Builder and Developer Anxiety
07.29.10 9:29 AMThere is a short article in today's Tennessean describing a meeting between Spring Hill officials with developers and builders. The developers were expressing the concern that hangs over each of them of financial distress and ruin. This is of course a real concern, as many developers have either had their assets seized by banks or filed bankruptcy. Williamson County is actually doing better than most in terms of continued growth and home sales, but development is not immune to the effects of the broader economy.
There is an assumption that developers were making easy money during the boom years, and it was certainly true that there were profits to be made. Most people don't realize, however, that the bulk of development profit is made on the back end of a development. Prior to that time, revenue is going to pay back acquisition and development expenses and loans and equity investments. The developer bears the risk that the development will succeed all the way to the end. For those who were caught midway through a development, they literally face the prospect of working for no foreseeable profit.
The communities were happy to hang additional fees and requirements on developments during the good times. Adequate facility taxes, building permts and additional property taxes resulted in significant cash flows to governments. Now that things have changed, the question is whether governments can adjust to the new realities. So far, I have not seen governments reacting. Costly and time-consuming approval processes and significant fees continue to face any prospective development.
It is no surprise that developers were reaching out to the Spring Hill officials, and credit is given to those officials for listening to the concerns of this important part of our economic community.
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