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Lenders Have Faith in the San Francisco Market!

green-light-small.jpgI am not the only one that believes that the interest rate shake-up we’ve had over the last few weeks will not flatten the San Francisco real estate market.  In last Friday’s edition of the San Francisco Business Times, they published an article titled "Lenders still give S.F. condos a green light".  Unfortunately, you need to be a paid subscriber to get the full story, but I can give you a little synopsis of what they said, as well as my take on it.  (By the way… the annual subscription to the San Francisco Business Times is worth every penny if you’re interested in keeping up with real estate and business trends in the City.)

All of the new condo developments that are popping up (and continue to pop up) all over San Francisco need to be funded somehow.  Developers don’t have the money sitting in vault somewhere to start these new projects.  Typically, condo developers will shop around their proposed plans to lenders, and a lender will team up with the developer to put these projects into action.  With construction loans, a developer does not need to pay the lender back until units in the new development begin selling (of course, there’s more to it than that, but for the sake of oversimplification, we’ll stick with that explanation.) 

Now, no lender in their right mind will go into a partnership like this one if they don’t think that there is a market for the product (ie. condos).  If no market existed, the developer would default on the construction loan, and the lender would then be stuck with a bunch of unmarketable properties on its hands.  While places like Oakland are having a hell of a time getting financing for their new condominium projects, lenders are still happy (even at the current higher interest rates) to provide construction financing to builders here in San Francisco.  There are many reasons for this, including the fact that buyers in San Francisco typically have good credit, high income and can afford the properties, as well as the fact that the demand is still there, and there is not an over-supply of properties.  We’re not the only ones in this safe and steady boat; cities like Seattle are fortunate enough to face similar circumstances – high demand, low inventory and a large amount of qualified buyers.

What this essentially boils down to is this – lenders believe in the San Francisco real estate market, and I for one, am right there alongside them!