TOD Stalls as Lenders Continue to Bank on Parking

Elana linked to this story out of Salt Lake City in the Capitol Hill headline stack this morning, and it’s worth everyone’s full attention. Derek Jensen reports on what may be the biggest impediment to urbanism of them all: The widespread bias of banks against walkable development.

Salt Lake City’s
new-urbanism epiphany — fervently backed by Mayor Ralph Becker and the
City Council — appears to be catching static from an unlikely source.

Transit-oriented development isn’t stymied by outdated zoning,
unwilling developers or a lack of space. It turns out, banks, wedded to
old-fashioned lending standards that stress parking, may pose the
biggest blockade by denying financing.

The reason: Lenders operate from a tried-and-true principle that
maintains more parking means less risk and a higher return on their
investment. But ditching cars is the whole point of urban developers
looking to create 24-hour live, work and play environments that hug
light-rail hubs. 

mcmansion.jpgReal estate lending standards: A work in progress. Photo: MSN.

That’s right, the same sector that got such fantastic returns from the car-dependent suburban fringe isn’t sold on the viability of neighborhoods where you can get around without driving. Salt Lake City banks are hardly the exception. Based on informal conversations I’ve had with people who deal with local lenders and developers, I can tell you that real estate finance in transit-rich New York City is far from enlightened.

If we’re ever going to reverse the tide of car-centric development that is gradually suburbanizing New York, we’ll need banks to change their assumptions. As Jensen reports, Portland shows that it can be done.

  • Matthew from Brooklyn

    The unwillingness of banks to lend in dense places is redlining in another guise.

    I find it ironic that critics call walkable communities unaffordable from one side of their mouths, and undesirable or unmarketable from the other. Which is it, guys? Are cities and walkable neighborhoods only for the arugala-eating upper-crust, or only for the frozen hot-dog hoi polloi? Do you look down on me for not owning a car, or, despite earning more than me, consider my lifestyle a bourgeois indulgence? Aren’t high prices a strong signal indicating unmet demand?

    I don’t know much about commercial lending, but as far as home mortgages, I know of more than one family that had to work for months to find a bank that would correctly appraise the house they wanted to buy, a prerequisite to getting a loan. The banks were simply incapable of properly assessing “non-standard” real estate. And that was in Brooklyn in the early 90s. The buyers, in retrospect, got an incredible deal on the houses, but their banks initially refused to lend, saying the houses weren’t worth the bargain price that the buyers and sellers had agreed upon! What nonsense.

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