2019 Construction Lending Opportunities!

Construction is projected to grow 8 percent through 2019… even with the replacement of 75% LTV with 45 LTC. Opportunities are still plentiful. 

Opportunities are still plentiful. Lenders just need to be smart in the fulfillment of these loans:

Maturing market cycle and concentration risk in particular geographic markets or product types are making large lenders more selective in their construction lending. According to the National Real Estate Investor, banks are also being more conservative due to new Basel III rules now in place.
There continues to be a steady flow of capital, although the big banks have tightened their hold on construction loans and are more focused on serving existing clients. This opens the door for small regional and community banks to fill the gap.

“What we are hoping is that a lot of the construction is starting to finish up and will start selling in the market, which will start opening up the construction buckets…”

-Jeff Zickefoose, Executive Vice President at commercial real estate services firm JLL in Dallas

Top MSAs Growth

36 of the top 50 MSAs will experience expansion in 2018. Top 3 cities are New York City, Dallas, and Houston.

The early 2018 downshift is only temporary:

Although 2018started off slow, an acceleration is happening..and in surprising markets:

Nevada and New Mexico are the current geographical leaders in construction growth. New Mexico boasts a 3.4% construction employment increase this spring, the largest percentage increase in the nation according to the U.S. Dept. of labor. Estimator and Project Manager Brent Franken with Frank Construction stated, “more private money being spent instead of relying on public funds. The time is now to start growing business.”
Non-residential is expected to have a strong institutional growth with education and public buildings growing 6%, commercial construction growing 2% with office parks leading in the category at 6%.

Accelerated growth on the horizon:

Despite smaller increases in the past year, analysts believe construction projects are finishing up and starting to sell in the market allowing more capital to flow into construction financing.

AIA points out five guiding factors for 2019 growth predictions
• Rebuilding and repairs from natural disasters
• Tax reform implications for construction\
• A possibility of an infrastructure package
• Strong consumer and business confidence levels
By 2019, commercial sectors will likely see slow down, while industrial, healthcare, and education facilities are projected to start trending. The institutional categories largely have not reached the level of the past, and are trending to generate significant growth for the next few years.
(Source: aia.org)

The Perfect Storm is Developing for Community Banks

Larger lenders are being conservative, due to new Basel III rules, other regulations and the desire to focus on existing customers. Construction growth is expected to increase steadily through 2019. And to top it off, land developers are discovering it more challenging to find financing through larger lenders.

Community banks are in the best position to take advantage of the situation.

Visit www.klinche.com and learn how to streamline your loan draw process.

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This post is a summary of and sources: