Credit Crunch Stymies Real Estate Financing: Market Turmoil Stalls or Kills Expensive Deals
Cleary, Mike, The Washington Times (Washington, DC)
The 200,000-square-foot office building under construction in Presidents Park in Herndon may prove a bargain compared to the building that eventually goes up in the lot next to it.
Work on the building, expected to be finished by December, began well before the weakened financial markets tightened the easy financing the real estate industry has enjoyed this year.
"Financing today is more expensive than it was three months ago," said Jeffrey T. Neal, principal with Monument Realty, the District-based developer that plans two more buildings at Presidents Park.
Just about every sale has had to be renegotiated and several properties up for sale have been pulled off the block, said John Kyle, senior managing director with the brokerage Julien J. Studley Inc. in its District office.
"We're whistling through the graveyard, trying to make it through with our deals intact," Mr. Kyle said.
Development and lease deals are also being killed or delayed. But industry observers don't expect a repeat of the 1991 real estate crash.
Still, the crunch has already flattened plans for one suburban Washington office project, said Bill Norton, regional director of the District office of a Northwestern Mutual Life Insurance Co. subsidiary that invests in real estate.
In the past three weeks, two investors pulled out of the project, which he wouldn't identify. One was a real estate investment trust that couldn't raise the money. The other was a pension advisory fund that decided other markets were more profitable, Mr. Norton said.
Northwestern has lowered the proportion of project costs it's willing to finance to less than 70 percent, he said.
When lenders do that - or raise interest rates, preleasing requirements or even suspend lending - it makes it harder for developers to do their projects, said Chip Akridge, president of the John Akridge Cos., a District-based developer. Projects that go forward are more expensive, he said.
This even threatens lease negotiations, brokers said.
"It's really changed the developer's perspective on who they want to lease to," said James Underhill, president of the Staubach Co., a brokerage based in Tysons Corner. "So much of the Northern Virginia economy is tied to tech firms who don't have the triple-A credit [that developers want]. …