Commercial Construction Industry Landscape in 2021: Exploring the Role of Financing in Risk Management
With the real estate market exhibiting consistent growth for the near future, effective planning is a key part of completing your project. A single wrong decision can end up wasting countless hours of time while exerting a monumental financial toll on your project. It is important to evaluate your options to have an easier construction process effectively.
Throughout the US, the commercial construction industry has been rapidly rebounding after the pandemic. Contractors throughout the country are actively resuming work on construction projects in full swing. The extent of the recovery is showcased by the fact that over 92% of contractors are struggling to find workers for their construction projects, according to the US Chamber of Commerce.
Aside from the gravity of the challenge posed by a lack of workers, other escalating challenges, including material shortages, have also been observed throughout the construction sector. The result has been in the form of construction companies suffering from major slowdowns after the pandemic recovery.
Here are some of the biggest challenges faced by construction companies as they attempt to mount a recovery after the pandemic.
Key Challenges in the industry post-Pandemic
- Steel and Lumber Shortages – Steel shortages have been the most severe this year in comparison to any other year in the past. Over 34% of active contractors expressed concerns regarding their experiences with steel shortages in the market. Lumber shortages were similarly reported to be at 31% across the nation.
- Increasing Worker Shortages – Most construction companies around the country are also struggling to find skilled labor to work on the projects. The increasing demand in the market has led to elevating labor rates which are also having an impact on broader project budgets. Over 73% of contractors expressed experiencing labor shortages in the market in the third quarter in comparison to 56% in the last quarter.
- Increasing Equipment Expenses – Expenditure on construction equipment has also been significantly increased this year as disrupted shipping lines continue to impact the cost of tools and products.
- Shipping Delays – Shipping delays due to increased freight is also having an impact on the construction of commercial products as imports take longer to reach construction sights. These delays are also significantly enhancing project budgets beyond their original projection
The broader situation has resulted in a significant increase in project cost and time. For companies that planned for projects before the pandemic, the new normal has led to the requirement of companies to consider external options to effectively managing their projects.
Exploring a Way Forward Through the Challenges
Amidst the unpredictable market conditions due to the pandemic, it is most important than ever before for construction companies to have an effective strategy to cope with challenging market conditions. An array of unique solutions has emerged to provide construction companies with the required resources to continue on with their projects.
Here are some of the key solutions that are helping companies cope with the challenging conditions of the market.
- Bulk Buying Materials – Bulk buying or pre-paying for materials allows companies to guarantee that products will be available at existing prices. This buying protects the company from the impacts of further inflation and ensures that project timelines can be managed in an effective manner. However, bulk purchases might require significantly higher upfront capital than anticipated.
- Exploring Joint Venture Real Estate Projects – Joint venture real estate projects allow construction companies to team up with financers to push through with their projects. These ventures enhance the company’s capital estimation and allow it to continue forward with its projects without running into bottlenecks. Joint ventures also expand the company’s options with dynamic products that optimize financial management.
With the robust rebound observed in the construction industry after the pandemic, more developers are venturing into the space to explore viable commercial developments. To increase your odds of having success in the space, partner with a financer that protects your vested interests and reduces your risk of bottlenecks with expansive servicing options.
As a real estate developer, joint venture real estate projects increase the odds of success and allow you to have the opportunity to benefit from broader funding avenues. With commercial loans and partners, brands can improve their odds and establish wider projects beyond their existing fiscal capability.
Here are some of the key benefits of a joint approach in real estate.
- Risk Management – Risk is a significant part of all real-estate projects due to the unpredictable nature of the market and other acting conditions. Joint venture real estate projects allow you to share the risk with other partners and diversity your existing real estate portfolio.
- Capital Management – Capital management is often the biggest advance of entering joint venture projects. In most scenarios, sharing capital with other entities improves your operational cash flow and allows you to manage expenses with broader capital access efficiently. Especially in a volatile market today, where material expenses vary on a daily basis, entering into a partnership with an established partner can help you expand your horizons.
- Expert Insight – Working with a strategic partner allows you to have access to their human resources as well. With shared talent, you can overcome your existing deficiencies and explore new opportunities with a dynamic team that guides you through any potential obstacles.
Increasing Construction Material Costs
Due to the scale of construction projects, the primary construction materials often comprise a major chunk of the initial project costs and estimations. However, the pandemic has transformed conventional project estimates with elevating material costs.
