Archives for April 2020

The economic disruption due to the extensive social distancing measures being taken nationwide in response to COVID-19 has been severe. That’s including bringing a halt to some construction projects already in progress as well as delaying ones that further down the pipeline that had not yet broken ground.
New York City has been Ground Zero for the pandemic in the United States. And while construction initially continued after the first wave of shutdowns, now most work has been halted, putting the city’s $66 billion construction industry in limbo. Many other states and municipalities, however, have allowed construction to continue as essential businesses even amid stay-at-home orders.

Still, given the massive slowdown in economic activity along including the jaw dropping addition of 16 million Americans to unemployment roles has thrown many projects into question. Developers are reassessing both current and future projects amid the uncertainty that will greet them when they come online.
“Every developer worth their salt is going to be reevaluating their thesis on any piece of property as this starts to settle,” says Greg Main-Baillie, executive managing director for the Florida Development Services Group at Colliers International. Most developers have an equity stake in projects they are building today and will be on the hook if it goes bust. That is a pretty big motivator to validate assumptions before moving forward, he adds.

According to an online survey conducted by the Associated General Contractors of America at the end of March, 39 percent of contractors reported that project owners had halted or canceled current construction projects. Although the survey noted that 18 percent had been ordered to halt work by government officials, the balance had halted projects due to deteriorating economic conditions.
As with much else these days in commercial real estate, the outlook for construction varies widely by property type.
Hospitality and retail have been deeply affected to date and experts expect they will continue to take a big hit over the next 90 days. In many cases, the revenue stream to cover mortgages has dried up. “So, some of our hospitality assignments are naturally going on hold,” says Main-Baillie. “Anyone speculating on what the revenue stream may be in the future is doing just that, speculating.”
At the same time, other types of projects that had shovels in the ground as of March are moving forward. For example, industrial development has not slowed down one bit due to the coronavirus, notes Main-Baillie. “We have confirmations on lease commitments, and even with the current circumstances, e-commerce is still going to be a pretty big driver,” he says. So, for projects that are already committed with financing and due diligence are generally moving forward, he adds.

Shrinking pipeline of projects

Those projects that are in the ground and moving forward are going to find stronger barriers to entry popping up behind them. Developers are putting new projects on hold, and those that are trying to move forward are finding a more difficult time securing approvals and financing. Capital is still available for projects, but lenders are being very selective. “There is less capital out there for new projects, and developers are being more cautious because they have to put up their capital first,” says Vicky Schiff, co-founder, managing partner and COO of MREC Management LLC. Its Mosaic Real Estate Credit Fund invests in targeted commercial real estate debt including senior, mezzanine and preferred equity.

Since its inception in 2015, Mosaic has originated more than $2.3 billion of debt with more than half of its portfolio currently allocated to construction loans. So far, current projects the fund has financed have not been directly affected. Work is proceeding and most are set to open between six months and two years from now. So the timing has been fortunate, says Schiff. “We are still getting some requests for ground up, but we’re putting additional scrutiny on deals,” she says. “Everybody is cautious right now, but we still see opportunity in the market.”
That caution has also hit affordable housing developers such as Dominium. The company currently has 13 multifamily projects under construction across the country, including a new project that kicked off in suburban Dallas in early March. The company has not had to stop construction on any current projects, but it is taking a hard look at projects in its development pipeline as it relates to financing and viability.
In some cases, the company has slowed some of its planned projects down. “While we are definitely tapping the brakes, I wouldn’t say that we have thrown the clutch. We are still looking at new designs and actively managing a development portfolio,” says Paula Prahl, vice president of public affairs at Dominium.
That being said, that is the view today and things could change tomorrow or next week depending on what happens with COVID-19, adds Prahl. “Rent collection is a huge issue for us, and we are early in the game in collecting April rents. So, that could change our outlook considerably depending on how that goes forward,” she says. Dominium relies heavily on low income housing tax credits (LIHTCs) to fund both new construction and acquisition/rehab projects, and the firm is watching to see how the pricing on those tax credits might be impacted by COVID-19, she says.

Adapting to speedbumps

Developers and contractors also have plenty of new COVID-related challenges that make it difficult to keep current projects on track. Although many states and municipalities are allowing construction to continue, projects still have work around social distancing guidelines and safety for workers on site, as well as stay-at-home orders that has slowed down necessary site inspections and approvals.

