Rich Bouchner New York City Real Estate

The Real Deal included me in an article about the difficulties of obtaining a mortgage for a unit on a new condo building. As more new developments in New York are ready for buyers to move in, buyers are are having a tough time getting mortgages. Fannie and Freddie have tighten their condo lending requirements, creating a catch 22. it would be in the best interest of the banks who made the construction loans to step up and fill the void, but they seem hesitant to do so....

Will construction lenders be the new residential market superheroes?

Credit crisis notwithstanding, can construction lenders save the day for sellers of new residential condominiums units?

Seeking to avoid overexposure, banks rarely do end loans in buildings where they've provided the construction financing. But as the credit crisis makes it nearly impossible for would-be condo buyers to obtain mortgages, some developers are hoping their lenders will revise that policy to help them sell units, especially since they have a stake in the projects' success.

"It could be a saving grace for a lot of these developments," said Richard Bouchner, managing director at Commodore Property Group, a real estate firm and mortgage brokerage, adding that lenders generally prefer to see the units sold rather than foreclose on them. "The banks are realizing that if they don't want to be on the hook for a lot of units, they should step up and do this. It's one of the only viable ways to move some of these units."

As the credit crisis has deepened, banks have become increasingly skittish about lending in new condos with only a small number of units in contract. The last nail in the coffin came March 1, when government-backed mortgage finance company Fannie Mae stopped guaranteeing mortgages in condos where fewer than 70 percent of the units have been sold.

That's extremely bad news for some 12,000 new condo units scheduled to come online in the New York City area by the end of 2009, according to data from real estate research firm Reis.

Developers of new condos can petition Fannie for an exemption, but regardless, "we're kind of in limbo," said Andrew Gerringer, managing director of the Prudential Douglas Elliman Development Marketing Group. "How do you get [to 70 percent] if there's no financing for people? Who is going to fill in the gap?"

More and more developers are hoping their construction lenders will step up to the plate.

Real estate attorney Andrew Jagoda, a partner at law firm Katten Muchin Rosenman, said he has seen some lenders begin to do end-loans for buyers "in order to move the project along."

"Anything that helps people get these deals done will help," he said.

Shaun Osher, the CEO of Core Group Marketing, said he is currently working to orchestrate such a deal between a lender and developer, though he declined to name the specific project because he said it is in the preliminary stages.

"It's all about trying to make it easier to close in this difficult credit environment," he said. "A project's lenders have an interest in seeing it succeed."

Gerringer said developers he works with have begun to discuss the possibility with their lenders.

Prior to the early 1990s real estate slump, he said, it was common for lenders to do both construction financing and home loans, also referred to as end-loans, in the same buildings. But when the market plummeted, those banks were doubly vulnerable to the projects' failure. When housing sales recovered, many instituted policies prohibiting them from lending on both ends of the same development.

"If a lender does that, then they're getting heavily exposed on one property," said James Raved, a senior vice president at workout firm Radco Development Solutions. "They prefer to get paid and go do another development deal."

Still, many developers are hoping that their lenders may help them sell units by offering end-loans in their developments, even if they are unwarrantable, or ineligible for backing by Fannie Mae.

Lenders have an interest in doing this, Gerringer said, since they're familiar with the projects and have a vested interest in their success.

"This would be a means to stimulate sales," he said.

It's easier said than done, however.

"It's a great idea, but not always the easiest thing to pull off," Osher said, noting that many developments today have three or four different lenders and mortgages may have been sold off to several different institutions.

Banking structures have become more complicated since the '90s, Jagoda said.

"Things were different in the '90s," he said. "They didn't have securitization pools. There are different players in the market now."

Moreover, many lenders in the early 1990s were savings and loans, which frequently did both commercial real estate loans and end-loan mortgages. Today many of the savings and loans have fallen by the wayside, and "a lot of the big lenders are not set up for end-loans," Jagoda said. "They have to have an end-loans finance department, and a lot [of banks] don't have it."

Banks that do both end-loans mortgages and commercial real estate loans, and thus could conceivably start doing them for the same projects, include Bank of America, Wells Fargo and Citibank, experts said, as well as some smaller, local banks. But many may be reluctant to do so because of market conditions.

"If a bank is well-diversified, they may feel comfortable doing that," said Jarret Tarnol, the director of commercial real estate finance at GFI Capital Resources Group. "But there aren't too many diversified banks right now."

Mark Rogers, a spokesperson for Citigroup, said the bank sometimes does end-loans in condos where it has provided the construction financing, but even in those cases does not normally lend in unwarrantable condos.

A spokesperson for Bank of America said the bank currently does not routinely do end-loans in buildings where it has provided the funding, but did not comment on whether that may change in the future. Wells Fargo did not return calls for comment.

Tarnol added that with the subprime mortgage crisis in full swing, most banks are looking to do fewer end-loans mortgages, not more.

"There are just so few pockets of money right now," he said

Townhouse market hit hard in Harlem

Harlem townhouses, left to right: 148 West 121st Street, 419 West 146th Street, 152 West 132nd Street

Townhouses have always been something of an anomaly, a frustratingly hard-to-track, hard-to-price sector of the real estate market.

And with so few annual sales, it's hard to put too much stock in statistics about them.

Still, Streeteasy.com's first-quarter market report figures on townhouses are eye-opening.

According to Streeteasy.com, which pulls its data from closed sales filed with the city, there were only 19 townhouses sold in the first quarter of 2009. That's down a sizable 75.9 percent from 79 sales in the first quarter of 2008, according to Sofia Kim, vice president of research at Streeteasy and the author of the report.

