The Fed continues to monitor key inflation and economic metrics, repeating the phrase “higher for longer”. Please enjoy our quarterly newsletter discussing sustained high interest rates and their significant impact on commercial real estate, borrowing and more.
COMMERCIAL REAL ESTATE NEWS
Higher for Longer: Accepting Reality in CRE
Up until 2022, borrowers were mostly concerned with “finding the lender with the lowest rate”. By the end of 2023, the sentiment was more “please find me a viable option” as banks retreated, rates peaked and extensions met their limits. Now, we are seeing the beginning of yet another shift, as we move towards the second half of 2024: acceptance. “Can you find me a loan structure that can make it work?”
Article courtesy of Commercial Property Executive – Full Article Here
How the Real Estate Cycle Can Inform Investment Strategies
In both good and bad economic times, navigating the real estate cycle is critical to multifamily and other commercial real estate investors’ success.
Article courtesy of J.P.Morgan Insights – Full Article Here
Tax Strategies for Real Estate Owners in Distressed Debt Scenarios
Current economic conditions such as high inflation, rising interest rates, growing vacancy rates and slower rental growth are causing an increase in distressed properties in the real estate market.
Article courtesy of EisenAmper – Full Article Here
ECONOMIC DATA

Borrowing Trends
Buckling Under Red Tape: How Permits and Fees Strangle Construction
The construction industry is being buried under a mountain of permits, administrative fees, and bureaucratic processes that are driving up costs and lead times for projects across the country. From single-family home renovations to large commercial developments, excessive red tape is choking the life out of the building sector.
In San Francisco, the permit process for renovating a bathroom in a single-family home can take over 6 months and cost over $30,000 in fees and related expenses, according to a recent report in the San Francisco Chronicle. Restaurant owners in Boston faced similar headaches, with permitting dragging on for over a year and fees topping $40,000 for a new 3,000 square foot establishment according to the Boston Herald.
A study by the National Association of Home Builders found that regulations accounted for 24.3% of the final price of a new single-family home. For a home costing $327,000, that means over $79,000 was due just to compliance costs. The bureaucratic burden falls even heavier on multi-family construction, with 32% of the cost of an average rental apartment attributed to regulations.
But it’s not just money – red tape also causes crippling delays. A high-rise project in Chicago has been stuck in permitting for over 18 months as the developer navigates a labyrinth of zoning reviews, public hearings, and changing requirements and fees. In the hot Houston housing market, one subdivision was delayed over a year waiting for permits from authorities before a single home could be built according to the Houston Chronicle. The amount of time the average apartment project spends between construction authorization and when construction begins has risen to nearly 500 days, a 45% increase from 2019, according to property data firm Yardi Matrix.
Beyond basic construction permits, new requirements around environmental reviews, inclusionary zoning, community approvals, and more have piled layer upon layer of process and cost. While the intention may be laudable, the excessive red tape has become dysfunctional and outweighs the benefits in many cases. Delays not only result in increased labor and material expenses but also disrupt project schedules, leading to cascading effects on related industries. A study by the Construction Industry Institute found that time delays account for nearly 9% of total project costs.
As housing affordability crises grip cities and the economy looks for growth opportunities, now is the time to streamline permitting, rationalize fees, and apply some efficiency to the bureaucracy strangling the construction industry. Without reform, the future doesn’t look very well constructed. Only through concerted efforts to streamline regulations and reduce bureaucratic burdens can we unleash the full potential of the construction industry and pave the way for a brighter future.
NAHB / NMHC Report
How Technology and Public Pressure can Speed Up teh Building Permit Process
Recently Funded Transactions
Here are some of the opportunities we assisted our clients with last quarter:
- $1,950,000 11 Rental Property Portfolio Refi – Yakima, WA – 58.66% LTV
- $1,512,900 6 Unit Retail Purchase – Detroit Metro Area, MI – 69.72% LTV
- $3,000,000 Car Wash Refi – 60.61% LTV
Contact us to learn how we can help you with your commercial property financing.
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AAI Capital and AAI Real Estate.
AAI Capital Investment Opportunities
Looking to place cash with higher potential earnings? AAI Financial Group is offering investment opportunities for accredited investors. For more information, view our investment opportunities or email us at info@aaifg.com.
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AAI Real Estate has exclusive real estate offerings, and can assist you in purchasing, selling or leasing your real estate. For more information, view our current exclusive offerings or email us at info@aaifg.com.
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