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MHN: Financing Multifamily Construction in the Private Markets

More capital is looking for good deals today than there are deals available, according to Parkview Financial's Alan Hiller.

By Alan Hiller, Vice President, Senior Underwriter at Parkview Financial

Over the past year, I’ve started every week by forgetting what I thought I knew the week prior. The meaning of “bankable” has been in constant flux. While other asset classes have slowed, ground-up multifamily construction continues to be strong. Active lenders have taken the long view, understanding that housing supply remains low, relative to demand across major metros. This is not something we expect to change soon, even with some flight to suburban markets.

Alan Hiller, VP, Senior Underwriter

As banks opened for business after the initial pause, underwriting standards became more conservative and advance rates dropped. Interest rates and fees trended upward at private lenders. While the initial rate spike among private lenders has settled to pre-COVID levels, bank advance rates have not, remaining about 10 percent below where they were a year ago. A core deal that would have advanced 65 percent loan-to-cost is now closer to 55 percent LTC for an otherwise similar borrower profile. As with the economic crash of 2009, highly liquid A-list clients can still transact and will make outsized returns. It is everyone else that is having more trouble.

Due to the pandemic, private construction lenders have stepped up to capture otherwise bankable projects in urban and suburban markets. In terms of asset underwriting, there is not much difference in the private vs. bank approach. Private lenders will outperform on execution and total proceeds. Like many of our peers, Parkview has continued to service our current clients while gaining new business that we may not have had access to a year ago.

Currently, there is more capital looking for good deals than there are deals. Private lenders have investor capital that they need to deploy to stay in business and are seeing high deal volume. Liquidity in the form of takeout financing has returned for commercial deals and equity investors continue to seek multifamily product across all major markets.


When bringing a deal to a private lender, make sure it is packaged and presented in a way that can yield a quick decision. A quick “no” is as informative as a “yes” because it allows a borrower to move on. If you are trying to form a new relationship, lead with data that includes the following:

  • Sources and uses for your project;

  • Clear business plan or offering memorandum;

  • Sponsor biography, track record and personal financial statement;

  • Project budget and pro-forma.

Upfront work will create better outcomes for sponsors. Also be aware that not all private lenders are created equal. In addition to doing research on other projects the lender has funded, ask the following three questions:

  1. What is your source of capital? Private lenders can be capitalized through a discretionary fund, may syndicate each deal individually, or be entirely funded through a third-party relationship. How “discretionary” capital truly is varies across platforms. Find out who the real decision-makers are.

  2. What is the process for credit approval Is this all in-house or is there an external credit committee?

  3. How much leverage does the fund carry All funds will carry some amount of leverage in addition to equity from investors. This can serve to boost yield and smooth cash flows. Too much debt to equity can endanger a fund—and therefore your project—if the market turns and there is a margin call by a bank’s line lender. You don’t want to be left with a lender that is unable to fund an incomplete project.

Every good deal has a home, and that hasn’t changed over the past year. The question many developers have to ask themselves is: Are you willing to put in the work and cast a wider net to get your project done?

Alan Hiller is vice president & senior underwriter, Parkview Financial.

Multi Housing News


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