New York's revitalized Times Square is still a land of opportunity for real estate-minded banks.
Over the next 18 months, several high-profile developers will seek financing for their projects in the once-blighted area. Douglas Durst, for example, is hoping to build new headquarters for Nasdaq and the American Stock Exchange, next to a 48-story office tower he has under construction.
Meanwhile, Tishman Realty & Construction Co. is looking for a loan to back a 45-story, 860-room Westin hotel at Eighth Avenue and 43d Street.
Construction lending is a risky business. U.S. money-center banks got burned on real estate-Manhattan property in particular-in the slump of the 1980s and early 1990s.
Boosters of the new Times Square say that the industry has since wised up. They say lenders today will not finance new construction unless the developers line up creditworthy tenants and put up sufficient equity or other credit enhancement.
To that end, Boston Properties, which plans to build office towers at two sites it controls below 42d street, is looking for tenants. Once it has them lined up, the real estate investment trust is expected to seek construction financing.
Lenders have become even more cautious since last year's global financial market panic, and that has cooled what had been a white-hot Manhattan property market.
"Prices are back to normal levels," Mr. Durst said.
Unlike existing income-producing properties, new construction "requires real foresight on the lenders' part, especially in an improving area like Times Square," said John T. Livingston, president of Tishman Urban Development Corp., a unit of Tishman Realty.
Dealing with the city and state-which provided generous tax abatements for redevelopment in Times Square and which own some of the land-adds "layers of complexity" to the process, he said.
Space in Manhattan is still tight, especially in Times Square, which has been transformed from a seedy district to an upscale tourist destination. According to Torto Wheaton Research, a division of CB Richard Ellis, the office vacancy rate for the Times Square area is 2.3%, well below the national average of 9%.
William Sales, president of another Tishman Realty unit, said he envisions that the construction loan for the Westin New York hotel will be about $200 million, buffered by $100 million of equity.
Because of the loan's size, it would have to be syndicated, he said. Two lead banks would probably commit $50 million each and would recruit five to seven others to take the rest in blocks of $15 million to $20 million.
Tishman is looking to price the loan at about 250 basis points over the London interbank offered rate-at least 50 basis points more than it would have been before last year's financial market scare, Mr. Sales said. Still, Libor itself has come down, so the actual rate Tishman pays may not be much different, he added.
Tishman has been talking to several banks, mostly foreign institutions including KBC Bank, formerly Kredietbank, and West Deutsche Landesbank, known as West LB. Those two provided the $42 million construction loan for E-Walk, Tishman's retail complex on Eighth Avenue and 42d, adjacent to the hotel site.
Overseas institutions are doing most of the lending in Times Square. Credit Lyonnais and Hypovereinsbank, for example, are financing the construction of Forest City Ratner's $290 million hotel and entertainment complex across the road from E-Walk; Deutsche Bank has committed to provide permanent financing on the hotel piece.
Earlier in the decade, when many of the Times Square projects were conceived, "domestic banks were suffering from problem loans," said Frank Payne, vice president at KBC Bank. "We were in a better position to move forward on these deals."
Bank of New York has been the most active U.S. bank in Times Square. It acted as lead agent on the $340 million construction loan for Four Times Square and provided a letter of credit to buttress Prudential Insurance Co.'s $270 million construction-to-perm loan to the Rudin Organization for the new Reuters headquarters.
For a while, Home Box Office was said to be a potential tenant for one of the two Boston Properties sites. But the latest scuttlebutt is that the cable channel is staying put at its current offices and that publishing giant Bertelsmann and Universal Studios are considering leasing space in the two buildings.
HBO and Bertelsmann did not return phone calls; spokeswomen for Universal and Boston Properties declined to comment.
If Nasdaq chooses to locate its new headquarters at his site-it also considering two downtown locations-Mr. Durst said he would contact Bank of New York "at the appropriate time." That wouldn't be for another year and a half, he said.
The loan for the Nasdaq building would probably be similar to the Four Times Square deal, which was syndicated among eight foreign banks, Mr. Durst said. But he may opt instead for a "mini-perm" loan, extending a few years beyond the initial construction period.