N.Y. developers turn lenders chasing profits in construction boom

New York developer Silverstein Properties Inc. built a $4 billion pipeline of real estate deals just weeks after starting. None of the money was for buildings it will own. The developer of prominent New York skyscrapers such as 3 World Trade Center has jumped into property lending as demand for financing grows and yields are more attractive. Silverstein set up its first lending venture earlier this month and already has a slew of potential deals going to projects in New York City. Others, including Oxford Properties Group, also have big plans to finance other builders. "Supply and demand characteristics in New York and throughout the country are good — we think that there’s years to run in this cycle," Michael May, president of Silverstein's new lending venture, said in a telephone interview. "In New York, the dollars are big enough and Silverstein's footprint here is big enough that I think we could run the entire business just doing New York if we wanted to." As big banks have pulled back, a flood of more lightly regulated nonbanks has rushed in to fill the void across industries. In real estate, that includes debt funds, mortgage REITs and developers, often backed by private equity or other institutional capital. Property research firm Green Street Advisors estimates that U.S. originations by these lenders surged more than 40% in 2017 compared with the year before to almost $60 billion, and should rival that of life insurance companies and commercial mortgage-backed securities this year. The opportunity is partly due to what Silverstein sees as a "gap in financing" that has its origins in the 2008 financial crisis. Since then, large banking institutions have faced heightened regulation and become more stringent in underwriting projects. That has taken a toll on their ability to lend to the construction industry, where there tend to be more risks and higher costs.