The construction industry seems to be returning – or at least has a pulse. 

We at Partner have noticed a steady uptick in our construction risk management services, indicating that construction lending appears to be on the rise nationally.  Over the last two quarters we have seen demand double for construction lending services.  The industry certainly isn’t getting worse: “Delinquent construction and development loans fell by $4 billion (6.9%) to $53.8 billion,” reported CoStar in June 29, 2011’s LESS DISTRESS: CRE Taking Less of Toll on Nations’ Banks. 

 

Taking the reins in construction lending is an unusual source: life companies.  Life companies and insurance lenders are lending on construction projects at an increasing rate – Partner has seen a higher percentage of life companies requiring construction monitoring services in these last two quarters.   

 

Of the many lending sources available, life companies seem to have weathered the great recession reasonably well. Additionally, according to Jerry Ascierto’s article Construction Lenders Begin Catching the Fever in  MultiFamily Executive, June 2011’s  “It’s not just banks—life insurance companies are entering the fray in increasing numbers as well. PacLife, Northwestern Mutual, Nationwide, and Prudential are also out on the market offering construction capital, usually targeting long-term holders as a way to capture the permanent loan business.”  According to Timothy Jordan, senior managing director of HFF’s Dallas office, as quoted in Ascierto’s article “The life companies are looking for ways to get multifamily business, to beat the agencies,” Jordan says. “They tend to do those projects because it’s product they want to hold.”

 

The rewards seem to be outweighing the risks and appealing to insurance companies providing construction loans.  While companies that lend on construction may still suffer setbacks and losses this year, those losses are expected to be substantially lower than experienced in the previous year.  Most large insurers are stable and have plenty of excess capital to deal with any trouble they feel may looming in the market.

 

With insurers lending on commercial real estate, commercial construction should start to revive, and subsequently breathe life into many other industries.  The products used in construction in turn support several other industries such as steel, chemical and many others. Few other industries have as many other industries relying on its success for their own as construction.  It’s a large machine that once rolling will create growth throughout the US and abroad.

 

Banks and other lenders will play a large part in getting commercial construction up and running again.  It’s not an easy on off switch and will take some time.  With the large insurers helping to lead the way, we’re moving in the right direction.