Even several months into the new year, many local commercial real estate professionals still relish how successful 2014 was from a development perspective. Led by our own real estate practice group, law firms across Northeast Ohio stayed busy keeping up with the vast number of transactions, as new deals closed and existing projects progressed into their next phases of development.
As strong as 2014 was, 2015 is shaping up as strong, if not stronger. Regionally, there are numerous projects progressing through development, with particularly robust activity in downtown and midtown Cleveland, as well as Ohio City. In Akron, the East End project saw the completion of the Hilton Garden Inn in late 2014, and construction of the project’s Phase II is in full swing, with completion of the Goodyear Hall redevelopment expected in mid-2015.
One factor helping to drive continuing growth this year is the broad availability of commercial lending funds. Traditional and non-traditional lenders are aggressively pursuing solid commercial real estate investment opportunities. The recent entry of several out-of-town banks into the region will serve to better ensure competitive rates for good projects and qualified borrowers.
New sources of funding are also becoming available locally as more non-traditional lenders are looking to increase their commercial real estate portfolios after having witnessed the tremendous success of several major local projects such as The 9 and Uptown. In addition, these recent successes may cause the Central Business District to catch the interests of developers who typically focus on the suburbs but who are now more willing to take risks within the city limits. Downtown growth may also expand westward with the conversion of the West Shoreway to a more accessible boulevardâ€”a project may begin later this year.
Another factor in the regional real estate market is the preparation for next year’s Republican National Convention. Many businesses are being “encouraged” to do things outside of their traditional comfort zones in order to accommodate the needs of the Convention. Many local law firms are already experiencing an uptick in business in reviewing the multitude of contracts and agreements governing space and other logistics relative to the Convention. Of special note is the no-build zone surrounding the core convention site, which may likely accelerate building in 2015, since no exterior construction work can be done around the time of the Convention in and around the downtown area.
The anticipation of higher interest rates may also accelerate the timing of projects and deal closing. Rates have been precariously low for several years, prompting many to speculate that a rise may be likely in the near term.
Developers and investors eager to take advantage of current low rates may look to both accelerate current projects, if possible, and convert variable rate financing agreements into longer term fixed-rate structures.
As has been the case in recent years, tax credit financing remains an integral piece in moving qualified projects forward. The extension of the New Markets Tax Credit program thru 2014 should provide a ready source of funding for projects this year, as well.
As rosy as the overall forecast appears, history has taught us to not count the money until the deal is completed and delivered. Thus, areas of concern to be aware of include:
- Sustainability of high demand (and high occupancy rates) in downtown rental housing in order to fill units planned and under construction. While housing demand continues to be strong, the retail segment continues to lag. Without sufficient retail support, downtown housing may struggle over the long-term to retain the young professionals currently driving the residential building boom.
- The challenge to occupy the glut of new hotel rooms coming online in 2015. While the Republican National Convention will fill these rooms (and more), questions remain whether there is sufficient and consistent demand to support this growth long-term.
- The sense of optimism that has infiltrated much of the real estate industry has still not made its way to the full consumer population. Overall economic confidence needs to remain high to keep projects moving and adequately funded.
Despite these concerns, 2015 is already shaping up to be a positive and impactful year for developers, investors and law firms.
To reach Geoff, call 216-928-2973 or e-mail firstname.lastname@example.org.