon.
“Over the last 18-24 months, when it came to getting projects off the ground, we found that finalizing the equity contribution was often the biggest holdup, not so much related to construction costs,” said David Friedman, Arbor Realty Trust executive vice president and chief credit officer and head of Arbor Private Construction. “Six months removed from ‘Liberation Day,’ developers and contractors have a better understanding of tariff impact to budget, and we are now in an environment where rates are expected to be lowered, which has allowed equity to be more comfortable moving off the sidelines to finalize capital structures and get projects up and running.”
Friedman said the key to tariffs from a lender's standpoint is to pay closer attention to the trades and the budget up-front rather than during the construction period.
“We haven’t seen much of the impact yet,” he said, adding that while the price of labor remains an unknown, lenders are well-equipped to navigate fluctuations in cost.
Friedman will be speaking at Bisnow’s National Commercial Real Estate Finance Conference in NYC on Sept. 30 on the Financing Construction Deals: Ground-up Projects, Conversions and Capital Improvements panel.
Bisnow spoke with him to learn more about the state of CRE financing and how Arbor is working to keep projects moving forward.
How We Got Here
Friedman said that to understand how CRE financing got to where it is today, it’s important to understand where it came from. He said that the regional bank crisis of March 2023 kicked off the most difficult time for CRE lending.
“Many lenders began to tighten the reins as to where they were going to lend, who they were going to lend to and what structures, leverages and loan-to-cost they were willing to do,” he said. “That allowed private capital lenders like ourselves to step in to fill a void who still have a constructive, long-term view of U.S. multifamily housing.”
He said that today, nearly 30 months out from that crisis, all lenders are seeing clearer skies, which has brought back competitive pressures in the marketplace that borrowers are benefiting from. After being on the sidelines for so long, banks are now looking to bring revenue back, and they see construction as a good way to do that. This has all created healthy competition among lenders, which Friedman said he welcomes.
Ground-Up Versus Conversion
Arbor specializes in both ground-up and conversion construction financing. Friedman said that, given the current issues in the office market, conversion has become a hot topic as office owners consider converting to multifamily. When it comes to these types of deals, working with experienced converters is a key part of Arbor’s strategy, he said.
“It's not just about whether they can swing a hammer to do the conversion, it’s equally about whether they can place a converted building competitively in the rental submarket that the asset will compete in,” he said. “Is it going to be the right unit mix? Is it going to be the right layouts? Is it going to have the right amenities? Do the units benefit, or not, from natural air and light? All of those things matter.”
With ground-up projects, Friedman said Arbor has primarily focused on mid- to low-rise developments from a credit risk perspective, which is often an advantage over larger projects where a building’s leasing program really cannot get off in earnest until construction is much further along at the top of the building. That extended lease-up period can be more risky in certain instances. With Arbor’s separate build-to-rent program, those projects, for example, there are units coming online consistently, which fits in more with the company’s risk appetite, he said.
Arbor Private Construction
Arbor has been offering a BTR-specific product for the last five years, and it has now taken what it learned from that business — how to properly pick the right general contractors, sponsors and markets — and applied it to a new product. Arbor Private Construction is focused on vertical multifamily. The goal, he said, is to be viewed by borrowers as a long-term partner.
“By offering floating-rate construction lending, it does not at all mean we are striving to be a short-term lender. It’s actually quite the opposite. We are looking to partner with an equity sponsor that has a long hold period with an asset,” he said. “We’re there from the first shovel in the ground all the way to an agency execution, which really makes us more of a permanent capital partner, rather than a lender moment in time.”
Friedman spoke about a recent ground-up multifamily construction project with Kushner Cos. in Surfside, Florida, that Arbor closed early this summer. He described it as a “mid-rise, high-profile development in an affluent area with an underserved rental market.” He said this is the “quintessential project” that the APC product is designed for: working with a successful, proven sponsor who has worked with Arbor before to create a high-quality mid-rise multifamily development.
He also mentioned two office-to-multifamily conversion deals Arbor completed this spring that were ideal APC projects.
“Those were about $50M to $65M each and represented what we’re looking for in a conversion,” he said. “Mid-rise, big floor plates, experienced operator, really thoughtful design and layout of the units and the right unit mix for the market.”
Heading into the fourth quarter, Arbor Private Construction is building momentum at a time when commercial real estate’s economic outlook continues to brighten.
“I am very optimistic about construction lending and the growth of our platform,” Friedman said. “We established it in 2024, we’ve been growing it in 2025 and we will see the fruits of our labor in 2026.”
This article was produced in collaboration between Arbor Realty Trust and Studio B. Bisnow news staff was not involved in the production of this content.
Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.
