Housing developers in the Reno region are ramping up construction. To meet the needs of the population growth expected as the economy heats up, developers need help from the banking industry.
Local bank officers say their banks, which tended to be tight-fisted coming out of the recession, are now ready, willing and able to lend money for the right projects.
Housing development loans never really turned off altogether during the recession, said Bob Francl, executive vice president, regional manager at First Independent Bank.
“It’s not that some (banks) wouldn’t lend. It didn’t make sense to build” in the down economy, he said. “It’s easier to underwrite when demand is high.”
Demand is now high and climbing higher.
Francl said inquiries for home construction loans at First Independent have increased 10-fold in recent months. “It’s significantly up from what it was even a year ago.”
In September, the bank announced $30 million in loans to several builders to help meet the needs of the northern Nevada housing market. The projects include $6 million to Desert Wind Homes to complete two subdivisions in Sparks: Kiley Ranch and Galleria.
More banks are looking to get a piece of the action.
“The Reno market, as part of Nevada, had a black eye in terms of defaults. National banks turned away,” Francl said. “They’re back now,” especially those with lending offices in Reno.
Smaller banks are also moving into town. Plumas Bank, based in Plumas County in California, and Las Vegas-based Meadows Bank now have a presence in Reno.
“There’s a lot more interest now that things have changed (with the economy),” said Tom Traficanti, senior lending officer at Heritage Bank of Nevada, which is the last truly local bank in Reno, he said.
First Independent Bank, founded in Reno in 1999, became a division of Phoenix-based Western Alliance Bancorporation in 2006.
Local developers like the idea of getting their loans through local banks, but the bigger the project, the more likely they’ll have to go to national banks.
“All banks have limits based on their capital,” Traficanti said. “We’ve been able to grow very well for a local bank.”
Traficanti said Heritage Bank’s “comfort limit” for construction loans currently is about $10 million.
“We have two local production builders building subdivisions and just approved a third,” he said.
Although he wasn’t at liberty to name the developers, he said Heritage-funded construction is underway in Somerset, Spanish Springs, Dayton, and Midtown.
Heritage is also active in renovation projects, including GreenStreet’s reconstruction of the Silver Club Hotel in Sparks into the “C” Street Lofts apartments.
“We’re pretty bullish on the need for more housing,” Traficanti said.
Heritage Bank is currently carrying loans for about 20 individual homes in various stages, in addition to the developments.
However, very large projects such as apartment complexes run upwards of $30 million, effectively eliminating community banks from participating. Builders of those large projects — whether the developer is a local company or not — must turn to national banks.
Silverwing Development, owned by J Carter Witt, has a number of large multifamily projects going up in Reno/Sparks that require the financial backing of large national banks.
One of those, the Fountainhouse project at Victorian Square in Sparks, will cost $35 million for the first phase that includes 236 apartments. Doug Hunter, Silverwing’s director of construction, could not name the company funding the project, but did confirm it’s a large national bank.
Both Francl and Traficanti said that smaller banks can combine resources with other banks to fund larger projects, but that’s an option developers are reluctant to use.
“We can work with other banks to participate in large loans,” Traficanti said. “Out-of-area banks are willing to partner with us.”
However, builders who went through the recession are particularly reluctant to work with multiple banks on a project, he said. If the market turns in the wrong direction, working things out with multiple banks can be difficult.
The biggest challenge ahead for both builders and banks is the dwindling supply of developed lots — parcels with ready access to roads and utilities.
“It’s a lot more difficult to do loans for land developing,” Traficanti said. “That’s the next big hurdle. We’re running out of improved lands.”
He said Heritage is approving loans for the development of lots, but it requires more equity than such loans did before the recession.
Overall, the availability of funding for home construction is on the upswing along with the economy, although not every bank can underwrite any type of project.
“There’s a lot of excitement right now, and rightfully so,” Traficanti said. “It seems like it really is different this time around.”