12A — November 9 - 22, 2012 — Mid Atlantic Real Estate Journal


L enders D irectory

By Arnold D. Litt, Esquire, Archer & Greiner Apartment buildings remain “Gold Standard” for lenders in New Jersey


e continue to hear about the poor econo- my, high jobless rates

nel.”  Accordingly, commercial lending in these segments of the real estate industry con- tinues to be weak and lending standards continue to be con- strained.  Thus, commercial real estate owners of these property types are required to show substantial cash flow, low vacancy factors and long-term tenants.  Even at that, lend- ers require borrowers to have substantial “skin in the game.” The days of 80% and 90% loan- to-value (LTV) ratios are gone and in their place LTV’s of 60%, 65%, and 70% are more com- monplace.   Fortunately, one segment

of the real estate industry re- mains constant and for lenders, reflects the “gold standard” for lending purposes; that is, the apartment building industry. That this industry is so strong, is not surprising.  In a study commissioned by the New Jer- seyApartment Association, the Edward J. Bloustein School of Planning and Public Policy at Rutgers University determined that the multi-family industry, directly or indirectly, supports about 44,000 jobs in New Jer- sey and contributes more than $5.7 billion to New Jersey’s Gross Domestic Product, while generating more than $1 billion

in local tax revenues.   Lenders across the board from small local banks, com- mercial regional banks, and life insurance companies are now in a bidding war to attract owners of apartment build- ings.  Because money is now so “cheap”, in part due to the fiscal  monetary easing poli- cies of the federal government, lending rates have reached an all-time low.  For example, one prominent real estate devel- oper and owner of multi-family properties, Andrew Abramson of Value Companies, headquar- tered in Clifton, New Jersey, has indicated that loans as high

as $20 million are being made by regional banks, such as Val- ley National Bank, at interest rates at or below 4%, with loan terms of 5 to 10 years.   Just a scant two years ago, multi-family loans were aver- aging 200 basis points above these rates, which reflects the strength of the industry and the competition among lenders to make loans to this segment of the real estate market.  Strong local players include Columbia Bank, Valley National Bank, Lakeland Bank, and Union Center National Bank. How long the strength of the multi-family industry will continue remains to be seen. In this economic cycle, the industry could be labeled in its “middle age”.  There is still some support for higher rents and possibly lower cap rates, but this varies from one geographic region to another. Nevertheless, the door is rap- idly closing.  Some developers who would have built condo- miniums four years ago, are opting today for apartments. As greater supply of apart- ments becomes available in the marketplace, coupled with an improving economy, demand for apartments could drop off with a consequential reduction in rents and pricing. As we move perilously close to the fiscal cliff at the end of 2012 given the real possibility of termination of the Bush tax cuts, which will mean substan- tial increases in the capital gains tax rate, as well as the corporate income tax rate, many multi-family apartment building owners are looking to sell their properties this year and either pay the lower capital gains tax or transition their gains into 1031 tax-free exchange properties, once they stabilize their cash flow with low interest rate, long term mortgages.  Indeed, Jose Cruz, senior managing director of HFF, one of the nation’s largest commercial real estate financ- ing companies, recently stated that multi-family “A” proper- ties were selling for cap rates in the 4.75 - 5.5 range, well below cap rates in other mar- ket sectors in the real estate industry.  With a high level of activity, both in the refinancing and sales areas in the multi- family industry, it is clear that this is where the action is. Ken Uranowitz, managing director continued on page 34A

a nd s t r i c t r e gu l a t o r y constraints, which have created sub- stantial cut- backs in the commercial real estate- based lending

Arnold D. Litt

market.  Office vacancies re- main high, industrial building sales remain weak, and the entire retail sector continues to plod along with no discernible “light at the end of the tun-

Archer & Greiner, P.C., is a full-service law firm with over 200 lawyers in nine offices serving Fortune 100 clients, small to medium-sized businesses and individuals throuout the region for over 80 years.

For more information on our firm and how we can help serve you, contact Arnold Litt at (201) 498-8520, email alitt@archerlaw.com


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