The benchmark upon which construction loans are based hasn’t moved much in years and isn’t expected to move much this year. But construction loans may get more expensive all the same.

The one-month London Interbank Offered Rate (LIBOR) was just 30 basis points (bps) this week, 26 bps a year ago, and 23 bps in January 2010. Consider that during the apartment market’s last boom period, the one-month LIBOR averaged more than 500 bps throughout 2006 and 2007.

Still, the benchmark is only one part of an interest rate. The spread that lenders charge over the benchmark really tells the tale. And in that regard, borrowers may not see quite so much stability this year. The cost of borrowing is ultimately determined by supply and demand, and the demand by hopeful developers looking to make up for lost time clearly outpaces the supply of ready and willing banks.

“If there’s so much demand for this capital and not enough sources, there’s going to be an upward pressure on spreads,” says Gary Mozer, principal and managing director of Los Angeles–based George Smith Partners. “One of the major banks that was lending everything at 225 basis points over LIBOR—then it was 250, and in December was 275—is hinting that it might [go] over 300 in 2012.”

Wells Fargo, Capital One Bank, and U.S. Bank are some of the larger firms that are bullish on multifamily, while smaller regional banks continue to target the sector. Some life insurance companies and pension funds are also trying to capture more long-term multifamily business by providing construction-to-perm programs. And as the competitive landscape grows, underwriting is becoming a little more borrower-friendly, with the return of nonrecourse on lower-leverage deals with top sponsors.

“Lenders are saying, 'If you’re putting in 45 percent cash in the deal, and I have a signature that says it’s going to get built, I’m willing to take that market risk,'” says Mozer. “Nonrecourse is just starting to get to the 60 percent range. You still need a completion guarantee and a compelling story, but at least people are listening.”

Of course, there’s always the Federal Housing Administration (FHA)—if you have the patience. The former “lender of last resort” has processed more than $6.8 billion in new construction/substantial rehabilitation loans over the past two years. As banks grow more active, the FHA’s market share will decline, but its rates and terms are difficult to ignore.

Sec. 221(d)(4) loans were pricing at all-in rates of around 5 percent in early January, an incredible rate for 40-year nonrecourse money. Problem is, you may still be waiting for that loan to close a year after you start the process.