McShane Construction Co. noted in its recent company update that it has been continuing to work on about 95 percent of its active construction sites across the country since many municipalities have clarified that construction qualifies as an essential business. However, the company has acknowledged that their may be potential delays due to reduced crew sizes and the sometimes slower pace of inspections.
According to a survey on multifamily construction conducted by the National Multifamily Housing Council (NMHC), more than half (55 percent) of respondents said that they are currently experiencing construction delays in the jurisdictions where they operate. Among that 55 percent, 76 percent are dealing with delays in permitting and 59 percent in starts.
The NMHC construction survey also found that 73 percent of construction firm respondents indicated that they have implemented new strategies to deal with the hurdles forming in the virus’s wake such as sourcing materials from alternative locations (43 percent), staggering shifts to reduce on-site exposure (52 percent) and using technology to replace in-person transactions like inspections and approvals (67 percent).
“We are going to see a slowdown just from the fact that we are constrained by the guidelines in place, or that municipalities might not be able to come out to do physical inspections the same as they have in the past,” says Main-Baillie.
Source: “COVID-19 Creates New Barriers for Developers“

Albuquerque-based data analytics firm RS21 is helping local communities nationwide to rapidly identify their most-vulnerable populations as the coronavirus spreads across the country.
The company built interactive online maps in March to provide public officials, healthcare professionals and others in targeted cities with instant access to detailed information about local neighborhoods to help them make critical decisions on how to best allocate scarce resources and assistance during the pandemic.
The project started as a local initiative with initial maps for Albuquerque, Las Cruces and Santa Fe, but it quickly blossomed into a national service that now offers detailed maps for 500 cities around the U.S. The nationwide network went live on April 3, said RS21 President and CEO Charles Rath.
“We’re getting feedback from all over the country,” Rath said. “The demand is overwhelming. That’s why we rolled the maps out to all cities in the U.S.”

Users can tap on any city sector within the maps to pull-up community-specific information. That includes the local area’s number of residents over 65, the zone’s distance from the nearest medical facility, percentage of population lacking health insurance, and incidence of chronic diseases ranging from cancer, asthma, diabetes and heart disease to stroke, kidney disease, obesity and high blood pressure.
Based on that data and more, the map produces an “urban health vulnerability index” for each city sector to show which areas are most at-risk.
“As the coronavirus spreads, the need for smart resource allocation will grow,” Rath said. “Decision makers need to know geographically where the populations most affected are to design creative ways to get needed resources to them.”
The information on the maps, which are freely accessible to the public, is based on data from the Centers for Disease Control and Prevention and the U.S. Census Bureau.

“We’re seeing thousands of visitors using the maps around the country,” said RS21 communications manager Natalie Sommer. “It’s pretty good traffic for a tool we just developed. Our team is reaching out now to cities and states to assess how the maps can support local communities.”
The company has offered its maps and data analysis services to various federal agencies, including the Federal Emergency Management Agency and the Department of Homeland Security Procurement and Acquisition Innovation Response Team, Sommer said.
Community groups and public officials in other states are starting to tap the maps for local coronavirus response efforts.
Mooresville Schools in Indianapolis, a district just south of the city, is using them to determine which schools could serve as “spillover” sites to house hospital beds and medical equipment to alleviate pressure in nearby coronavirus hotspots, said Assistant Superintendent for Business Operations Jake Allen.
“We have large gyms we can use for hospitals,” Allen told the Journal. “We’re sharing the information in the maps with hospitals to help out. They have so much useful data in them that users can digest in an easy format.”
A group of independent journalists in San Francisco and Oakland, California, is using the maps to gather empirical data for insight and analysis in vulnerable communities in the Bay Area. The group will embed the maps into a new website to serve as a one-stop site for useful information on how the coronavirus is impacting local communities, with news videos, articles, infographics and dashboards, Sommer said.

Freelance journalist Solomon Moore said the group is still building the web platform.
“We are hoping to use RS21’s tool to inform Bay Area audiences and also inspire other journalism organizations to improve their presentation of factual information about the pandemic at the community level,” Moore told the Journal. “… What makes RS21’s tool so great is that it highlights what’s happening around the pandemic at the local level, which is really where we have a public information gap. It shows how pre-existing vulnerabilities in the population are exacerbating the process.”
RS21 is adding new information to the maps based on feedback from public officials. Gov. Michelle Lujan Grisham, for example, requested that hospital and nursing home locations be added, encouraging the company to insert that data in all its maps nationwide.
Based on feedback from the City of Albuquerque, the company is adding information to show where Albuquerque Public Schools is handing out meals to students during school closures, and where city-sponsored WiFi hotspots are available for students, job-seekers and others who don’t have Internet at home to access free WiFi on mobile devices such as tablets and smartphones.
The ABQ BioPark is one such access point, Sommer said.
“Students can download homework assignments and job seekers can access job boards or upload applications while still practicing social distancing recommendations,” Sommer said. “People can use the map to find where to access WiFi on an individual and as-needed basis.”

RS21, which launched in 2014, specializes in packaging mounds of information into easily understandable, web-based platforms to allow decision makers to rapidly analyze the root causes of issues. The company, which employs about 50 people at a 4,700-square-foot space Downtown and at a satellite office in Washington, D.C., built its interactive maps as a public service.
“It’s all on our own dime, because the coronavirus is affecting everyone,” Rath said. “I couldn’t stop my people from doing it if I wanted to. These are passionate data scientists. This is what they live for.”
To access the maps, go to covid.rs21.io.
Resource: “RS21 Rolls Out Coronavirus Maps Nationwide“