The construction industry is expected to slow down a bit from the record growth sustained in the last few years. Many in the predictive analysis category suggest about a 5 percent growth in nonresidential construction.
On the upside, hot markets such as Boston, Nashville, Dallas-Fort Worth, and Detroit are expected to rally even further in most segments as inventory finally begins to catch up with demand. This is due, in part, to the renewed faith of contractors and investors that saw 2017 struggle under the weight of limited supply. They’ve stepped up to the plate, got out the hammers, and started creating homes and buildings from the ground up with rising prices expected to continue. Keep in mind that, because of the rapid increase in supply, the industry will, undoubtedly, at some point in its current evolution, face some challenges when supply ultimately supersedes demand. And then there are the markets that currently have the “golden ticket” with no end in sight.
If you’re in the business, you undoubtedly have heard about the record-breaking year that Nashville just experienced. If you’ve been living on a tropical island with a Mai Tai in your hands—good for you. Now, let’s get you settled back into the real world by sharing a thing or two about the city where the Grand Ole Opry resides.
· Land in the downtown core is going for more than $13 million per acre.
· Office rent is nearing $40 per square foot.
· And, last but not least and the understatement of the year: Land suited to industrial sites for distribution centers is in strong demand.
Then there are the segments that saw a cyclical peak, such as multifamily units. We expect 2018 will see a slight decline from the rapid growth that 2017 saw in this sector with apartment construction at a 20-year high. Nevertheless, multifamily housing and senior living developments are still expected to carry the ball and, like a delicate cream, rise to the top. Keep in mind that rents are experiencing only a modest increase—about 3.9 percent in 2017. And that rate is expected to flatten out as more multifamily units rise from the ashes. Four of the top 10 markets as far as new apartment complexes include Dallas-Fort Worth, Houston, Denver and Nashville.
You don’t really need a crystal ball to see that commercial real estate loan rates are expected to rise in the coming year. Combining suggested strong economic growth, inflationary pressure and the need to normalize our monetary policy will undoubtedly lead to a rising cost at the lender’s gates. This will prompt investors, builders and home buyers to strike while the “iron’s hot.”
CMBS lending slowed down in 2017. This may due, in part, to the pre-recession 10-year loans that came due. It may also be due to the Dodd-Frank Act that came into effect at the end of last year and, according to Forbes, requires a CMBS to “hold on to 5 percent of every new deal or assign the risk to a B-piece buyer.” This is prompting non-bank lenders to step in to fill the gap. Whatever the reason, insufficient capital for funding projects is one of the current top considerations in the construction industry. If you’re looking for alternative funding for your next project, contact us at Level 4 Funding for a no-obligation quote. We pride ourselves on finding the right private investor for your next commercial real estate loan and at the best rates.
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About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.