High-Rise Condominium Construction Financing - Is the liquidity crisis over?

I recently presented a paper at the Six Minute Real Estate Lawyer seminar to over 500 in person and web linked real estate lawyers across Ontario to address the question of the status of real estate and condominium construction financing.   As everyone knows, the last 14 months have presented tremendous challenges to builders across the country to get high-rise projects financed.  For the past 14 months, any major project over $50M could only get financed if it met significantly higher criteria.  This would include (1) having a triple A borrower with extremely deep pockets; (2) significant equity; (3) tremendous pre-sales; (4) extremely well located project; (5) at least one bank per $40M-$50M of loan facility; (6) CMHC insurance.   Mega projects over $100M were virtually doomed.  The most well known of these was 1 Bloor Street East, Toronto, Ontario, the iconic 80-storey building that was going to redo the landscape of downtown Toronto.  Financing needs were close to $200M.  The financial markets both international and locally were not prepared to take on this otherwise very successful project.  Fortunately, a recent sale where we represented the vendor, was completed with Great Gulf Homes.  It  will result in a redesigned project going to market hopefully later in 2010.   Most recently, the L Tower finally received CMHC insured financing of approximately $146M (estimated) on very onerous terms.  This with strong borrowers and backers.   Other major projects are still limited to one tower at a time to bring financing under $100M so that CMHC financing would be within reach.   CMHC itself has over the past year, ratcheted up its requirements tremendously, leaving many otherwise viable projects on paper and on life support, because of the lack of financial depth of the promoters and the other stringent requirements that CMHC has been imposing over the last year.   So where is the market heading?  Five major banks now have significant paydowns on many real estate projects and have room to lend on real estate.  They all have significant appetites for commercial financing at lower loan to value ratios of 60-65%.  Their appetites for high-rise condominium financing, however, remains to be seen.  The market itself has been extremely strong with recent launches by the World Condominiums in North Thornhill and the second phase of Ice which recently sold over 500 units over several weeks.  Most recently, X-2 Condominiums created pandemonium on Bloor Street.  This indicates a strength in the market, as well as a sustainable level of purchase price.  It is rumoured that the Ice was averaging close to $600 per square foot.  High rise sales numbers for September and October 2009 are exceptional.   Will these sales be enough to get our big 5 back into the lending business?  Maybe, but the $50M cap is still there so any major project will require a club deal over 2 or more banks.  This in and of itself is a major hurdle in terms of timing an pricing and the day of the mega project may be over, for now.  As well, only those major developers with strong banking relationships will have a chance to get their projects off the ground.  Less financially strong builders will require strong partners to obtain financing.   Furthermore, one has to question the current market activity.  Is the demand there primarily due to the low interest rates (3-5 year mortgages at 4%-5%)?  Will the application of HST also bring a chill?  We are of the view that a full market recovery is still not upon us.   The BRIDGE Group is here to help builders in finding those necessary partners and lenders.