Current CRE Market From a Commercial Banking Perspective

What types of projects does Johnson Financial Group get involved in? 

Johnson Financial Group is an active construction lender in all sectors with a heightened emphasis on the multi-family and industrial segments. We also work with companies on refinancing and funding acquisitions for all types of properties.

Are supply chain pressures easing? 

There has been some relief in certain materials such as lumber, but other items such as electrical components remain difficult and expensive to obtain. Supply chain problems are resulting in both cost and timing issues on new developments. Developers are reacting by purchasing crucial items far in advance. One of our multi-family developers recently bought the windows for an entire project more than a year in advance of planned installation.

What about labor and the overall cost picture? 

From the developer’s perspective, declining material costs may be overshadowed by increasing labor costs—and, potentially even worse, lack of labor availability. Now, rising interest rates create further challenges, especially for low to moderate-income housing where rents often are limited based on county median incomes. Fortunately, there are grants and other funding options available for these developments, but that process takes time, and many builders are scrambling to begin construction amidst escalating costs and interest rates.

Are there any emerging trends in multi-family housing? 

“Build-to-rent” communities have proven successful in Arizona, Florida and elsewhere and are now coming to Milwaukee and the Midwest. A typical project consists of up to several hundred units in one- and two-residence structures. These are whole low-density communities built for renters rather than homeowners. One big question mark is how maintenance will work on all these individual units over time with individual roofs, garages, walkways, etc. in a more varied—and colder—climate, like Wisconsin.

What about business property owners - are there trends you're seeing there? 

Sale lease-backs are proving attractive to many business owners, particularly those in the industrial sector, who may want to harvest equity and increase liquidity from the sale of their properties at today’s attractive industrial real estate prices. A business that owns and operates its own building can sell to investors with an agreement in place to lease the space for, say, 10-15 years.

Any advice to commercial borrowers in today's marketplace?

Start the process early and build a strong relationship with your financial partner. Together, you can work through the current unpredictable, uncertain economic environment we’re facing to keep your goals on track. Search for a partner, like Johnson Financial Group that is well capitalized, provides local decision-making and knows your market inside and out.