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Wall Street-financed & spec projects vulnerable to stocks' fall, say lenders and developers

The Orlando area is seeing growth in construction jobs as the area continues to grow.
The Orlando area is seeing growth in construction jobs as the area continues to grow.

Developers that use Wall Street as a source of funds and projects that are risky stand to get caught in the stock market's meltdown.

Big projects that are backed by hedge funds, private equity and insurance companies that are heavily into stocks could see some restraint on the part of their benefactors as the market works through its gyrations.

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Additionally, speculative projects may be looked at much more critically by banks.

That is the assessment of commercial lenders and developers in the wake of the U.S. stock market careening downward over the past few sessions.

While commercial bankers generally say they will continue to lend, there are some sensitive spots. "We are looking for strong developers," said Dan Smith, vice president of commercial lending at Valley National Bank.

Van Firios, vice president and commercial loan officer at Harbor Community Bank, said, "The economic fundamentals are still in place. I don't see anyone running for the exits in terms of bankers."

The Dow Jones Industrial Average was off 1,000 points in early trading Monday, before regaining over half that ground. The decline followed a plunge in U.S. stocks last week as investors worried about the global ramifications of a slowdown in China's economy.

In Orlando, bankers and developers debated the local implications for an area that has seemingly been going straight up for the last few years and still has many construction plans on the drawing board.

"Hedge funds and insurance companies are probably concerned," about their own well being since these companies are tied so closely to the stock market, said Firios.
Big projects tap into these sources for funding and may see them pulling back amid all the equity uncertainty.

Spec projects may also have a tougher time getting bank loans because these projects are among the most risky, said Brett Kingstone, president of developer Max King Realty.

In general, it will likely be a matter of business as usual for well established developers and construction companies, while others have a harder time getting financing, Kingstone said.

"Good banks will always lend to good developers," he said. "Developers that don't fit in that category will have a harder time and the market's pullback will exacerbate that. Do I see them stopping, no. Do I see them tightening their regulations, yes."

"It depends how deep the correction is," said Tory Watson, CEO of Cambridge Construction.

If it is a lengthy, deep fall, "and the project doesn't have a bank commitment, the banker many not want to invest in real estate," Watson said. "They would be sensitive to whether our economy is slowing."

Have a tip about Central Florida development? Contact me at ktalley@growthspotter.com or (407) 420-5176. Follow GrowthSpotter on FacebookTwitter and LinkedIn.

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