Right now, Contravest, a Lake Mary, Fla.-based builder, is staring at a problem facing many developers around the country. Two or three years ago, the developer took out interest-only construction loans to build and stabilize new apartment projects. Now, it’s time to put those projects into permanent financing.

“We have seven apartment loan renewals in the next 12 months,” says John A. Schaffer, Contravest's CFO. “Each one will be a challenge. We’re just literally in the early stages of negotiating with two different lenders on the first two loan renewals with the mini-perm loan extension. We’re just starting to put our toe in the water and see how it’s going to work.”

Contravest does have options, but all of them have catches. The sales market has plummeted to such an extent that it would be hard for any developer to sell these deals and come out ahead. It could turn those initial loans into a three-year mini-permanent facility with the same bank. But with the value of the property falling, the developer needs to come up more equity to bridge the gap.

“It’s a negotiation with the lender to try to see if they’re flexible and will back off the original loans terms to pull the mini extension,” Schaffer says. “Technically, you don’t qualify. The banks want you to pay down the loan so you do qualify. That’s option one, but it’s usually a huge number that the borrower and equity are not in a position to put in multiple millions of additional equity to pay down the loan.”

Then the negotiation continues. Or the developer could go to an outside lender for help, but there are similar issues. “[The banks] are underwriting the projects the same way. With concessions in place and occupancy not as strong as it once was, properties aren’t underwriting for permanent financing at the loan size you need to take out with the current lender,” Schaffer says. “You can’t get a big enough loan size to make the deal work. That’s the conundrum.”

The consensus around the country is that Contravest isn’t alone. Others agree. “If you have projects coming online, it’s very challenging environment, and you’re probably not hitting your project rents,” says Brian Dinerstein, a partner with The Dinerstein Cos., a multifamily builder based in Houston. “So if your loan comes due, it’s problematic.”

In the Dallas office of another Atlanta-based builder, Wood Partners, Todd McCulloch, director in the firm's Dallas office, says the company’s No. 1 focus is staying within its debt service coverage ratios so that it doesn’t face refinancing issues.

“All of the loans have 12 to 18 months remaining on initial term of construction loan,” McCulloch says. “We’re not staring down the barrel of onerous long-term financing scenarios. We are operating really effectively. We will hit our debt extension requirements to extend out a year or another 24 months just because there’s so much uncertainty in long-term refinancing markets these days. The situation we don’t want to get into is having to do some sort of 'Hail Mary' long-term refinance because we’re out of extensions or we don’t qualify for them.”

While Dinerstein says his group is “fine” and doesn’t have loans coming due until 2012, Atlanta-based Gables, another big multifamily developer, has been able to negotiate extensions on its construction loans so far. “We’re very fortunate,” says Sue Ansel, chief operating officer for the company. “We don’t have construction loans expiring. We were able to negotiate extensions. We’re in a fortunate position that many of our competitors are not, where they are forced to have refinance those loans.”