The Property Report -- Building Value: Borrowers Extend Their Reach by 'Stacking Up'
REAL-ESTATE buyers are being forced to learn how to "stack up."</br></br>First-mortgage lenders have become more restrictive on the amounts they're willing to lend to property buyers in the form of mortgages. That's partly because in some cases so-called cap rates -- a property's annual net operating income divided by the property's price -- have been falling below levels that lenders consider acceptable. Low interest rates and strong demand for premium properties have driven prices sky-high, so the gap between the price and the annual net income has widened.</br></br>"Banks are starting to say cap rates have gotten too low for them to be comfortable with," says Timour Shafran, managing director of Capin & Associates Inc., a New York-based brokerage firm.</br></br>At the same time, lenders, including banks and life-insurance companies, want to meet the strong investor demand for funds. So both lenders and real-estate investors have been using some creative ways to lend and borrow more.</br></br>For investors, the methods involve stacking up, basically layering debt on top of debt, sometimes from one lender, sometimes from a number of them.