Outlook for Construction Lending in 2021

I’ve spent some time over the past few weeks talking with our clients and contacts in the construction lending industry to get their outlook for 2021 and have also considered our increased business at CM&D for this year and beyond when writing this short piece.

“Pent-up demand” is the phrase I hear most often when speaking with our contacts in the capital market industry. There is a high level of optimism in the marketplace, especially with COVID numbers trending in the right direction and the vaccinations becoming more widespread. Here at CM&D, we are certainly seeing a strong uptick in business these first two months of 2021.

We have a long history of working with lenders and capital providers delivering what we call our Project Assessment and Monthly Oversight services. Terminology for these services varies quite a bit in the industry and includes Project Plan and Cost Review, Construction Loan Monitoring and Construction Loan Consulting. With over 60 active projects with our lenders, we have a unique pulse on the marketplace.

So what’s in store for construction lending this year? I think it still depends on the property type, location and deal fundamentals. Most multifamily and light industrial remained strong throughout the pandemic, with an increase in logistics and distribution centers. Office, retail and hospitality lending were basically stopped dead in their tracks at the start of the pandemic. We’re beginning to see capital getting back into play with these three property types. In fact, one of the largest private hotel construction lenders in the U.S., Hall Structured Finance, just fully re-entered the market. My sources are telling me that Hyatt has already seen a huge jump in group bookings through January compared to the entire last quarter. I believe we’ll see the conventional hotel construction lenders jump back in mid to late 2021, with only the strongest projects and locations achieving financing. What is a strong project? We need to see financially capable sponsors with a good track record. We need to see projects in great locations with construction numbers that are backed up by CM&D. We have one of the more experienced and qualified finance professionals in the industry on staff that can put together a top notch financial model for you.

Every capital provider I’ve spoken with has expressed an expectation of much greater loan volume in 2021. This includes conventional lenders, private lenders and even some equity players. Many are making the assumption that the rates will remain stable and we will continue to dig out of the pandemic hole. What differentiates today from some of the down economic times in the past is that capital providers from lenders to private equity are mostly flush with cash. As we continue to see a light at the end of the tunnel, this money will re-enter the construction lending market in a big way.

If I were to sum it up in one sentence: I think we are transitioning from a general sense of cautious optimism to a truly optimistic outlook for 2021 and beyond.

As part of our Development Management services, we can help create a “marriage of capital” for you. Please reach out to us and let’s work together to create a viable and economically attractive Development Brief with a detailed financial model that we can present to the capital markets with confidence.