Pacific Security Capital
Pacific Security Capital

Commercial Real Estate Lender Evaluates Whether the Condo Craze is Over or Just Heating Up

Pacific Security Capital, a leading Commercial Real Estate Investment Bank, has noticed that over the past few years condo activity has been hot, however many lenders are now concerned about the future stability of the condo market.

Beaverton, OR, August 08, 2005 --( -- Pacific Security Capital (“PSC”), a leading commercial real estate investment bank, headquartered in Beaverton, Oregon, has noticed that over the last two years there has been so much condo activity that many commercial real estate lenders are starting to express concern over the future stability of condo markets.

Mike Myatt, executive managing director with Pacific Security Capital explains that “some lenders have recently found themselves over allocated in condominiums as a result of the recent activity and have therefore become wary of all but the best opportunities.”

Myatt adds, “While the best opportunities (typically in Florida, Southern California and select destination markets) are still attractive, developers in smaller markets are finding condos much more difficult to finance in recent months. Additionally some of the recent trends in the commercial real estate market do suggest some legitimacy surrounding concerns being voiced by underwriters. The single greatest concern is the extremely high prices being paid by condo converters for existing multi-family projects. When a sponsor purchases apartments at a price that won't allow the property to operate as a stabilized for rent property any negative change in market conditions could see conversion speculators being underwater in their properties.”

Warning signs aside, the reality is that many of the commercial real estate lenders expressing concern over the current state of affairs in the condo market are the lenders that have been the least active and have less knowledge about the asset class. Lenders familiar with the condo market are not as concerned about the opinions of their peers, but rather with the fundamentals of the projects and sponsors they underwrite.

Projects that demonstrate that they underwrite according to the following guidelines should be able to find financing even with the caution currently being expressed by some in the commercial real estate lending community:

1.    Sponsor Suitability: Sponsors that have a successful track record of developing other condo projects will be looked upon more favorably than those who are building their first project. Having net worth and liquidity in reasonable proportion to the project size always helps as well.

2.    Capital Structure: Projects that have a sufficient sponsor equity contribution will receive more interest than those projects looking to move aggressively up the leverage curve.

3.    Entitlements: Projects that are fully entitled and permit ready will attract more interest than early stage projects.

4.    Market Feasibility: How many units are you building vs. how many competitive units are currently available for sale. How many competitive units are coming online during the time period that your project is being built and how many units does the market absorb each year? What are your per square foot sales prices, how do they compare to the market, and is your location, construction quality and amenity package in line with that of comparably priced projects?

5.    Marketing: Who is going to sell your units and do they have a strong track record of selling condos within the market you are building in?

6.    Presales: What type of presales have you been able to generate? The higher the percentage of presales, the more are lender interest you will attract.

The bottom line is that good projects from good sponsors will always receive interest from the capital markets.

About Pacific Security Capital
Pacific Security Capital is a leading commercial real estate investment bank providing commercial real estate loans, structured finance, investment sales and advisory services. The combination of direct lending, advisory, intermediary, corporate and professional services, syndication and acquisition services consistently allow PSC to rank among the leaders in the industry. PSC is headquartered in Beaverton, Oregon with other offices in major markets in North American and Europe. More information about the company can be found at

Pacific Security Capital
Karen Sams