According to a recent report by the Bureau of Labor Statistics, building material prices across the nation have increased 19.4% in the past 12 months.
This rampant increase has been driven by booming construction activity throughout the country. Key building materials including steel, lumber, and cement have been rising in costs monumentally. Effectively managing these costs is an important part of efficient project management.
For commercial construction projects, these costs represent an increased risk in project budgeting, cost allocation, and capital financing. Not having the right arrangements for capital management can significantly increase project risk. The rapidly rising inflation has impacted thousands of commercial avenues throughout the country due to the inherent lack of access to extended financing options.
Commercial construction loans are a great way for developers to secure their projects and have stable capital financing. Having capital allocation allows real-estate developers to make upfront material agreements and save themselves against rapidly inflating material costs.
Benefits of Commercial Bridge Loans and Construction Financing
Going for a commercial construction loan can be a great way to get your project funded. With the existing construction boom being witnessed across the nation, kickstarting your project with external funding will allow you to have a head start on the process while mitigating your existing risk. Commercial development loans help you manage the upfront cost that goes into project initiation and help you stay afloat during challenging market conditions.
Here are some other key benefits of commercial construction loans.
- Mitigating Risk – By working on a limited budget, you can often expose yourself to a wide range of risks. The last thing you want while working on your commercial project is to run out of capital or experience bottlenecks because material costs increase. Having a commercial loan option allows you to avoid these risks and have a stable project trajectory.
- Major Returns – With the extensive recovery mounted by the broader construction industry, loans allow you to get a significant return on your investment as you can kickstart your ideas and maximize your opportunity cost in the current market.
- Attracting Human Resources – Offering competitive salaries and payment plans are the only way to manage human resources in a competitive market landscape. With the majority of existing providers suffering from labor shortages, commercial loans allow you to offer higher salaries and push through with your project regardless of existing market conditions.
To have the optimal impact from the financing, getting the right partner for your commercial development project can make a significant impact on the success of your project. From labor and material costs to the required consultations, having access to capital can simplify your journey and help you streamline your costs.
What Sets Clopton Apart from the Rest?
Unlike conventional lenders and financial institutions, Clopton approaches construction projects as a strategic partner with streamlined terms. We provide construction companies with expansive loan amounts ranging from $3M all the way up to $50M depending on the project requirements.
Here are some other terms that we extend towards construction businesses to help them have a better outlet.
- We only charge interest during the construction period, and there is no amortization. This helps you avoid unnecessary interest and additional charges.
- We extend lending options throughout the country to potential partners that are interested in Joint Venture real estate projects.
- We partner with companies across all types of projects ranging from simple construction projects to comprehensive renovation and re-use applications.
- We also provide financing options for all commercial property types, including mobile home parks, multifamily homes, offices, and retail environments.
These streamlined options allow you to have a trusted partner throughout the construction process that helps you manage your costs and finances. We have an established history of partnering on some of the biggest national projects, and we’re also looking for a new project to turn ambitions into reality.
Clopton Commercial is the ideal partner to turn your vision into reality. As a leading commercial lender, we allow you to explore wide funding options due to our close relationships with leading national vendors. Thanks to our established connections, you get to benefit from minimal interest rates and feasible investment terms whether you’re looking for a commercial bridge loan or a joint venture real-estate collaboration.
Having the right financing partner can be a complete game-changer when it comes to your project implementation. Aside from sharing project risk, you also get to have extended capital access along with an expert insight into real estate projects. Clopton Capital provides you the opportunity to collaborate with an established financing partner on your real estate projects. As a leading financial partner, we have over twenty-five years of experience working with some of the biggest names in the real estate sector. Our close relationships with leading construction lenders allow you to have direct access to the most feasible financing and partnership options for your construction projects.
A key element of Clopton projects is the due diligence we put into the project to ensure that your capital allocation is on your terms. With decades of real estate experience, our qualified team guides you throughout the process with a wide variety of financial options. Our Commerce bridge loans and joint venture real estate financing is optimal for real estate developers to push forward with their ideas. Our service area ranges from new constructions to comprehensive renovation and broader project management. We help companies manage distressing situations to completion and help you get connections with the ideal financial solution for your specialized construction scenario.
If you’re thinking about reliable financing and partnership options, Clopton Capital is the ideal partner to help you transform your ideal into reality. All you need to do is simply file your loan application or schedule a meeting with our loan officer to discuss the details of your case to get started.