New York Construction Ban Puts Lenders At Risk

New York’s construction shut-down leaves lenders holding the bag as projects stall under a statewide order.

Over the last two years, lenders provided $8 billion in construction debt in New York City, Bloomberg reported, citing data from Real Capital Analytics. Bank of New York Mellon, JPMorgan Chase, Bank OZK, Wells Fargo and Deutsche Bank were the top five originators of construction loans in the two years that ended Dec. 31.

At projects that are deemed “non-essential” — primarily those that aren’t affordable housing, infrastructure or hospital-related — construction deadlines will be missed. Lenders typically provide funding over the course of construction, so for projects already underway, borrowers may not continue to receive cash. Additionally, for lenders, it muddles the timeline for repayment.

If construction delays push a loan to go out of balance, lenders may be forced to do a capital call or give the borrower a grace period, according to Jonathan Roth, managing partner at real estate lender 3650 REIT.

A spokesperson for Wells Fargo told Bloomberg in a statement that the bank was “actively engaging to determine appropriate assistance” for its borrowers. The other banks declined to comment.

Developers in New York aren’t abandoning their projects just yet, according to a construction insurance provider. And hundreds of construction sites are applying for exemptions to continue emergency work. [Bloomberg] — Georgia Kromrei