Construction trends — lower interest rates, labor shortages

Falling interest rates may have a positive impact on the construction finance industry, said Jonathan Lee, principal/managing director of George Smith Partners, as banks show more willingness to lend. Lee recently spoke with Loretta Clodfelter, editor of Institutional Real Estate Americas, about the latest construction trends.

The FOMC recently lowered the target federal funds rate. What impact might that have on construction finance, and on the broader construction industry?

This is a positive development on multiple fronts for the construction industry. In the last 12 months, the debt side lenders have continued to get more conservative by constraining their advance rates with debt coverage tests on exit NOI. It becomes more difficult for them to push exit underwriting rates as a precaution when the treasuries are dropping precipitously. From th