Industry pundits are buzzing about the McGraw-Hill Construction report, as quoted below in the Wall Street Journal.

Commercial Construction May Slow - WSJ.com

In a closely watched report expected to be released today, McGraw-Hill Construction will forecast that spending on commercial and manufacturing buildings, such as offices, warehouses and hotels, will decline 7% next year, in dollar volume, and 10% in the number of square feet of space built. That would be a sharp turnaround from this year, when commercial and manufacturing construction is expected to end the year up 11% in dollar volume. The McGraw-Hill forecast is based on the company’s tracking of construction projects, including the issuance of building-permit data by local governments. That data, known as construction starts, are an indicator of future construction spending and often correlate strongly with actual construction spending. The strength in the commercial sector until now had been offsetting the decline in the housing market. That appears to be changing, though continued growth in institutional construction, such as universities and hospitals, and road construction will provide somewhat of a balance. The pattern of having one sector up while the others were down “has been a moderating force,” says Robert A. Murray, vice president for economic affairs at McGraw-Hill Construction

As one of the more popular financing resources for commercial construction loans, we can attest to our observation of significant declines in residential acquisition & development financing on a national level this year, to the point where even the best deals are not being financed, however the inclusion of residential subdivision projects in the commercial construction loan metrics is potentially misleading. Highly qualified sponsors seeking to build NNN or credit tenant office, net lease retail, flagged select service and better hospitality, warehouse and light industrial assets are still able to secure financing, but as always, commercial real estate is local.

What many sponsors are reporting to us is that their local banks are increasingly retrading previous commitments or declining to quote on new projects, however our approach has always been to look at commercial construction loan requests on a local basis. Multiple markets whose residential values are in trouble are still in fundamental need of additional commercial property, and some MSAs, such as Seattle, are enjoying continued demand for residential as well as multifamily, commercial & flagged hotel / motel product.

If you are a sponsor seeking financing to get your next commercial development off the ground, visit our Commercial Construction Loan site for more information, or give us a call at (800)290-4770

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