South Florida commercial and multifamily construction starts were flat at $4.7 billion in the first half of 2023, compared to the same period a year ago, according to Dodge Construction Network.
While no growth may not be a great showing for the tri-county region, it’s better than the construction market in much of the country. Hamilton, New Jersey-based Dodge found construction starts were down 14% in the first half of 2023 in the markets it tracks.
The South Florida region ranked fourth among regions with the most construction, behind New York, Dallas and Atlanta, respectively.
Higher interest rates have made it more challenging for developers to finance construction, and a spike in both construction costs and insurance premiums has compounded the problem.
“The wind has gone out of the sails for the commercial and multifamily sectors,” stated Richard Branch, chief economist for Dodge Construction Network. “Starts are likely to worsen still in the second half of the year, as interest rates head even higher. Tighter financial conditions and significant market shifts have led to precipitous declines in starts across many metropolitan areas.”
In South Florida, multifamily construction starts declined 1%, while commercial construction starts grew 4%, mostly due to more warehouse development.
Among the largest projects that broke ground here during the first half of the year were the $164 million Baccarat Residences in Miami, the $160 million Namdar apartments in Miami, and the $46 million Gaumard Scientific office in Miami Lakes.
The difficulty with obtaining construction loans is in the terms, not only the interest rates, said Paul Tanner, managing director of Fort Lauderdale-based Las Olas Capital. Several years ago, lenders would make a construction loan equal to 75% of project cost, but now they are offered at 52% of project cost, or less. Plus, lenders are requiring developers to hold more cash in reserve for potential project cost increases.
“It has made deals somewhat uneconomical,” Tanner said. “It hasn’t brought them to a screeching halt, but it’s like tapping the brakes.”
John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: [email protected] or (631) 608-1346.
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