Trouble Looming for U.S. Construction Loans?

  • According to loan management platform Built Technologies, $3.9B (22%) of construction loans in the U.S. are in areas with construction suspension order in place.

  • Even in areas with active construction sites, the slowed inspection & permitting process is still forcing lengthy & costly delays.

  • One subcontractor we spoke to mentioned several municipalities are using FaceTime & Skype to perform "virtual inspections."

  • The CARES act passed by Congress gives lenders flexibility to restructure construction loans on suspended projects without classifying it a "troubled restructuring."

So whats the big deal?

  • There are massive quantities of these loans to restructure

  • Even if/when the project completes, leasing will likely take longer than anticipated, leaving developers & lenders in a bind.

  • Further, once stabilization of the asset occurs - will a market sale or refinance be feasible? Will there be liquidity in the investment sales and capital markets to breakeven or profit?

These are questions that we really can't answer right now without too much speculation. We will have to monitor the situation as these details unfold.

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