NEW YORK -- For an example of how far the U.S. real estate market
has come back from the crash of the early 1990s, look no farther
New York developer Douglas Durst.
The response from bankers was universal in 1994 when Durst first
tried to get a loan to build a 48-story office building in
Manhattan's Times Square. Was he kidding?
Now, Durst can't keep the banks away. In April, eight lenders
lined up offering to provide the developer a $340 million
construction loan for the project, the city's biggest development in
more than a decade. Bank of New York Co. won the assignment.
"I couldn't have gotten this loan a year ago," said Durst.
Buoyed by a thriving economy, U.S. banks are financing offices,
apartments and other commercial real estate property at a pace
since the 1980s. Banks had about $316 billion in real estate loans
on their books at the end of 1996, up from $299 billion a year
earlier, according to Federal Deposit Insurance Corp. In 1991, when
heavy losses cost Citicorp and other banks billions, outstanding
estate loans totaled $283 billion.
Developers and investors have used this cash to push property
values to their highest level in six years and to finance a wave of
"If you're a developer not getting money today, you're not trying
hard enough," said John Levy, head of John B. Levy & Co., a
Va.-based investment bank that specializes in bringing developers
There are signs some banks are falling into the same patterns that
got them into trouble in the early 1990s. Competition is so fierce
that developers demand, and receive, longer repayment schedules,
lower down-payment requirements, no call provisions and other perks
they haven't enjoyed since the boom of the 1980s. The spread above
benchmark interest rates on a typical loan to the healthiest real
estate companies -- a key gauge of profit -- has dropped by half in
the last three years.
"It's insanity," said Joseph Luick, head of real estate for
Teachers Insurance and Annuity Association-College Retirement
Equities Fund, whose $20 billion mortgage portfolio makes it one of
the country's biggest real estate lenders.
Among the most active real estate lenders are Fleet Financial
Group Inc., NationsBank Corp., Bank of New York Co., First Union
Corp. and BankAmerica Corp., as well as investment banks Nomura
Securities, Lehman Brothers Holding Inc. and Goldman, Sachs & Co.
Daiwa Finance Group and Legg Mason Mortgage Capital Corp. have
teamed up in a venture that offers up to 100 percent financing for
certain properties. The program is so popular that the venture has
already lent more than $400 million since it was formed in February.
Another $200 million in loans is in the works. "The world is so much
better for developers now," said Adam Metz, chief financial officer
of Urban Shopping Centers Inc.
Metz's company just convinced Lehman Brothers Inc. to shave a full
percentage point off its interest rate when refinancing $170 million
in debt on the Water Tower Place office and retail complex on
Chicago's Michigan Avenue.
It's easy to see why banks like real estate. A strong economy is
spurring companies to add more workers and lease more space to meet
increased demand for goods and services.
Property values are at their highest level since 1991, according
to National Real Estate Index, and a miniboom in construction is
under way in areas such as Atlanta, North Carolina, Los Angeles,
Phoenix and Las Vegas. …