Minneapolis-based Dougherty Funding remains busy. And it is the requests for seniors housing and multifamily deals that are fueling the company’s commercial lending activity today.
Gregory Bolin, senior vice president with Dougherty Funding, said that demand for commercial financing is far from lessening.
With the fundamentals of both the seniors housing and traditional multifamily markets still strong, Bolin said he doesn’t expect this to change anytime soon.
“Vacancy rates are still staying low,” Bolin said. “As long as they remain low, it looks like more supply can come online and be absorbed. Eventually, the multifamily and seniors housing construction will slow. In the meantime, everything is tracking along. You are starting to see some concessions being made by owners, but not a lot. As long as the metrics remain strong, developers still want to build it.”
Construction deals in these two sectors are the most common today, Bolin said, with requests for acquisition funding having slowed a bit.
That begs the question: With so much new construction in the seniors housing and multifamily spaces, are there some markets where there is simply too much product? Is supply outpacing demand in certain pockets of the country?
So far? No, says Bolin.
“There is not too much product. Not at this time,” Bolin said. “Ask me in a year or six months, and I might have a different opinion. For now, though, as product comes online, it is quickly absorbed. I’m sure there are certain areas in which new developments aren’t filling up as fast as in other areas. Even when just looking at Minneapolis, there are pockets that aren’t filling up as fast. But in general, everything is on track. Things are going well.”
Dougherty sends its loans to community banks. When Dougherty looks at financing requests, then, it must consider what these community banks want when making approval decisions.
Borrower experience, though, remains a key, Bolin said. Dougherty looks closely at the experience of borrowers and their previous projects.
“Has this person done this before?” Bolin said. “A lot of people want to build apartments today. They might have some great ideas. But if they can’t pull it off, those ideas aren’t worth anything. There are lot of moving parts in every deal. So everyone wants experience before they approve a financing request.”
Experience especially matters when something goes wrong with a project. And even the best-prepared plans can face problems.
“Eventually, something will happen,” Bolin said. “Absorption might slow. Rents might not rise as quickly as expected. You are counting on that developer to make the right adjustments. Someone with experience has already been through these challenges and knows what to do.”
Commercial lenders look at the project’s details, too, when making lending decisions. Bolin said that today, lenders look carefully at the neighborhood surrounding a proposed project and the performance of other buildings in that area.
“How is the project next door doing?” Bolin asked. “If that project is not doing as well as expected, lenders might shy away from a proposal. We are careful about where we go.”
Will the market for apartments and seniors housing remain strong in the next several months? That seems certain.
But what about in 2018 and beyond? No one can predict the future, but Bolin does say that he expects financing requests in these two sectors to remain steady.
“I am sure there are certain submarkets where multifamily and seniors developments will max out,” Bolin said. “But there are many other submarkets where demand will remain high. Because we lend nationwide, there are always markets that will need new supply, especially when it comes to seniors housing.”