A Vote of Confidence for the Seattle Housing Market
While demand for Seattle mortgages has waned recently, the following is very good news for real estate insiders across the region:
- Lexas Companies landed a $175 million construction loan from Fremont Investment & Loan for Escala, which will be one of Seattle’s largest and fanciest condominium developments upon completion.
The loan is notable for its size and the fact that it comes from a single source. Most importantly, it signals a vote of confidence in the Seattle housing market by an outside bank. It comes at a time when bankers nationwide are pulling back from funding residential projects due to the weak, and, in some markets, overbuilt, residential housing market nationwide.
The loan is the final stage in Escala’s capitalization, and some experts think it may be the largest residential construction loan made in Seattle to date.
“Most of the banks around here don’t want to take more than a $50 million bite on their own,” said Michael Makar, senior managing director of CBRE/Melody and Co. in Seattle. “Typically, you’ll see big syndications put together” to share the risk.
Melody is a leading originator of commercial debt and equity capital, and Makar typically works on commercial rather than residential financing.
Matthew Gardner, principal at Gardner Johnson, a land use and economic consulting company based in Seattle, is fielding calls daily from outside financiers wanting to know why they should treat Seattle any differently from other markets.
Those other markets, most notably Southern California, New York City and southern Florida housing, have seen a huge slowdown in residential sales and currently have a glut of available units that has led to price reductions of up to 20 percent in some areas.
Some of those cities have also been overbuilt and saw huge price jumps caused in part by real estate speculators.
A weaker national economy and an initial edge upward in mortgage interest rates put the brakes on overexuberance in many markets nationwide, leading to more cautious lending everywhere, Gardner said. Many financiers are looking for developers to put up larger equity stakes as well.
Currently there are some 9,000 condo units proposed or under construction in Seattle, and Gardner predicts only 65 percent, or 2,000 units a year, will get built.
“A lot of these projects aren’t getting funding,” he said. Meanwhile, mortgage lenders who previously wanted to fund three or four projects in Seattle are pulling back and may only do one, he said.
So why was Fremont Investment and Loan, a national firm based in Brea, Calif., so confident in Seattle and Escala that it decided to take on the risk, especially since this is the bank’s first downtown Seattle investment, and only its second in the market?
“Seattle is different,” Gardner said. “We’re not overbuilt. This isn’t a big speculative market, where people are jumping in and out. We have very positive demographics from an income standpoint, and Seattle has a good job growth forecast.”
For that reason, a Washington mortgage in the area is rarely a popular commodity. This is one sector where buyers are not necessarily in control.
* Source: The Seattle Business Journal