U.S. productivity grew at a solid 3.6% rate in the first three months of this year, the strongest quarterly gain in more than four years and a hopeful sign that a long stretch of weak productivity gains may be coming to an end.
The first quarter increase in productivity was more than double the 1.3% rate of gain in the fourth quarter, the Labor Department reported Thursday. Labor costs actually fell in the first quarter, dropping at an annual rate of 0.9%, indicating that tight labor markets are not creating unwanted wage and inflation pressures.
If it continues, an uptick in productivity would be good news for President Donald Trump and his goal of achieving sustained economic growth above 3%. Productivity, the amount of output per hour of work, is a key factor determining an economy’s growth potential.
With the strong gain in the first quarter, productivity over the past year has grown by 2.4%, the best four-quarter gain since a 2.7% rise in 2010.
Productivity gains over the past decade have for the most part been lackluster, averaging annual gains of just 1.3% from 2007 through 2018. That was less than half the 2.7% gains seen from 2000 to 2007, a period when the economy was benefiting from technology improvements in computers and the internet.
From 1947 through 2018, annual productivity gains averaged 2.1%.
Economists have labeled the slowdown in productivity since the Great Recession as one of the country’s biggest challenges. However, recent signs have indicated that may be turning around. The economy’s potential to grow is governed by two major factors, growth of the labor force and growth in productivity.
The overall economy, as measured by the gross domestic product, expanded at a surprisingly robust 3.2% annual rate in the first three months of this year. For all of 2018, GDP growth was 2.9%. The Trump administration has projected sustained GDP gains of 3% or better over the next decade, well above the 2.2% average GDP gains seen since the current expansion began in June 2009.
In a separate report Thursday, the Labor Department said that applications for unemployment benefits, a proxy for layoffs, held steady at 230,000 last week. That is a low level that indicates a strong job market. The government will release its April jobs report on Friday. In March, employers created 196,000 jobs while the unemployment rate stayed at 3.8 percent, the lowest level in nearly 50 years. Economists believe April job growth will remain strong.
By: ABQ Journal
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Archives for May 2019
Multifamily Borrowers Still Have Lots of Options for Constructions Financing
Banks continue to have an appetite for loans on multifamily construction projects.
Investors can still find the financing they need to develop apartment properties.“If you can get a site to build, there are people who would love to lend on it,” says Bill Leffler, vice president in the multi-housing group of real estate services firm CBRE.
Interest rates remain low and many lenders are willing to make multifamily construction loans. However, these lenders have become more cautious as the cost of construction has grown faster than apartment rents in many parts of the country. Lenders are looking very carefully at the sponsors who ask for construction loans and the markets where they plan to build.
“Underwriting for these transactions has become more conservative,” says David Shillington, president of Marcus & Millichap Capital Corp.
Worries grow for construction lenders
Demand for apartments remains strong and rents are still rising on average—but significantly more slowly than two year ago, according to market watchers including Reis Inc. and RealPage Inc. Also, some economic indicators, such as the inverted yield curve recorded in March, are flashing signs of a possible recession in the U.S. economy within the next two years.
Most of the lenders who have made construction loans are still willing to make deals. “We don’t see construction lenders fearing an economic recession,” says Leffler. “I don’t know that anyone sees a Great Recession on the horizon.”
However, these lenders are also taking more time to underwrite the loans they consider making. “Construction lenders must account for the lengthy development and lease-up period,” says Shillington. “They are looking for a strong contractor, a guaranteed maximum price contract and a budget that has a healthy contingency and interest reserve.”
Lenders also want to make sure that the developers they lend money to have experience. “The biggest hot button is the track record of the sponsor,” says Leffler.
In addition, the cost of construction is also rising faster than rents in many parts of the country. “After a while you just can’t make the numbers pencil out,” says Leffler. “The challenge for developers is finding those markets where the rents are growing faster than the cost of construction… the secondary markets that are not overwhelmed.”
Interest rates still low
Developers can still get relatively low interest rates on construction loans, even though Federal Reserve officials hiked their benchmark interest rates several times between 2016 and 2018.
Banks have made up some of the difference by cutting the amount that they add to LIBOR. “Pricing has tightened significantly over the last year,” says Shillington.
Banks now often offer interest rates that float about 225 to 250 basis points over 30-day LIBOR for typical multifamily construction loans with recourse, experts say. That’s down from roughly 300 basis points over LIBOR two years ago. However, over the same period LIBOR rose to close to 2.5 percent from a little more than 0.75 percent two years ago.
Banks typically offer loans large enough to cover 65 percent of the cost of construction for an apartment property. ‘The 65 percent loan-to-cost ratio has been pretty steady,” says Leffler. “Lenders are not getting sloppy with their underwriting.”
The number of banks the offer construction loans has increased in recent years, and it is still high. That’s partly because several large construction lenders that had dominated the business cut back on their lending business a few years ago, as regulations like the international Basel III rules came into effect. “That gave a chance to smaller players to get their feet wet. New players come in from out of town to get a foothold,” says Leffler. “The lenders I am working with weren’t even in Atlanta three years ago.”
Meanwhile, larger lenders have since returned to making multifamily construction loans, giving developers lots of options. Several private equity fund managers have also created debt funds that make loans on apartment projects.
“Debt funds have become a very aggressive competitor in the construction lending space,” says Shillington. Leverage can often increase to as much as 80-85 percent of total development costs. “However, pricing tends to [be] higher and can include up-front fees, minimum usage fees, exit fees and higher interest rates that are in the range of Libor plus 350 basis points.”
By: NREI
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May 2019 CCIM Deal Making Session Properties
Thanks to all of the brokers, sponsors, and guests who attended the May 2019 CCIM NM Deal Making Session and to those who shared the May 2019 CCIM NM Properties.
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Click here to view the Thank Yous.
| Name | Property, City | Type | Price | |
| 1. | Keith Meyer, CCIM, SIOR Jim Wible, CCIM |
5407 Beckner Rd Santa Fe |
Land | $7.50-$25 PSF |
| 2. | Dave Vincioni | 4004 Carlisle Blvd NE Albuquerque |
Office | $1,250,000 |
| 3. | Austin Tidwell | 4212 Coal Ave SE Albuquerque |
Retail | $1,295,000 |
| 4. | Jim Wible, CCIM | 401-A & 401 B Ash St NE Albuquerque |
Multi-Family | $575,000 |
| 5. | Anne Apicella | 1790 Grande Blvd SE Rio Rancho |
Office | $1,300,000 |
| 6. | Kelly Schmidt Walt Arnold, CCIM, SIOR |
3915 Carlisle Blvd NE Albuquerque |
Office | $520,000 |
| 7. | Tim Luten Christian File |
1823 Arenal Rd SW Albuquerque |
Multi-Family | $550,000 |
| 8. | Jim Wible, CCIM Keith Meyer, CCIM, SIOR |
SWC 2nd St & Woodward Albuquerque |
Land | $3.75 PSF |
| 9. | Larry Ilfeld Kelly Schmidt Walt Arnold, CCIM, SIOR |
12836 Lomas Blvd NE Albuquerque |
Office | $229,000 |
| 10. | Steve Kraemer, CCIM | 19554 NM-314 Belen |
Retail | $607,500 |
