For one towering multifamily project to get the money to break ground, it took friends in high places. And for many developers in 2016, that’s what it’s going to take.
Houston-based Morgan recently received a construction loan from Wells Fargo to begin work on Pearl Midtown 29, a 20-story, 309-unit luxury apartment high-rise right at the entrance to The Shops at Midtown at 180 NE 29th St.
It will develop the tower in a JV with Mesirow Financial. It’s also along the popular Miami corridor surrounded by the Design District and the Wynwood Arts District, which certainly plays into Morgan’s co-investors’ favor.
Location was a lure for Morgan to get both equity and debt financing for the project. It also helped that Morgan has long-lasting relationships with both Mesirow and Wells Fargo, says Morgan COO Stan Levy (here with his family: wife Melanie and children Morgan and Drew).
He tells Bisnow the debt and equity markets have become more selective. That said, projects with good locations and sponsorship are still in high demand with the top lenders and equity sources.
A-plus developers with A-plus sponsors will likely be the only ones to play in Miami’s multifamily development game this year thanks in part to a chill shaking the financing community as to whether we’ve finally hit peak.
PNC Financial SVP Ken Karl tells Bisnow it’s no secret construction and development financing is becoming more challenged across the industry for various lenders. He says many banks plan to reserve that precious capital for their best clients and best projects.
Half of PNC’s lending has been focused on multifamily projects, with 2,500 units in various forms of construction or lease-up currently, Ken says. And while he remains bullish on the area, affordability is a growing concern among lenders.
Miami has the fourth-highest average apartment rents of any city in America at $2,700/month, eclipsed only by DC, NY and San Francisco. As of last year, Miami had the second-highest apartment rent growth in the nation, behind Vancouver, WA, at 9.3%, according to Apartment List stats.
“The allure of new Class-A apartment development in an urban area has sofar won out,” Ken says. “But there’s not an endless supply of renters to rent at the top of the market. It’s certainly a different environment this year.”
SunTrust Bank‘s Ruben Pedron says the condo market has been gradually slowing down within the past year, in large part due to a strengthened dollar and perhaps the natural evolution of the real estate cycle.
Remember, in Miami, the condo market is largely financed on the strength of pre-sales—with many lenders requiring developers to have buyer deposits on a good portion of the planned units—in some cases, as many as half the total units—before they even get money to break ground.
In Miami’s latest condo heyday up until this year, that was easy—foreign investors, mainly from South America, flooded Miami, South Beach and beyond with cash to buy condo units. SunTrust has financed three condo projects since the recession, including Paraiso Bay (here), now under construction by The Related Group.
“No one that I know is predicting a falling off the cliff” in the condo market like we saw in 2009, Ruben says. “It appears to be happening naturally, which will hopefully result in a soft landing.”