No NYC construction loans provided in nearly two months, even as new building filings rise

By Adam Pincus

There have been no new construction loans given to New York City developers for nearly two months, even as the number of new building permit applications rose sharply last month to its second-highest level in 16 months.

That’s a huge loss to the city, which often sees more than $1 billion per month of new construction financing. For example, there were on average 20 new building construction loans totaling $1.3 billion given to developers each month, from September to February. That’s according to an analysis by PincusCo Media of loans of $5 million and up filed with the city.

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New building loans have come to a halt because the county clerks in New York City (and statewide) are not accepting non-essential filings, by order of the New York State courts. Building loan agreements are not considered essential. However, a building loan agreement is required before a loan can be recorded with the New York City Office of the City Register. That office, which records deed, mortgages and other property filings, is accepting and publishing property records.

Many expect the volume of building loans to surge later this year, in part simply because of the pent-up demand created by this halt to filings.

“When they ring that bell to re-open [New York City] construction, I expect a ‘boom’ in new filings, building loans, and sustained increases over the next 12 to 18 months,” Eric Zipkowitz, a partner at the law firm Tarter Krinsky & Drogin, said.

The last building loans for new construction were provided on March 13, to three separate borrowers, according to the PincusCo Media analysis.

The borrower receiving the most was Sam Chang, CEO of McSam Hotel Group. Goldman Sachs provided $85 million in financing for three hotel projects clustered in Long Island City, including at 38-15 9th Street, where Chang filed plans in 2016 for a 16-story hotel with 248 keys.

When asked last month about the loans, Chang told PincusCo, “Life goes on. You’ve got to finish what you started. It’s difficult but you’ve got to do the best you can.”

Wells Fargo provided the next highest loan, totaling $50 million, to Genting Group, the casino developer in Queens. The loan was part of a larger debt package for the ongoing project.

The third loan given that day, totaling $9.4 million, was issued by Patriot Bank for the construction of a 20-unit residential building in Gowanus.

Zipkowitz said some of that anticipated increase in lending may be brought about by what he expected would be reduced construction costs in the city.

“Most believe that contractors will be ‘very hungry’ when the world re-opens, not to mention the tremendous amount of trades that have excess capacity now that Hudson Yards has for the most part reached completion.  The net result is that significantly lower construction costs are anticipated for the immediate and near-term future,” Zipkowitz said.

However, there is sharp disagreement over whether costs will rise or fall because of the impact of new coronavirus protocols when construction resumes more broadly.

“There is no question that the cost of construction will go up,” because of the adoption of new protocols around Covid-19, said Louis Coletti, president of the Building Trades Employers’ Association, which represents union contractors.

He pointed to protocols being drafted that might limit the number of people that can get in a hoist to get up to the higher floors of a construction project. He said at times 40 people will get in the hoist and that could be pared back sharply, taking far longer to get the crew assembled.

“Time is money,” he said.