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Developers Sit On Empty Lots As Higher Rates Delay Projects | Black Kite Express

After a generational boom in apartment construction, some developers are now finding that the economics no longer make sense in projects in progress.

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Developers are targeting an increasing number of undeveloped lots as market conditions for apartment construction deteriorate, according to a new report.

After a generational boom in apartment construction, some developers are realizing the economics no longer make sense in projects for which they have already acquired land but haven’t finished, according to The Wall Street Journal. The main culprits? Higher interest rates, rising construction costs, tougher credit conditions and stagnant rents in some parts of the country.

The average amount of time a construction project spends between building authorization and when construction actually begins has increased to nearly 500 days, a 45 percent increase over 2019, according to data from the data firm Yardi Matrix real estate.

Developers are also releasing fewer projects overall. Multifamily housing construction fell to an annual rate of 322,000 units in April, the lowest rate since the start of the pandemic in April 2020, according to the U.S. Census Bureau.

“We’re certainly seeing a decline in construction,” Robert Dietz, chief economist at the National Association of Home Builders, told the conference. WSJ. “The deals and funding have dried up.”

The decline was inevitable, the report notes, and came after a decades-long wave of apartment construction that resulted in nearly half a million new apartments becoming available in 2023, with a similar number expected to become available in 2024. which helped cool rents in some markets.

Additionally, the credit environment has deteriorated thanks to difficulties in the commercial real estate sector, adding strain to the accounts of regional banks that normally provide financing to developers.

“Their current portfolios are being written down and they don’t have much to lend,” David Frosh, CEO of Fidelity Bancorp Funding, told the conference. Diary.

This has left property developers looking to investors as their most viable avenue to raise funds, but investors are also feeling more cautious than when interest rates were lower and rental growth was more consistent, making Profits in apartment projects are more secure.

“The numbers don’t add up,” Frosh told the newspaper.

This has caused some projects to be delayed even after construction has already begun, according to the report, such as a project by apartment developer Galena Opportunity of Boise, Idaho, which had to stop work on the project a third of the way through. path completed when a major investor pulled out. That project remains stalled while the developer changes its plans to reduce costs, according to the report.

Some developers, like Seattle-based Tyler Carr, are looking for new solutions to keep their projects alive when funding runs out. Carr told the Diary He is making part of one of his stalled developments affordable housing so they can qualify for government tax credits.

“There has been a lot more brain damage,” Carr told the newspaper. “But I see it as a great opportunity. “I’m sinking my teeth into something new.”

Email Ben Verde

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