Frederic ?Fritz? Shadley
Midwest Real Estate News recently spoke with Frederic ?Fritz? Shadley, head of the construction practice group of Cleveland-based law firm Ulmer & Berne, about the future of commercial construction. He said that more construction activity is on the way. Just don?t expect a return to the boom times anytime soon.
Midwest Real Estate News: In general, do you think we?ll see more commercial construction activity in the coming months?
Frederic ?Fritz? Shadley: I think more activity is coming. And here?s why: The two years before this year, there were dramatic down-sizings of engineering and architectural firms across the country from an employee-head-count perspective. Many firms were basically cut in half. Most cut between 40 percent to 60 percent of their total employees. The difference I see now is that these firms are again telling us that they are busy. In fact, some are hiring. That is the beginning of the construction project. Someone has an idea, some obtain a loan and then someone hires the architect and engineers. If these companies are busy, that tells us that down the road ? six months maybe or some period of time in the near future ? we should be seeing a lot more construction.
MREN: How much new construction activity will we see in the next year?
Shadley: That?s the difficult question. If you are an architectural firm that once had 100 employees, then you reduced that total to 50 and now you hire 10 more, you?re at 60 employees. That tells you that activity is increasing. But does it tell you that we are close to the amount of activity we saw when that architecture firm had100 employees? No. It?s not even close. Are we getting back to where we were before the downturn? The answer is ?no? at this point.
MREN: What do we need to see to get to that point?
Shadley: A more reasonable loan process. We need to see more a reasonable underwriting process from the banks. Of course, you can?t blame the banks for being cautious when lending. They did get burned in the past. But they have pulled back on lending tremendously since then. You can have assets out the wazoo and plenty of collateral but still find it hard to get a loan. Banks have tightened their underwriting rules so much Hopefully, with time and with more confidence in the economy, banks will loosen those rules. There is no lack of interest or desire by developers to build. There is no lack of need out there. The single thing that is lacking is the money, which is all economy-driven.
MREN: This isn?t easy to answer, but when do you think it will be easier for developers to get loans?
Shadley: I don?t have an informed answer to that question. I?d first have to ask why the banks are so much tighter today. If it?s because the banks are more prudent and cautious, that will loosen as the economy progresses. If instead, it is the rules from Washington that have forced this tighter underwriting, that won?t be freed up until the scrutiny from these regulations is changed, no matter what administration is in power. It?s probably a dual cause. Banks are being prudent and regulations are being turned up.
Interested in reading more from Shadley? A full interview will appear in the December issue of Midwest Real Estate News
? Dan Rafter
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