In a sign that real estate lending has emerged from the ashes of the 1980s debacle, lenders lined up recently for a bite of the big Apple's biggest construction loan in nearly a decade.

Bank of New York Co. led and acted as agent for a $340 million loan to the Durst Organization to develop 4 Times Square-a 1.6-million-square-foot office development smack in the middle of what not so long ago was the most overbuilt market in the nation.

Excavation for the project has begun, and the building is scheduled for completion in 1999.

Bank of Nova Scotia, Dime Savings Bank of New York, and European American Bank are among eight foreign and domestic banks that have signed on to the syndicate.

Bankers were anxious to get in on the deal, saying it was important to get in at the beginning of a new cycle of real estate lending.

Although many banks were burned badly in the last cycle, observers said a select few got in early, and managed to score strong profits.

"This was the premier deal in New York City at this time and if we wanted the market to know that we were serious about real estate, this was the deal to be in," said Robin J. Cohen, a senior vice president who runs the real estate lending operation at EAB, a Uniondale, N.Y.-based subsidiary of ABN Amro Holding.

Indeed, a myriad of financing opportunities for commercial real estate have arisen, observers say.

Although office construction was virtually at a standstill in New York, such building has been under way for some time in a number of markets, notably in Denver, Atlanta, and Northern California.

"Given where we are in the real estate cycle, construction is inevitable, and developers are seeking financing from the banks," said Mark Edelstein, a partner with Milbank, Tweed, Hadley & McCloy, the law firm that represented Bank of New York in the transaction.

Property Information Exchange, an independent commercial property data base, said lender interest is heavy in a recently introduced service that allows lenders to list themselves as potential sources of financing on given projects.

"We're definitely on the upswing of the cycle," said Philip M. Wharton, chief executive officer of the New York company. "The question is, how far away is the correction."

He noted that the the flow of lending capital to real estate has become more active in the past six to nine months. He called the Times Square deal "the latest sign that construction lending is coming back, and coming back with a vengeance."

Real estate loans are looking attractive these days. Bankers say spreads on real estate loans are ranging from 1.75% to 3.5% over the London Interbank offered rate-much higher than on other types of commercial loans.

And banks have been actively increasing their involvement in the loans. Nonfarm and nonresidential real estate lending by banks is up 26.4% since 1991, according to Sheshunoff Information Services Inc., an affiliate of American Banker.

"Real estate is very competitive, and there are lots of banks. The issue is what niche you choose to pursue," Ms. Cohen said. "We are true middle- market lenders, and in that segment there is significant competition."

Observers say that the influx of European capital into the market has encouraged such competition. German banks, which did not suffer the kind of losses in the late 1980s that Japanese banks did, have been particularly active here.

"There is a real niche to be made over the next few years in originating the construction loans," Mr. Edelstein said. "Foreign banks can come in and offer the capital, but domestic banks that can originate and arrange them really have a product to sell."

Mr. Wharton said that the improved availability of market information, and the increase in publicly traded real estate companies will make it easier to avoid missteps than in the past.

"There's a lot more transparency to the market than before, so lenders can maintain discipline easier," he said. "In the past, lenders could put their blinders on, but now, if lenders want to be informed, they can be."

Still, observers note some hesitancy lingers.

Lenders are "gunshy" about office construction loans and "it was an accomplishment to put together a loan of this size," said Douglas Durst, president of the Durst Organization.

"Banks have been slow to move back into construction loans, where they suffered losses of the greatest magnitude," Mr. Edelstein added.

In order to get the loan, the Durst Organization put $110 million in equity into the project. And it preleased 85% of the office space, to Conde Nast Publications and the law firm Skadden, Arps, Slate, Meagher & Flom.

Another new wrinkle, compared to '80s style deals, was the structure of the Durst loan. Mimicking corporate lenders, banks lent to Durst on a "syndicated" basis, each dealing directly with the developer. In earlier real estate deals, banks lent on a "participation" basis, and bought parts of the loan from the agent bank leading the deal.

"We saw the lenders work together creatively to get the building financed," said Mr. Edelstein. "It was almost a partnership between the lenders and the developers to make this happen, and this indicates many more of these to come off the drawing board."

Sources familiar with the deal say that Credit Lyonnais and Fleet Financial Group Inc. competed for the lead role, but Bank of New York was the "natural choice" because of its 15-year lending relationship with the Durst Organization.

"We went forward with this because the Durst name is well-respected, the building was preleased, and we felt that we were not assuming the burden of market risk," Ms. Cohen said. Lenders eyeing the New York market may find that it has already dried up, however.

"This is not a cast that's going to be replicated in New York 10 times over," Mr. Wharton said. "There are not many developable sights left, and a lot of factors, the tremendous cost to the developer and the time frame for securing the property, have to come together to justify a site.

"There's so much competition, and so much capital, that there are signs of overpaying by investors," Mr. Wharton said.

Indeed, some already worry that the heated competition may force bankers to compromise lending standards.

"The first few large office projects will be very protective of the lenders, but as more lenders finance buildings, it wouldn't be surprising if the lenders loosen their standards a little bit," Mr. Edelstein said.

Ms. Cohen said it would be "difficult" to maintain high standards, "but we will do it. We've made a decision, and mapped out a clear strategy for ourselves. If you want to be true to your credit criteria, you have to be willing to walk away from some deals."

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