FUNDING
Investor Review
Big Builds Mean More Scrutiny LENDERS ARE STILL WRITING CHECKS, BUT ONLY FOR PROJECTS THAT PASS TODAY’S TOUGHER TESTS.
TAYLOR MILLER
A n obvious shift is underway in today’s commercial real estate market. High interest rates are in a state of limbo, making traditional property purchases more expensive and profits harder to come by. Many investors, therefore, are choosing a different route: They’re building or renovating properties instead of buying ones that are already finished. This trend is showing up everywhere, from downtown office buildings being turned into apartments to new industrial warehouses popping up near major highways. But there is a catch. Although these types of construction and renovation projects are gaining popularity, the loans used to fund them are coming with a new level of caution and scrutiny. Lenders are being far more careful
about where they put their money—and borrowers are feeling the difference.
properties. This might mean turning an outdated office building into modern apartments or taking a half-empty shopping center and revamping it to meet today’s needs. These types of projects allow investors to control the process from start to finish and, ideally, make more money when it’s all said and done. LENDERS TURN UP SCRUTINY It’s important to understand that banks and other lenders haven’t stopped funding these types of projects. They’re still very active in the market, but they’ve become more cautious when it comes to construction or heavy renovation loans. From the lender’s point of view, a lot can go wrong during construction. Costs can run over budget. Projects can fall behind schedule. Permits can be
WHY INVESTORS ARE BUILDING
A few years ago, the most common move in commercial real estate was to find a property that was already making money—like an apartment building or a retail center—and then get a loan to buy it. That strategy still works in some cases, but today the math doesn’t always add up. Prices are still high, but so are the interest rates. That means monthly loan payments are more expensive, and the returns investors were used to seeing just aren’t there anymore. So, instead of buying, many are choosing to create value themselves by building something new or transforming older
44 | think realty magazine :: september - october 2025
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