VOORHEES, NJ-The economic recession continues to linger, and job recovery is moving at a slower pace than expected, so real estate firms are coming to realize they need to shift strategies and work harder to generate the same revenues. Many builders have mixed-use and multifamily projects lined up, but are waiting for stronger activity before they can move ahead.
To get a clearer picture of how current economic conditions are impacting builders, the Strategic Alliance, a group of real estate-related companies, conducted a business survey that covered more than 1,000 builders and developers and other industry professionals in the Tri-State and Mid-Atlantic regions, as well as Pennsylvania and Florida. The survey, which was the second sponsored by the Alliance during 2010, polled real estate experts involved in the commercial, single-family, multifamily, and 50-plus active adult markets.
“While most builders hoped that conditions would trend up quicker this year, there are some fundamental problems that still need to be resolved before projects can move forward,” says Bill Feinberg, president of Feinberg & Associates, PC and founder of the alliance.
Not surprisingly, 66.6% of respondents indicate that the economy has not pulled out of its slump. Although 47.3% note that the business cycle for the real estate market remains in a recession phase, 36.8% say that the market is in a recovery stage, and only 12.2% see the cycle as severely down.
A look at the current lending landscape reveals lending terms and conditions that remain tight, report 43.8% of respondents. In a breakdown, 26.3% describe lenders as too cautious when it came to credit risk and 17.5% claim smaller banks are more willing to make loans than larger institutions.
The findings also reveal that 57.8% of builders see no “positive indicators” that the commercial market is beginning to correct itself. Further, when asked to identify the most pressing challenges in developing residential real estate today, 45.6% of respondents say that demand was the greatest factor, followed by 33.3% who point to financing issues. In descending order, approvals/permitting, availability of land parcels and the cost of materials were ranked less significantly.
With an eye toward the future, builders are exploring new strategies to meet buyer demands. Sixty percent say that to stay competitive, they are shifting away from bigger traditional home designs to conservative pedestrian-oriented mixed-use neighborhoods. Another question showed more than 63.1% are re-evaluating their projects, planned pre-recession, from a product/layout/density standpoint.
The multifamily residential market came out on top as the sector holding the greatest potential for growth over the next year with 61.4% of respondents’ votes, followed by 19.2% for single-family and 8.7% for active adult.
In the active adult marketplace, only 17.5% see strong potential. Market activity hinges on improved economic and job market condition, according to William Becker, president of the William E. Becker Organization. “We need a large decrease in the re-sale inventory to get these buyers back into the market,” he adds.
Finally, the region’s economic future hinges on its ability to redevelop older cities and suburbs. Unfortunately, large hurdles still exist for private-sector reuse of brownfield sites. When asked to identify the largest barriers, one-third pointed to complicated regulatory requirements. Secondly, the availability of funding was identified by 21%, followed by the legal liability for contamination with 19.2%.
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