construction lending shows solid market, guarded optimism

Despite such challenges as labor shortages and the increasing cost of materials and supplies, the nation’s lenders continue to feel pointedly optimistic about the future of the construction industry.

That is one of the findings of a recent Construction Lender Risk Management Roundtable in New Orleans which indicated that a significant majority of lenders intend to either continue or increase their current level of deals.

The same lender response also revealed that most were either somewhat likely or very likely to invest in new technology, good news for an industry embracing that technology.

Despite these promising responses, more than 60 percent of lenders said they were increasingly seeing individual construction projects running over budget, with a very strong 87 percent also recording projects running over schedule.

Perhaps not surprisingly, given current concerns over the impact of raised tariffs on steel and aluminum products, 90 percent of lender respondents said they expected to see either modest or substantial increases in construction costs in the future.

In the face of current lender confidence in the construction industry, Bill Tryon, director of strategic development at the Torrance, California-based Partner Engineering and Science, has noted that a rapid expansion of construction loans contributed to a number of bank failures during the Great Recession.

In an interview with Commercial Property Executive magazine, Tryon remarked that the big trend today is one of caution: “Major lenders are evaluating construction risk management policies limiting their exposure in overheated markets, and syndicating loans to spread risks.”

By Garry Boulard