by Calculated Risk on 2/15/2008 04:40:00 PM

Apartment Finance Today has an article in the February issue on lending standards for small "entrepreneurial" apartment developers: Putting the Squeeze On (not available online yet).

This article gives an idea on how much standards have been tightened.

Last year, developers were able to obtain 85% loan-to-cost financing, non-recourse (except standard completion guarantee) at 200 bps over LIBOR.

Today, the same developers can only obtain loans with a 70% to 75% loan-to-cost ratio and priced at 250 bps to 350 bps over LIBOR. In addition, lenders are looking for 25% of the loan to be recourse (secured with other assets of the developer).

Larger developers are seeing tighter standards too, but not to the extent of the entrepreneurial developers.

And perhaps the most daunting requirement:

"Construction lenders are limiting proceeds based on requirements from active permanent lenders that projected operating incomes exceed monthly debt-service obligations by at least 20 percent, compared with 10 percent (or even less) seen frequently in recent years."

Since the permanent lenders have tightened their requirements too, construction lenders have to carefully scrutinize the income projections to make sure the project will qualify for a permanent loan.

One contractor told me that apartment construction lending standards have been "fog a mirror, get a loan" for the last few years. That appears over.