Meanwhile, the median townhouse sales price fell 47.7 percent from the prior year quarter to $1.7 million, which Streeteasy.com attributed in part to the fact that more of the closings than typical were in Upper Manhattan, where the median townhouse sales price is $1.07 million. In comparison, the median townhouse sales price is $7.6 million on the Upper East Side, $7.282 million in Midtown, $5.5 million Downtown, and $978,295 on the Upper West Side, according to the report.

Of 19 closed townhouse sales, 10 of them were in Upper Manhattan, the report said, compared to four in Midtown, two on the Upper East Side, two Downtown and only one on the Upper West Side. While the number of transactions in Upper Manhattan tumbled 64.3 percent from the same quarter of last year, the percentage was still smaller than the other neighborhoods. The Upper West Side, for example, saw an annual decline of 90 percent.

Jonathan Miller, president of real estate appraiser firm Miller Samuel, said he hasn't yet compiled data for townhouse sales in 2009, but he said he expects the number of townhouse sales this year to have decreased at roughly the same pace as co-ops and condos, which declined 47.6 percent in the first quarter from the same quarter of last year, according to a quarterly market report he prepared for Prudential Douglas Elliman. "It's in line with what we're seeing everywhere else," Miller said.

He cautioned that trends in townhouse data aren't always particularly telling because of the very small number of sales.

Townhouses all over the city face the same obstacles in the current economic environment, including the scarcity of jumbo and construction loans, and the crippling impact of stock market and Bernard Madoff losses on the formerly deep pockets of potential buyers.

But the super-high end market -- which includes many townhouses south of 96th Street -- is also suffering from the perception that ostentatious displays of wealth are passé, and even risky at a time when unemployment keeps climbing.

Therein may lie the relative strength of the Upper Manhattan townhouse market. Buyers view Harlem fixer-uppers as a value play, while townhouses in more established neighborhoods epitomize the height of luxury.

"The price sensitivity is probably the biggest factor," said Norman Horowitz, an executive vice president at Halstead Property. "I'm seeing a lot of interest [in townhouses] under $1 million."

Horowitz has around nine listings for Harlem townhouses priced at less than $1 million, a price point that was nearly unheard of at the height of the market. His listings include a 5,220-square-foot five bedroom house at 148 West 121st Street with an asking price of $995,000, and a 12-foot-wide home at 419 West 146th Street in Hamilton Heights on the market for $795,000.

According to Streeteasy.com, the average price of a townhouse in Upper Manhattan is $1.19 million, down 15.7 percent from the same quarter last year, while the median price fell 10.6 percent year-over-year.

Horowitz said much of his clientele are "value buyers" who are enticed primarily by the declining prices.

"You can buy 4,000 square feet of townhouse for under $1 million," Horowitz said. "That's under $250 a square foot. Compare that to Downtown luxury condos. Some of them are $2,000 per square foot."

Rich Bouchner, a Harlem townhouse owner and managing director of the Commodore Property Group, a Manhattan-based mortgage broker and residential real estate sales firm, said the perceived value of Harlem real estate is a key reason buyers are attracted to the area.

Harlem is "one of the last places in the city where you can find townhouses and brownstones that are affordable," Bouchner said. "I think people will come uptown who would have [typically] gone to the outskirts of Brooklyn and Queens.

It looks the new condo project known as 2280 FDB, located at 123rd Street and Frederick Douglass Avenue is starting to take shape. The structure is now visible above the plywood that was put in place around the foundation. In spite of the credit crunch there is still a lot of construction activity in Harlem. The hotel at 124th and Frederick Douglass is still on track and the new condo at 120th and Frederick Douglass is now towering above the avenue. A couple of new bars and restaurants have also opened since the beginning of the year....nice to see that Harlem still has a pulse even during tough times....

2280 FDB construction site

My good friend, Candace Taylor, who is at at the Real Deal, reported on 111 Monroe Street, an new FHA approved condo in Brooklyn. This is big news for those who want to buy but do not have much downpayment money available. The developers needed to jump through a lot of hoops to get their project approved by FHA, but in the current environment, I am guessing that they are pleased that they went the extra mile....

Please feel free to give me a call at 646.825.5734 or e-mail me at rich@cpg-nyc.com if you would like more info.

111 Monroe Street banks on FHA approval
The Real Deal
April 15, 2009
If new Bedford-Stuyvesant condominium 111 Monroe Street had gone on sale a year ago, brokers likely would have touted its white oak plank flooring, 10-foot ceilings and Corian countertops. Instead, the condo's key selling point is its Federal Housing Administration-approved status, which offers qualified buyers more than 95 percent financing through mortgages insured by the federal government.
Read more.

I received a call yesterday from a reporter at a New York real estate publication who was curious about the minimum credit score to qualify for and FHA mortgage. Obviously there is a lot of interest in FHA if the New york City real estate press wants to learn about FHA FICO requirements. I thought that a quick re-cap of how FHA underwriters look at credit profiles of potential borrowers might be helpful.

FHA underwriters do not look directly at the credit fico score of the borrower; they look at overall credit profile and debt to income ratios. While credit scores are not a large factor in FHA underwriting, mortgage history does play a big role. FHA requires no mortgage late payments in the last 12 months regardless of the borrowers fico credit score but FHA will lend to borrowers that have an occasional 1X30.

If a borrower does not have depth of credit, alternative sources of credit (cable bill, utility bill) may be used to establish a credit history, but they must have a good payment history..

FHA mortgages have more flexibility than Fannie or Freddie loans because they are manually underwritten. The human element can look at your situation with more consideration and understanding than a black box can offer.

FHA loans are very forgiving when it comes to credit scores. If you have questionable credit or no credit, FHA may be able to look at alternative trade lines to establish credit history. Now that sub prime loans are gone, FHA is a great alternative for those who do not qualify for a Fannie or Freddie mortgage.

Rich Bouchner

www.commodore-group.com

www.gotham-realestate.com