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Construction Risk Management Critical In Turbulent New York Market

Whether in an overheated, competitive, or slow market, a thorough construction risk management process is critical to maximize profits.

In a consistently competitive commercial real estate market like New York City, proactive construction risk management (CRM) always plays a more critical role in project development and asset allocation. Lenders rightfully recognize that projects should be watched closely because construction risks are compounded.  For example, competition for labor means developers pay more to get and keep quality labor, and the impact of delays or defaults is magnified.  A thorough strategy to manage such construction risks includes overseeing construction project budgets and contractors, progress monitoring to ensure milestones and deadlines are on target, and evaluating cost to complete and documentation.

But NYC market is in a state of flux. Property as a whole is oversold, with rising vacancy rates. A flat 2017 for development deals brings forth a strong possibility of significant retraction in 2018. The factors contributing to a likely downturn include oversupply of certain markets (hotels, hospitality), heavy losses in the retail sector, a slowdown in typically reliable sectors (office space, multi-family developments), and stagnation in trading and foreign investment. Most owners and developers are now looking to refinance and trim portfolios in order to lock in on good interest rates rather than aggressively developing or renovating new acquisitions. New York City CRE is in a stale mate of sorts – prices have gone up high enough to make development purchasing cost-prohibitive, but there isn’t enough liquidity in the market to sell.

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