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STAYING ALIVE UNTIL '95 Developers wait out credit crunch amid fears of house shortage

THE BALTIMORE SUN

In his mind, Gary Blucher could picture the gently rolling parcel of Carroll County farmland becoming part of a community where colonial homes in muted tans and blues would soon sprout.

But the veteran developer, president of Owings Mills-based Britannia Development Corp., couldn't raise the $1.5 million needed for his project.

The nation's economy seems to be improving, and demand for new homes is picking up. Still, developers such as Mr. Blucher -- who turn raw land into finished home lots, including streets, sidewalks, water mains and sewer lines -- face severe problems getting bank loans at reasonable rates.

As a result, housing specialists say a shortage of new homes could develop this year. And such a shortage would frustrate prospective home buyers and boost prices for the new homes that do make it to market, they say.

"There's going to be a squeeze. The demand for building lots is backing up and the supply is not coming out as much as it had," said Edmund Cueman, Carroll County's planning director. Outside of its towns, for instance, the county approved 25 percent fewer home lots in 1991 than in 1990.

In the next 12 months alone, the U.S. could find itself with 50,000 to 100,000 fewer lots than needed to satisfy buyers' demands, said Gopal Ahluwalia, research director for the National Association of Homebuilders.

Meanwhile, "Stay Alive Until '95" has become the slogan for companies in search of money for residential development. As the slogan implies, developers believe it will take several years for bankers nervous about real estate to ease loan restrictions.

Because of the recession, the credit crunch for residential developers hasn't affected home buyers yet. In most parts of Maryland, builders still have some lots, and the sound of carpenters using pneumatic hammers to build frames for new houses is again being heard.

But as those lots are used, problems could arise.

Demand for new homes in the Baltimore market already is picking up, said Robert Lefenfeld, a vice president for the realty group of Legg Mason Inc. in Baltimore.

Legg Mason's first quarter report describes a "remarkable recovery" in the new home market. There were 3,480 units sold -- a 9.2 percent increase over the comparable quarter in 1991, and the highest quarterly level since 1985.

"Most people in the field feel the prognosis is relatively strong," Mr. Lefenfeld said.

But planning and housing specialists don't expect new capital to begin flowing to residential real estate soon.

In the wake of the savings and loan debacle and the stream of bank failures, new federal regulations have made it much tougher for financial institutions to make real estate loans. And soured commercial real estate portfolios also have made lenders nervous.

Land development is a far riskier investment than home construction. That's because developers commit to a project without knowing how much demand exists for their lots, while builders often don't purchase lots until they have contracts from home buyers.

"In the '80s, all a developer had to do was sneeze and some bank had money for you. Now banks have gone in the opposite direction and perhaps they're overcautious," said David Fields, who directs Baltimore County's planning and zoning office.

Take Henry Berliner, chief executive officer of Second National Bank, based in Annapolis and Salisbury. Although the federal government has eased capital requirements on financing institutions, he said Second National -- like many others -- stopped making residential development loans two years ago. And it has no plans to reopen its loan windows to such developers.

Restrictions imposed by other lenders are often so onerous that borrowing is impractical, Mr. Blucher said. For example, a lender may demand a 20 percent to 50 percent down payment on a development loan.

Throughout the '80s, by contrast, developers were used to getting loans with zero to 10 percent down.

"If you need $2 million and the bank lends you only $1 million, that's a no-risk situation for the bank," Mr. Blucher said. Most developers, he said, can't make such huge down payments and independent investors, including wealthy doctors and lawyers, have become disillusioned with real estate investment.

Money isn't the only complicating factor for the residential development business these days.

Many good sites in suburbs close to Baltimore already have been taken and the cost of lots is rising, said Larry Macks, vice president of Macks & Macks Inc., a real estate firm based in Owings Mills. "There has also been a very serious increase in regulations on development and the cost of processing through county government."

Mr. Lefenfeld predicted a lot shortage is 18 months away. But developers such as Mr. Blucher think the shortage will hit this year and become acute in 1993. And because the residential development process -- from zoning clearances to construction -- can take several years, Mr. Blucher sees a housing shortage extending into 1994 or beyond.

Some parts of the Baltimore area, such as Harford County, have yet to experience any serious shortage of new-home lots, said William Carroll, Harford County's planning director. But other areas, such as Howard County, are already facing a shortage of lots -- especially for town houses and apartments -- said Joseph Rutter, Howard's director of planning.

In Baltimore County, a proposed moratorium on development in Perry Hall could constrain the creation of new home lots there, said Mr. Fields, the county's planning director, though he doubts the impact would last more than three years.

"We've had a real tail-off in new developments starting -- not just in the number of projects, but also the size of the projects," Mr. Rutter said. In the past, the typical development had 100 or more units. Today, most developers are seeking approval for just 10 to 25 units.

How communities are developed

ACQUIRE LAND

Developer secures a legal agreement on raw land. (Developer will take either an option to buy or an actual contract; usually an option is taken if the land is not yet zoned for a subdivision.)

*DRAFT ENGINEERING PLANS

Developer hires engineer to prepare plans for roads, storm drains, water and sewer and other improvements.

*GET PERMISSION

Developer enters into public works agreements with local government to develop the site. (Government requires security in the form of cash or a letter of credit, in case the developer fails, and requires developer to pay water and sewer connection charges.)

*DEVELOP SUBDIVISION

*PROPERTY IS INSPECTED

Development work is inspected by local government, clearing way for home construction.

*SELL LOTS

9- Developer sells finished lots to builder.

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