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ROWLETT RAMBLINGS

Apartments in the eyes of others

8/20/2016

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A few days ago, a very interesting question was posed to the local Facebook club.   The question was simple.  It simply asked what the readers thought of apartments.   My goodness, you would  have thought someone left the gate open.  I didn't read them all because there were simply too many responses. 

I can say that many were against apartments........just because.  Some suggested that apartment dwellers were of less character than home owners.  Of course, that's poppy cock.  There are many, many reasons why some people prefer renting.  Believe me folks, I have been in apartment projects that I could never afford to live in.   Some responses were offered with apparent thought behind them.  Some were just emotional knee jerks. 

However, no one said anything about the people that have the most risk to lose money.  That would be the lenders.  Do you think they deliver bundles of cash just for the simple asking?   Often, the research of the lenders prevent developers and cities from making serious mistakes. 

An apartment project with approximately 200 units would cost between $20 million and $25 million, depending on land cost and amenity package.  These apartments are not built out of petty cash.  Developers must seek financing for these projects. 

The very first question any lender asks is, "How do I get paid back?"  The lender then researches the capability and credit support of the applicant.  The marketplace in which the apartments are to be built is studied.  This would include the existing inventory of apartments, the rent costs and the income of the area.  Then, how big an area?  Is it only the town of the project, or is it much broader.  A very high dollar project in Dallas, or any major city in the South, might have a market all the way to Kansas City, Chicago, St. Louis, etc.  It gets cold up there and many of the wealthier Americans might prefer a place in the south, particularly after retirement.  We need affordable apartments for seniors, who often have to live on Social Security and modest savings.   There are many needs in the rental business.  Some are amply filled.  Some are not.

Lenders know all this.  They try to take all into consideration before approving a loan to build any apartments.  They absolutely don't want the project to fail.  If it fails, they lose their customer's, or their own, money. 

The lenders will not approve anything just because someone wants to do it.  That includes cities.  In fact, the very first question our City Council should ask is, "Do you have a lender expressing interest in your project?"  If they don't, Council should tell them to come back when they have an interested lender. 

This will probably save time.

In at least one deal the Council approved, apparently a restaurant developer couldn't get financing for three restaurants when the land was free.  This one was probably not ready for City Council.

Apartments require a lot of study.  It's best if you know what you're doing.


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