New York City’s New Development Lending Crisis 

Obtaining a loan for the purchase of a new condominium unit has always been a bit tricky. Behind the scenes of many new condo developments built in New York City over the last decade, there was an intricate process of ensuring that mortgage financing would be available for the first purchaser to sign a contract until the last.  

In the last few years in the New York City new condo arena there were plenty of lenders that would provide those first mortgages to buyers prior to the condo having 50% of the units in the building “in-contract” or closed with cash transactions (Fannie Mae and Freddie Mac’s minimum sales threshold), but that is changing.  

Portfolio lending is the name given to these early available mortgage products that do not fit into Fannie Mae and Freddie Mac’s lending guidelines because loan amounts are either too high (above $1,080,000, the maximum agency insured loan amount) or these buildings had not met their minimum pre-sale of 50%. Portfolio lending is what has driven the sales and success of many of the most prominent new construction condo properties for the last decade…and it has now become scarce, and it is difficult to say if it will continue to be available.  

There’s a myriad of reasons why Portfolio lending for new condo properties is in jeopardy. Firstly, rising interest rates have made banks unwilling to provide unprofitable mortgages. Interest rates for these loans were often at or below market to try and convince borrowers to deposit capital into the banks providing these mortgages. It was a relationship play by the lenders. Secondly, credit markets are in disarray and there is an air of uncertainty in the banking world with the collapse of SVB, Signature and First Republic.  

The uncertainty in the credit markets and lenders’ reduced appetite for large loans remaining on their balance sheets at rock bottom rates has created an exceedingly difficult environment for new condo developers as they are pressed to sell units quickly to exceed the new minimum pre-sale requirements set forth by lenders willing to provide early Portfolio mortgage financing. Most Portfolio lenders will not provide mortgage financing to purchasers in new condo developments until at least 35% of the units are “in contract” or already sold and closed. Some lenders are now strictly following Fannie/Freddie’s lending guidelines for their Portfolio loan products by requiring at least 50% of the units to be in contract, which can leave buyers without a resource for financing for years in some cases. 

The immediate impact of the absence of low interest rate mortgage financing at the earliest stages of marketing a condo property is starting to be seen. Many developers are beginning to think about creating a rental program as a hedge against slowing sales and lack of Portfolio financing. It is a double-edged sword, however, as a rental program may further plunge a condo property into a totally unwarrantable designation for mortgage financing.  

At CondoTek we are closely monitoring the lending environment and are in constant discussions with lenders servicing the marketplace. While the constriction of available lending for new condo development is severe there are still options for developers and marketing teams. New condo developers have to ensure lending compliance, establish Portfolio lending approvals and work hard to establish a high velocity of purchasers executing units far sooner in the marketing cycle in order to ensure access to residential mortgage financing products from lenders.  

For CondoTek available lending compliance and building-wide approval processes please contact Orest Tomaselli at [email protected] 

Orest Tomaselli is the President of the Condominium and Co-op Review Division at CondoTek and the owner of Strategic Inspections, a national reserve study provider. Orest’s name is synonymous with condo and co-op lending compliance. As the former owner of National Condo Advisors for the last 13 years, Orest and his team have provided thousands of buildings with Fannie Mae, Freddie Mac, FHA, VA and portfolio project approval. With the acquisition of his firm, CondoTek now brings the condominium and cooperative review process in house so the lender, developer and board clients can have a complete end to end solution for lending compliance.