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Record-low interest rates have local developers licking their chops. But these days, loans aren’t secured easily.

Nevertheless, local financial professionals say developers have plenty of time to get creative, because interest rates aren’t rising anytime soon.

Interest rates for construction loans and mortgages have been sliding over the past several years, and currently sit between 4 percent and 5 percent. That’s a significant difference from the 11 percent to 12 percent during the peak of the real estate bubble from 2005 to 2008.

“In 2007, every project, good or not, was getting financed at the same rate,” said John Petersen, leader of the capital group at Melvin Mark, a Portland-based commercial real estate company. “Now, rates will fluctuate depending on the proposed viability of the project – if a borrower can even get a risky project considered for financing.”

Many factors influence loans’ interest rates, but financial experts say the strongest are growth and inflation. Rates were expected to rise this year, for example, because everyone thought the economy would improve.

Instead, the economy has remained flat, with no growth in sight.

“We thought we were going to have a recovery and we didn’t,” Petersen said. “It’s hard to imagine rates will come down anymore, but honestly, I’ve been surprised that they’ve gotten this low.

“We’ve had to get used to being surprised during this economy.”

Rates first dropped when the federal government attempted to spur the economy in 2008, after the recession hit, Petersen said. At the same time, the government created regulations that took a hard stance on lending practices, ultimately making lenders more cautious. This created a paradox in which money was cheap, but nobody could get it because proposed projects didn’t meet standards for good lending, he said.

“Lenders have always done underwriting, but they’re not drinking the Kool-Aid that every project can work like they did in the boom days,” said Bill Conerly, a Lake Oswego consultant who focuses on business strategy, finance and economics. “But it’s not that they’ve tightened up as much as they’ve just become more practical.”

Nowadays, developers need projects to meet three qualifications for financing, said Brian Owendoff, managing director of CB Richard Ellis in Portland. The project needs to be in an established market, it needs to be about 75 percent preleased and it needs a long-term lease signed by an anchor tenant.

“There’s smart money and there’s dumb money … and pre-2008 lots of projects were financed with dumb money,” Owendoff said. “That’s just not going to happen anymore.”

Owendoff has turned his attention to build-to-suit projects because financing is available for developments that are preleased.

Developers also have turned to alternative sources of financing. Life insurance companies’ interest rates, for example, previously were higher than banks’, but now they’re nearly identical.

“Banks have always been the traditional source of construction loans, while life (insurance) companies stuck to term financing,” Petersen said. “But life companies are now coming in and cherry-picking the good projects that banks are still too hesitant to lend to.”

Developers in certain markets still can find financing as well, Conerly said.

“I was shocked talking with a home builder the other day who is still building houses,” he said. “But he has been able to get financing because he has found the right price point in the right neighborhoods using the right materials.”

Another niche that lenders are financing is senior living facilities, said Eric Fruits, an economist with Econ International.

“Senior living facilities that serve a specific illness, like Alzheimer’s, have been getting financing,” he said. “While businesses are downsizing and don’t need as much office space, the aging population is growing, so these facilities are profitable.”

Nowadays, developers simply have to work harder for their money, Conerly said.

“It used to be that a developer just had to drive his car through the car wash and they were making money,” he said. “They have to work for their money now.”