Contractors, Owners Wait Out High Interest Rates
Date Posted: May 16, 2024
Posted In: Discussion,
From Construction Dive: With nearly 45 years of experience under his belt, Monte Thurmond may have seen this movie before.
The executive vice president for AECOM Hunt, an Indianapolis-based general contracting firm, understands the implications of higher interest rates on construction activity, and that strain is starting to play out now, Thurmond said.
“We’re certainly seeing a lot of pressure on almost all the commercial real estate projects because historically the majority of those types of projects are going to be taking some kind of debt instrument in order to back up any of the equity side of the equation,” said Thurmond. “[High rates] are impacting current attempts to bring projects to the market.”
For example, the city of Detroit and private developers Olympia Development of Michigan and the Related Cos. recently pushed back the construction timeline on its $1.5 billion District Detroit mixed-use project due to the current lending environment. Overall, work put on hold increased 10.1% over the past month, according to Cincinnati-based ConstructConnect’s Project Stress Index.
The Federal Reserve opted to hold interest rates steady during its latest meeting earlier this month. Officials attributed their decision to pause any rate cuts to higher-than-anticipated inflation metrics. That’s bad news for construction activity, especially on the private side.
“Interest rates rising have been a poison pill in moving construction projects forward,” said Eric Brody, founder and principal of ANAX Real Estate Partners, a New York City-based real estate capital advisory firm. “Where certain projects may have penciled out in the past no longer pencil.”