How to See Opportunity in Construction Financing
Construction is projected to grow 8 percent through 2019, yet gone are the days of 75 percent LTV to be replaced with a 45 LTC.
So what does this mean…
Construction opportunities are still plentiful. Lenders just
need to be smart in the fulfillment of these loans.
“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
Larger banks are being more selective:
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.
Doors are opening for smaller community banks:
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.
A Temporary Downshift for Early 2018
Overworked, overwhelmed, and under staffed. Don’t worry, your solution is here…
The first quarter of 2018 proved to be a slight slowdown in construction growth. Although the year started off slow, an acceleration is beginning.
TOP MSAs Growth
36 of the top 50 MSAs will experience
expansion in 2018. Top 3: New York City
(-2%), Dallas (10%), and Houston(14%)
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Predicting a 6 percent overall growth in contrast to recent years of almost double.
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6% residential, sustained by 9% growth in single-family units.
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Non-residential should have strong Institutional growth with education and public buildings growing 6%.
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Commercial is expected to grow 2% with office leading at 6%.
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Overall, non-residential is predicted to grow 4%.
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Texas, Nevada, and New Mexico are the geographical leaders.
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36 of the top 50 MSAs will experience expansion in 2018. The three largest MSAs, in terms of construction starts spend, are forecasted to be: New York City (-2%), Dallas (10%), and Houston (14%).
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; there will be a new trend of even more capital flowing into construction financing from banks.
The AIA Consensus on construction forecasts accelerated growth and budgeting in 2018 to 2019; The chart shows estimated growth changes.
The consensus forecasts that the industrial and institutional sectors will dominate the projected construction growth in the near future.
