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Week of July 7, 2000 |
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Rising rates fail to cool building loans, lenders say By Marilyn BowdenThe market for commercial construction remains strong across South Florida despite rising interest rates, lenders say. Though the numbers weren't quite as high as in 1998, David Dabby, senior vice president at Integra Appraisal & Real Estate Economics Association, says 1999 was a near-record year for commercial construction in South Florida. "It's continued to be strong through the first quarter of 2000," he says. "We can't tell yet if it will be another record year, but it will certainly be strong." Construction loans across Miami-Dade, Broward and Palm Beach counties topped out at $4.6 billion last year, Mr. Dabby says. "That's very positive," he says, "because when you have this level of construction, everybody is busy and will remain busy for at least a year. That money funds not only the general contractor but also subcontractors, lawyers, architects, engineers, developers, designers and so on." The flip side, Mr. Dabby says, is that very strong levels of construction lending can ultimately produce supply problems. "We're constantly vigilant in looking for those potential imbalances," he says, "but nothing is jumping out just yet." With memories of overbuilding in the mid-1980s still fresh, Mr. Dabby says, "banks will probably avoid making the same mistake, at least until those memories fade. But each bank doesn't know what other banks are doing. That's part of the problem with overbuilding." Bill Painter, senior vice president in construction lending at Colonial Bank, says some "hot spots" around Miami-Dade are moving very well. "We're doing some office-warehouses in Miramar, where quite a lot of space is going up," he says. "The Doral area just east of the turnpike is extremely good. So is Key Biscayne." Because land in most of the county is scarce, Mr. Painter predicts Homestead will be the next growth area. "We've experienced a good loan growth this year consistent with last year," says Walter DeVilliers, senior vice president of real estate lending for Ocean Bank. "We're expecting that our loan demand will remain strong through the end of the year." He says activity is strong throughout most market segments, though the residential market could fall off a bit if interest rates continue to rise. But in general, he says, the economy is strong and loan demand should continue to be strong as well if the interest rate doesn't rise further — "which is a big question mark." "Alan Greenspan is trying to slow things down," Mr. Painter says. "He will keep raising the rates until we have some slowdown. But even so, it may affect the rest of the country more than South Florida." Increases in the interest rate have "made everyone more cautious," he says, "but none of our builders has slowed down because of it." Mr. Dabby says he's seen no effect on commercial construction from rising interest rates. "The total development costs of a commercial project are not greatly affected by a 1% increase in rates," he says. With a number of rental apartment projects concentrated in the Brickell area, Mr. Painter says he thinks demand could temporarily outstrip supply. Hotel development may be slowing down, he says. Mr. Dabby also says the hotel market bears watching. During 1999 alone, he says, $500 million in hotel work was funded. "That's the same amount as was funded during the last expansion, from 1984-89 — but all in one year this time," he says. "That raises a warning flag. But we'll have to wait and see."
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