Prudential Financial Inc., an investor in about $60 billion of U.S. property since 1999, is concentrating on funding apartment construction, and isn't yet seeking to finance offices, said Kevin Smith, senior portfolio manager at Prudential Real Estate Investors, the property-investment unit of the Newark, New Jersey-based life insurer.
Prudential provided most of the equity on SJP Properties Inc.'s 11 Times Square, a 1.1 million-square-foot tower at Eighth Avenue and 42nd Street that remains more than half unrented more than a year after its completion.
These days, Prudential prefers buildings "that are up and leased," Smith said. "Talking about financing new construction, that's a whole different kettle of fish."
Rents in New York haven't risen enough yet to entice banks to write new loans, said Greg Reimers, northeast market manager for real estate banking at New York-based JPMorgan Chase & Co., the second-largest U.S. bank by assets.
80% Vacant
"If a banker gets a call from someone who owns land, the first question he's going to ask is, 'Who's your tenant?'" Reimers said. "Twenty percent pre-leased for an office building is not going to be sufficient to get a non-recourse construction loan. Twenty percent leased is another way of saying 80 percent vacant."
Publicly traded REITs such as Boston Properties, having accumulated cash and raised equity during the worst months of the recession, are in a better position than private developers to self-finance their building pipelines, Chandan said.
Boston Properties is prepared to use cash and access to unsecured credit to start its 55th Street project, Linde said. In its most recent quarterly report, the company said it had $747.3 million of cash and equivalents, and $1 billion of undrawn credit.
"I was with a major New York City bank last week, and they encouraged us to talk to them about doing a construction loan, if we wanted to go in that direction," Linde said. "This was an inbound call to me, not an outbound call to them. I feel very comfortable with my liquidity. I feel comfortable with my availability of future cash to build the building."
Vornado Projects