Chicago homeowners avoid rate hikes on short-term loans

Left to right: Tom Scott of CA with 450 W Belmont Avenue, 450 Woodmoor Drive and Tony Andrews of Tandem with 730 N. Milwaukee Avenue (CA Ventures, Four50 Residences, The 450, Tandem, Google Maps)

Landlords of Chicago’s newly developed apartment complexes are hailing the latest out-of-town drive as they woo lenders and borrowing becomes more expensive.

With interest rates expected to continue to rise for at least the rest of the year and possibly longer, developers who have completed large multi-family projects in recent years are not yet ready to sell at a when rents are on the rise. However, they are still looking to get money out of their properties by locking up new loans, especially for terms between one and five years.

That’s what CA Ventures and a partnership between UrbanStreet Group and Atlas Residential have done with their properties in the area. CA Ventures owns the 18-story, 80-unit redevelopment at 450 West Belmont Avenue in Chicago, which just closed a $35 million loan maturing in 2024 from LoanCore Capital, and UrbanStreet and Atlas just signed a obtain a loan of 67 million dollars over three years. loan on its 256-unit Le 450 residential complex, built last year in Lombard, Barings.

Owners and lenders of the properties did not respond to requests for comment.

“Investors are coming in for the three-, four-, and five-year floating rate non-recourse loans to carry assets through this recessionary environment,” said Jimmy Rojas of CoreVest Finance, whose business focuses on lending. bridging loans against multi-family properties. “They’re seeing if they can ride out this (period of rising interest rates) with short-term financing.”

Long-term fixed rate financing is still being secured on new developments, including at 730 North Milwaukee Avenue in Chicago. This is where Tandem Development just refinanced its construction debt on the 23-story, 196-unit mixed-use project with a new $56 million loan arranged by Draper and Kramer under a federal housing program. and Urban Development called 223(f), with a 35-year term and amortization.

“A lot of people think the 223(f) program is only for nonprofits or affordable housing, but it can actually provide some of the most competitive fixed rate financing available for properties at market rates,” said Matt Wurtzebach of Draper and Kramer in a statement.

With interest rates rising, there is a more limited market for long-term fixed-rate financing with government support than just months ago, Rojas said. “These are only intended for a specific type of institutional borrower,” he said.

While rising borrowing costs will temper elective refinancing, debtors facing maturities in the next 18 months are now probing capital markets, particularly if they are on track to stabilize their operating profit after the opening of their buildings, said Dean Huber of Walker and Dunlop. They are betting that inflation is under control and that interest rates will fall again in two years, and that they will then be able to find cheaper capital.

Borrowers sign variable rate loans, while carving out short-term protections in their terms that come with long-term risks. Popular terms include 18 months of interest-only payments and low bands within which interest rates and transaction caps must initially remain before they float too high, so borrowers have an opportunity to refinance in one to three years in a friendlier market, Rojas said. .

“It’s a good time,” Huber said. “I have a lot of sponsors who are considering, even with prepayment penalties, refinancing now.”

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