While I don't know if this is a good thing or a bad thing, I do know that developers have got to be chomping at the bit in anticipation of building at such low construction costs.
Perhaps rents have gone down for commercial and retail space due to the economy and unemployment, but there have got to be some facilities that can generate the same revenue as they did back in 2008 with construction costs 10% lower. When these numbers are entered into the ol' proforma spreadsheet, it can make development very attractive.
If you wanted to build a football stadium, it would cost $540 million in stead of $600 million - that's $60 million bucks! That could sign Micheal Vick to a ten year contract (pending good behavior of course).
A large hospital addition would cost roughly $225 per square foot rather than $250 - and hospitals have to be rakin' in the same bucks as they were a year ago. Somebody ought to be cashing in on this.
So why aren't we building with all these attractive financials? Well, I will now point the tremendously feared finger of blame on my favorite and most vulnerable target - the banking system.
C'mon guys and girls wake up! You need to lend money to stay in business, barring any gifts from the government in the future. Was the intention of giving TARP money to have the banks stuff it in their pockets like misers until they were forced to lend it out? Uhhh, I don't think so.
The intention was for them to lend it, like banks have always done and should be doing now. What do we have to do? The pendulum has swung so far back in the opposite direction (and stayed there) that the universal laws of physics are being legitimately challenged while construction workers are challenged to find enough money to pay the landlord.
Perhaps Sir Issaac Newton can help us out with some apple on the head demonstration - we need something.
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Construction costs have fallen due to oversupply. You're overlooking that banks have no reason to lend and there are few to lend too. We just went through a period of lending for the sake of lending.
ReplyDeleteAmerica is awash in capacity. We have too many houses, too much comercial real estate. In my town, there are empty mills and strip malls. Hard to justify more construction for years.
You're wrong about hospitals. Smaller hospitals are being eaten up by larger ones in this recession. My sister is a book keeper for a hospital; they've laid off 15% of their workforce. 16.8% unemployment. Many more underemployed. Last thing they are thinking about is a new wing.
Recession has overcome the construction industry and thats why the construction cost is lower than previous Quarter and I think that a little bit time is required for Construction INdustry to overcome the recession.
ReplyDeleteThanks,
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