condominium structures used to bring different uses—and there-
fore different financing mechanisms—into one project.”
Many of the larger players in the Northeast, such as Related,
RXR and Kushner Companies, are seeing a shift in the market
and stepping in with lending platforms of their own. Because they
have significant in the trenches experience, Smith says owner-
developer lenders have a unique view of the assets they’re lending
on, and can price risk accordingly.
“They’re also nimbler, because they don’t have to comply with
federal banking regulations such as Dodd-Frank,” Smith asserts.
“These and other non-traditional lenders will continue to fill in
the gaps on construction and mezzanine lending in 2017.”
MIXED-USE MAY PAVE THE WAY
There’s a debate among industry players about the viability of
mixed-use as a way to pencil out a project in the black. Some swear
by this approach in most cases. Others argue it’s not the end-all.
Still others take an “it depends” approach.
“A mixed-use approach can be an effective way to aggregate
enough different resources within one larger project in a way that
makes the overall project feasible where the individual compo-
nents might not be,” says Bigby. “A mixed-use project is also a
good strategy to employ when competing interests need to all be
addressed within one project.”
He again points to the firm’s Treadmark project. His team suc-
cessfully created a mixed-use building that contains market-rate
for sale condos, affordable workforce rental housing and street
level retail. Each component was needed to receive public sup-
port and approvals and the diverse mix of uses allowed the firm to
access a wide array of financing tools.
LeDon says unless it’s a super-high-end project, mixed-use is
fast becoming the only way to build. Not only does it attract a
wider pool of buyers, he says, but it’s also a hedge against some of
the parts of a mixed-use not panning out as planned. But Riser
stresses mixed-use is not a panacea for developer challenges.
“True mixed-use projects are still more complex,” Riser says.
“But if conceptualized correctly in the right locations, they do
have a differentiating quality that makes them attractive despite
TAPPING THE POWER OF JVs
In 2015, Cobb County, GA closed a $376.6-million bond transaction
to build Sun Trust Park, which will serve as the Atlanta Braves’ new
home. The bonds will fund over half the
cost of the $622 million stadium construc-
tion. American Builders 2017, a joint ven-
ture between Brasfield & Gorrie, Mortenson
Construction, Barton Malow Co. and New
South Construction, just wrapped up the
Rob Ragan, vice president of business
development for New South Construction,
says JVs help spread costs, improve access
to new markets and help firms complete
projects faster than they normally would.
“Joint ventures also improve access to
resources,” says Ragan. “We have 65 people
working on Sun Trust Park, the new Atlanta
Braves stadium. If New South were the sole
contractor, we’d have to dedicate half our
company’s resources to that one project,
and wouldn’t be able to focus on our other clients and markets.”
“In many of these long-term opportunities, the value-added
component involves a new rezoning, piggybacking on an existing
rezoning or pursuing discretionary zoning relief that can take
years to materialize,” Smith says, noting New York City is contem-
plating zoning changes for Long Island City and the Gowanus
Canal area. “To successfully execute on a development project
years down the road, you need foresight, experience and finan-
GREATER CHALLENGES AHEAD?
Like many, Riser expects developing new projects should become
more challenging in 2017. The recent increase in land and construction costs will continue, he predicts. At the same time, it will
still be difficult to obtain construction loans and investors will
remain hesitant to provide capital toward new projects.
Bigby agrees. He says land costs, construction costs, rising interest rates don’t project to self-correct any time soon. What’s more,
high-end rental and condo markets appear to be getting saturated,
which will directly impact investment returns. Meanwhile, looming
corporate tax reform will have an unsettling effect on tax credit
driven financing—historic tax credits, low income housing tax
credits, et cetera—and an increasing focus on the need for affordable and workforce housing will further strain the availability of
public resources that exist to fill those gaps.
“However, where there are challenges there are also opportunities,” Bigby says. “The country appears poised to significantly reinvest in its infrastructure, hopefully including its transportation
networks. Communities increasingly see the value of increased
density near transit nodes, and coupled with the need to build
thousands of units of workforce housing, there should be opportunities to pursue high density, mixed-income, mixed-use developments in urban, transit oriented sites throughout the country.” ◆
approach can be an
effective way to aggregate
enough different resources
within one larger project
in a way that makes it
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