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Apartment Builders Press Pause Due to High Costs, Little Funding

Nationwide apartment developers face delays and financial challenges due to rising costs and funding shortages.

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Good morning. Higher interest rates and flattening rents are causing widespread delays in apartment construction projects across the U.S. Plus, Manhattan office leasing levels surged 70% in May.

Today’s issue is brought to you by Redwood Living.

Market Snapshot

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Struggling Apartment Developers Pause More Constructions

Developers are halting projects nationwide as high interest rates and stagnant rents make new apartment constructions financially unfeasible.

Delayed: Amid the largest apartment construction boom in decades, many developers are struggling to secure the necessary financing. Increased interest rates, tighter lending conditions, and stagnant rents are causing significant delays. The average time between construction authorization and commencement has jumped 45% since 2019, reaching nearly 500 days.

Less starts: In April, multifamily building starts fell to an annual rate of 322,000 units, the lowest April rate since 2020, per the Census Bureau. “We certainly are seeing a decline in construction,” said Robert Dietz, chief economist at the National Association of Home Builders. “Deals and financing have dried up.”

Zoom in: Close to 500,000 new apartments hit the market in 2023, the highest in 50 years, with a similar number expected this year. This surge has led to an oversupply in some cities, making it difficult to lease units without cutting rents. Compounding the issue, many regional banks have hit pausing on CRE lending. “Their current portfolios are getting marked down and they don’t have that much to lend,” said David Frosh, chief executive of Fidelity Bancorp Funding.


What happens next? Developers now need to raise more cash from investors, who are wary due to flattening rent growth and increased construction costs. Other options include exploring alternative funding sources or repurposing developments for affordable housing. The bottom line is that high interest rates keep most investors on the sidelines. Despite the challenges, some developers hope to resume construction with improving conditions later this year.

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✍️ Editor’s Picks

  • Move over NYSE: Citadel and BlackRock support the creation of a new national stock exchange in Texas, with TXSE raising $120 million from over two dozen investors.

  • On thin ice: 67 US banks have CRE exposure that’s over 300% of their total equity, Flagstar Bank (FBC) and Zion Bancorp (ZION) chief among them.

  • Bills and thrills: JPMorgan (JPM) projects that the Treasury bill market share could exceed 20% by 2026 as demand rises from key investors.

  • Nobody’s market: US homebuyers face a disappointing key season with mortgage rates over 7%, driving sellers to cut asking prices as inventory grows.

  • Shipping the REIT: Defunct cargo hauler Yellow Corp is considering creating a REIT with its remaining assets, as most of its valuable properties already sold for $2B.

  • Brokerages diversify: Colliers (CIGI) plans to acquire Englobe Corp for $475M, expanding its business into engineering and environmental services to generate diverse revenues.

  • Downtown dazzle: Dallas ranks 11th in Business Journal’s nationwide Downtown Vitality Index, leading all Texas metros in terms of post-pandemic recovery, with a 58.41 score.


  • Housing hunger: NYC's Section 8 voucher applications topped 150K within 12 hours after opening up again for the first time in 15 years, highlighting the city’s severe affordable housing crisis.

  • Sky-high living: After a $10.25M site purchase, Aventon Companies began construction of the 346-unit Aventon Lake Conway near Orlando Airport.

  • Vegas revival: Developers are pivoting to build more apartments in the Las Vegas Strip and in downtown amid high supply in suburbs, upping renter competition.

  • Downtown development: Rabsky Group's 625 Fulton Street in Downtown Brooklyn secured $485M in financing for 1,098 units with retail.

🏭 Industrial

  • Manufacturing momentum: The manufacturing sector faces inflation and slow demand as vacancies normalize, with $233B in annualized construction spending signaling future growth.

  • Trash talk: Waste Management is set to acquire Stericycle, a medical waste company, with the potential deal involving hundreds of industrial properties across the country.

  • Manufacturing meltdown: US factory activity contracted in May as the ISM index dropped to 48.7, while new orders plummeted to 45.4.

  • Quantum leap: Big Blue's (IBM) potential quantum computing expansion in Illinois could solidify the state as a new tech hub, while creating around 1K jobs.


  • Retail Renaissance: Federal Realty Investment Trust (FRT) acquired Virginia Gateway, a 665KSF shopping center, for $215M, enhancing its Northern Virginia portfolio.

  • Can’t beat those prices: Trader Joe's plans to open 24 new stores nationwide, including 8 in Southern California, maintaining steady growth amid intense competition.

  • Greasy grills: Bankrupt Rubio's Coastal Grill closes 37 SoCal locations, including 25 in LA and Orange counties, although 86 restaurants remain open.


  • Leasing leap: Manhattan office leasing levels surged 70% in May, with 2MSF leased in Midtown and 3MSF citywide.

  • Another one bites the dust: A $28M CMBS loan for Harlequin Plaza in Greenwood Village, CO, faces special servicing due to default.

  • Check the fine print: AAA-rated bond investors at 1740 Broadway faced a $40.3M loss (-25.6%), despite previous appraised values.


  • Booking blues: American consumers, increasingly poorer due to inflation, are tightening their belts. Low-income earners booked 0.5% fewer hotel rooms in April, perhaps a sign of things to come.

  • Buying spree: Blue Suede Hospitality Group bought the historic Blue Moon Hotel in Miami Beach for $16.6M, marking the firm’s third acquisition in the area.


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