What Lenders Are Doing to Prevent Overbuilding in DC
Even as cranes continue to shimmy on an increasingly crowded dance floor in DC, lenders are becoming more fickle about the projects they'll back. That's among the reasons we're excited about our 6th Annual Bisnow DC State of the Market on July 28 at the Marriott Marquis at 7:30am.
Among our speakers, EagleBank CEO and chairman Ron Paul tells us, “I’m cautiously bullish” on the DC market. His bank focuses on financing boutique apartment buildings—100 units or fewer—partly because those are the properties less susceptible to an economic downturn. “They’ll be the first to rebound if the market gets soft,” he says. That doesn’t necessarily mean it will any time soon, and he thinks the typically strong areas in the region, like Dupont Circle, U Street, Adams Morgan and NoMa are still good investments. EagleBank had strong loan growth in the first half of 2015, and Ron expects that to continue in the second half. Add that to the $100M in new capital Eagle raised this year and the freshly named EagleBank Arena (née Patriot Center) at George Mason University, and Ron is sitting pretty.
The projects that still look strong to lenders wouldn’t surprise anyone: they are amenity-rich and in great locations, says Cardinal Bank president Kevin Reynolds, also a panelist. But caution will prevail. “Our concern is that developers will overbuild if given enough capital,” he says.
Kevin and Ron both say that deals today are requiring more equity than in years past. Although lenders aren’t necessarily requiring it, “equity is so available that they’re OK putting it in,” Cardinal’s EVP of real estate lending Andy Peden tells us. Andy oversees the Tysons-based bank’s $1.3B real estate portfolio, which includes the 108-unit 525 Water condominium at The Wharf (rendered above), PN Hoffman and Madison Marquette’s JV on the Southwest Waterfront.
Nationwide, lending is up in 2015. In Q1, lending outpaced Q1 2014 by 49%, according to Mortgage Bankers Association VP of commercial real estate research Jamie Woodwell. He says that plenty of people are waiting for the bull market to subside, and the two factors he looks at most—property incomes and investor demand—both indicate continued strength. “Expectations are that, broadly, property income growth will be continuing.” Combine that with very low cap rates and all signs are positive for the rest of the year and beyond.
While Federal Reserve chairman Janet Yellen has warned about a commercial real estate bubble and predicts raising interest rates before the year ends, it’s unlikely to put much of a dent in DC. You can hear from Ron, Kevin and many of our region’s development leaders at our State of the Market event on July 28 at 7:30am at the Marriott Marquis. Sign up here!