INSIDE THE DEAL: A Construction Loan in this Market? Here’s How One Was Done
- Apr 28, 2009
By Keat Foong, Executive Editor Joppatowne, Md.—How is it possible to obtain a construction loan from a bank in this market? Here is how it was done for Harborside Apartments. Meridian Capital Group arranged a three-year $10 million loan for an extension of the 300-unit garden-style apartment property. The loan will fund the construction of 84 apartment units in three new woodframe buildings, and a clubhouse.Tal Savariego, vice president at the New York-based Meridian, negotiated on behalf of the borrower an interest-only construction loan based on LIBOR. The biggest single factor in the construction project being funded was the fact that it is located next to a huge army installation, the Aberdeen Proving Ground, which is set to double in size by 2012, says Savariego. Savariego says that the plans call for the army installation to add 8,000 new personnel and create 22,000 new jobs as part of the U.S. Department of Defence’s BRAC process. “You only need to capture 1 percent of the incremental workforce to fill up the apartments,” he comments.Also helping the developer obtain the loan was the fact that the project is the expansion of an exiting complex, which helps assure the lender that the project already has some measure of stability. The complex was built, in the mid-1970s, and operated since then by the borrower, a privately held real estate company founded over 40 years ago. Helping the developer obtain the construction loan is also the lack of competition. Harborside is the only multifamily rental complex in the bedroom community of Baltimore that is relatively close to Aberdeen Proving Ground, says Savariego. Also, the local community is not friendly to new developments, and zoning laws make it difficult to add new projects.The loan application commenced in October of 2008, in the midst of the credit crisis. Savariego acknowledges that even so, it will be still tougher to obtain such a loan today, though not impossible.