Construction Financing is Back But, As Developers Are Learning, Equity is Key

Like Mr. Lam, other developers have plowed substantial funds of their own to get buildings started. In late 2010, Monday Properties, a real estate company with holdings in Washington, D.C., and Manhattan, began construction on a nearly 600,000-square-foot office tower at 1812 North Moore Street in the D.C. submarket of Rosslyn, Va. Unable to get a construction loan at the groundbreaking, Monday Properties financed the project with its own funds while searching for a loan. Over a year later, the company continues to pay for the planned $350 million construction out of pocket and said it will continue to do so if necessary through the project’s scheduled completion in late 2013.

“We’ll build it all equity,” said Anthony Westreich, the chief executive of Monday Properties. “We believe in the market and the site. We know that tenants will come.”

Mr. Westreich said that the North Moore Street tower he is building would be one of the best quality office properties in the entire D.C. region, a market that rivals Manhattan for its high office rents and occupancy levels and enjoys strong demand from government tenants. Still, the company’s commitment appears incredible compared to past years.

Behind the willingness of developers to persevere in spite of the trying lending market is a core belief that timing is on their side. Recent developments like 510 Madison Avenue and 11 Times Square were easily financed during boom years, but fell on hard times because construction started too late in the cycle and completed only after the market turned. By beginning now, just as the market appears to be heading back up, many developers feel assured that their projects will come online just in time to capitalize on strong conditions.

“My feeling is, if you show people pictures of what you’re building, they don’t believe you,” said Edward Minskoff, a developer who’s currently building one of the city’s largest and most anticipated spec office buildings, 51 Astor Place. “If they go down to my site, they’ll see 30 or 40 guys on the job, like little beavers working away. My eye doctor called me the other day and said, ‘I can’t believe you demoed those buildings and are starting.’ When you’re actually building, people know the difference, the project becomes real.”

Mr. Minskoff recently secured a $160 million construction loan for the 400,000-plus-square-foot office building, which he said will be finished next year. Mr. Minksoff told The Commercial Observer that the loan would cover between 60 and 70 percent of the project’s estimated cost, but declined to discuss specifics.

“The credit markets have changed significantly,” Mr. Minskoff said. “I remember in the early 1980s, I would have been able to get something like this 100 percent financed in a few hours by making a few calls. But in this case, we feel our timing is good.”

Construction Financing is Back But, As Developers Are Learning, Equity is Key