ICOnic News | The Impact of Development Projects in 2023 | Dec 2022
a
THE IMPACT OF DEVELOPMENT PROJECTS IN 2023
Development projects will be impacted by the rising interest rates in 2023. Most development deals are financed with a construction/interest only loan to start and then converted to a permanent loan. Both the construction loan and the permanent loan are going to be more costly in 2023. Keep in mind that development projects are generally in the works a year or two before you see dirt moving, so with plans and approvals in place, most deals will move forward, but will be more costly to the developer. Some developers will put projects on hold while others will attempt to pass on the additional cost to tenants/end users unless leases were already in place.
Projects that will certainly move forward are small scale retail developments (such as strip centers, c-stores/gas stations, drug stores, banks, etc.) that are demand driven and follow new Master-Planned Communities to provide essential services to those new residents. Being first to market with a captive customer base still has huge advantages and will move projects forward.
Furthermore, Industrial Projects such as Manufacturing, Distribution Centers, and Warehouses, will continue to move forward in 2023 to further reinforce the strategy of industries controlling their own destiny by controlling their supply chain and not being so dependent on foreign countries for their success.
Residential developments will continue to move forward in 2023 but at a slower pace. The increase in Mortgage rates impacted home sales significantly in the second half of 2022; however, with mortgage rates normalizing and with a steady and stable market, demand for new homes will return in 2023. Home builders will preserve their capital for the vertical construction of homes and will spend less money investing in land and development projects. Developers will continue to invest in new development deals and will look for creative ways to finance their projects.
Commercial Developers with successful developments that have no, or low vacancies will have the opportunity to refinance when interest rates improve and so will new homeowners when mortgage rates drop leading to additional capital to invest in 2023.
2022 has been a year full of laughter, joy, celebrations, and much more. We are grateful for the memories that we have created this year.
As 2022 comes to a close, we would like to thank all of our clients, friends and colleagues for helping make this year great. We are excited to see all that 2023 holds and we look forward to continuing to work with you.
