Community banks are the “bread and butter” capital source for apartment developers, such as the Procopio Companies, which currently has 10 projects underway in New England. Its current projects range in size from 150 units up to nearly 400, and all are being financed through local community banks.
“They’re generally giving us far better terms than we would get from the regionals, and certainly the big national banks,” says Michael Procopio, CEO of Procopio Companies. And the community banks are much more solution-oriented, he added.
Working with larger regional banks often means that a loan has to fit in the box or follow the program they offer. If a community bank likes the deal, they will look at different ways to structure it to make it work. On a construction loan, they can float, swap or cap the rate. “They’re just so flexible, and for us, what that gives us is confidence to close,” says Procopio.
Headwinds slow near-term growth
Despite an ongoing shortage of housing, developers are bumping into hurdles that are slowing the overall volume of construction starts in the near term and contributing to cautious underwriting. Builders are continuing to battle higher costs, and in some markets, rent growth is slowing and concessions are rising in the wake of a surge in new completions that will take time to absorb.
According to the National Association of Home Builders (NAHB), a spike in completions resulted in a 1% decline in rent growth at the end of 2024. However, as the pipeline for starts and completions slows, occupancy rates are expected to improve and rents should increase. The NAHB is forecasting that multifamily starts will fall 11% in 2025 to a rate of 317,000 units and then regain some momentum in 2026 with an increase of 6% to reach 336,000.
“There are a handful of markets in our footprint right now that we probably wouldn’t even go into right now, because they’ve been overbuilt,” says Lisa Shelnutt, senior vice president and commercial real estate division manager at $28 billion‑asset United Community Bank in Greenville, South Carolina. However, fundamentals and underlying supply and demand are specific to markets, and some of the markets the community bank serves across the Southeast are experiencing strong growth…