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Inside Construction Lending's Rebuild

Banks stayed away from construction lending for years after it collapsed and contributed to the financial crisis. But low interest rates and other factors have gotten some developments off the ground, leading to construction lending's comeback.

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Faulty Foundation

Construction loans that went bad-on single-family homebuilding, residential subdivision developments and shopping-center developments-were a major contributor to the wave of bank failures that started in 2008.

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Incredible Shrinking Portfolio

Because of the widespread problems with construction loans, the category fell dramatically as a percentage of total loans. It went into a tailspin in the second quarter of 2007 (when it was around 8.04% of total loans) and didn't hit bottom (2.62% of the total) until the second quarter of 2013, according to FDIC data.

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Signs of Life

Construction started showing signs of a comeback at the beginning of 2014, following the overall improvement in economic conditions nationwide, as well as the slow rebound in housing prices.

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Rediscovering C&D

Construction-and-development loans increased last year, both in dollars and as a percentage of total loans.
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Redevelopment Phase

The surge has continued in early 2015. For example, M&T Bank announced this week that it is the lead lender on the redevelopment of the $36.5 million Tower at Midtown mixed-use project in Rochester, N.Y.

(Image: Philip Michael Brown Studio)

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Watching Closely

Hoping to avoid a repeat of the crisis, regulators are said to be scrutinizing the new batch of construction loans, to make sure banks are taking on manageable levels of risk.

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Keeping Their Guard Up

Bankers like Harris Simmons at Zions Bancorp. are still wary of construction loans. Construction lending at Zions is "less than a quarter of what it was at its peak … and it's not going anywhere close to even halfway of where it was at the peak," Simmons recently said.
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