Who says the FHA is the only game in town?

As more banks step back into the construction lending market, prices are beginning to go down as leverage levels start to inch up.

U.S. Bank, JPMorgan Chase, and Bank of America are actively originating multifamily construction loans, while insurance companies such as MetLife and PacLife also intend to be more active this year with their construction-to-perm programs.

“The pipeline today is more active and deeper than I’ve seen it in probably three years now,” says Joe Griffith, who heads up the commercial real estate banking business in the south and southeast for New York-based JPMorgan Chase.

The increased activity and competition means that all-in interest rates on construction loans have started to drop. LIBOR, the benchmark rate used for setting construction loans, has remained historically low, in the mid- to upper- 20 basis points (bps) range. Construction loans are generally pricing today with spreads over LIBOR in the upper-200 bps range.

“But it’s clearly headed down, driven by competitive pressure” Griffith says. “Other banks our size are getting back in the multifamily construction market, and some of the regional banks are doing some as well.”

Last year, Chase originated only about six new multifamily construction loans (or six more than 2009)  but expects to more than double that amount this year. In January, Wood Partners and Redbrick Development Group announced a new 290-unit development called the Heights at Groveton to be built in Alexandria, Va. Chase originated a $40 million construction loan with a 60 percent loan-to-cost (LTC) ratio for the project.

Most of Chase’s construction loans are 65 percent LTC and below, and the company typically underwrites to a 1.25 percent DSCR. But given the increased competition of late, Griffith expects leverage levels to come back up to 70 percent soon.

Like Chase, U.S. Bank also weathered the recession well, and in fact has been in growth mode since the middle of last year. “For the last two quarters, we’ve grown our loan book, while many banks’ balance sheets are shrinking,” says Kyle Hansen, an executive vice president in the commercial real estate group at Minneapolis-based U.S. Bank. “We absolutely have construction debt available, and are actively looking for deals.”

The bank recently closed a $50 million construction loan for a 23-story mixed-use project in Dallas. The project, dubbed Hi Line Drive, contains 314 rental units and is being built by PM Realty.

U.S. Bank also has an appetite for acquisition-rehab loans, Hansen says. And while the acquisition-rehab activity of late has focused on light renovations, more lenders are growing more comfortable with underwriting rent growth in major metros. “We did a couple last year, but it wasn’t heavy on the rehab side,” Griffith says. “I expect there will be a little bit more of it in the coming year.”

Keybank is also back in the balance-sheet loan market, but the company has shifted its business model since the recession struck. Construction loans, which were once a focus, are not in play, though the company will lend from the balance sheet for acquisitions and renovations.

“We have been shifting the focus of the balance sheet much more to owners of real estate and away from developers,” says Clay Sublett, national production manager for Cleveland-based KeyBank Real Estate Capital. “We’re providing financing for renovations, but not a gut renovation, essentially more of a repositioning in a bridge to perm.”