This article originally appeared in Puget Sound Business Journal.
October 12, 2022
Tacoma-based Harbor Custom Development Inc. (Nasdaq: HCDI) has secured a $39 million construction loan to complete a 177-unit garden-style apartment development in Lacey.
Buchanan Street Partners of Newport Beach, California, announced last week that it provided the non-recourse loan. The announcement comes as rising interest rates have dampened demand for lending.
The loan will finance a development called Meadowscape, formerly known as Tanglewilde. Leasing of the first phase is expected to start in February 2023, with construction slated to finish by late June.
“Meadowscape apartments is one of six projects we listed with Kidder Mathews for $278 million earlier this year,” Sterling Griffin, president and CEO of Harbor said in a news release.
The company plans to sell the project once it’s completed, Griffin said.
Harbor reported in an August regulatory filing that it owns or controls 25 communities Washington, Texas, California and Florida, containing more than 3,100 lots or units in various stages of development.
Scott Magoffin, head of debt originations at Buchanan, said construction loan activity has diminished in recent months as interest rates have spiked.
“During the second quarter of 2022, when interest rates initially began to rise, we saw significantly increased demand for construction loans compared to prior quarters,” he said. That trend continued through July and August, but there has been a noticeable drop-off since then.
“This is a result of rates continuing to increase and finally reaching levels that forced developers to reconsider their financing strategies,” Magoffin said. “We continue to see attractive construction loan opportunities in the markets that we cover, but the volume remains below the levels we were seeing between April and July.”
He expects construction loan activity to remain below historical norms, based on the expectation that rates will continue to increase and there will be a relative lack of liquidity in the capital markets.