Continental Villages Phase II construction is well underway. Site work was completed June 19 and Vertical Construction has commenced. With the goal of holding the asset long term, CED made the decision to phase the construction of the project due to market uncertainty and increased cost of capital (debt). Phase I of Continental Villages will consist of 48 units, a recreational clubhouse, parking and associated amenities. Phase I will be built using the existing capital sources, namely EB-5 funds and CED equity. Any additional capital required will be funded by CED and EB-5 funding contributions will remain unchanged. No construction loan will be needed. Removing the debt from the capital stack derisks the project and will allow CED to weather market instability due to new supply in the pipeline, the incipient election, and the potential looming recession.
Adapting to Economic Realities: The Strategic Benefits of Phased Development
The Federal Reserve has maintained high interest rates due to sticky inflation numbers, debunking rumors of multiple rate cuts in 2024. As a result, interest rates on construction financing remain higher than they have been in decades. Combine high interest rates on a sizable construction loan with market uncertainty, and the decision to phase the project becomes clear. CED can lease-up the 48 units and obtain real-time rent and occupancy data before committing to building the final two phases. Much of the up-front infrastructure and soft costs will have been already spent, allowing for an even healthier return on future phases, should the market support the absorption and rents. The decision to phase the project allows for an added layer of protection and flexibility given unpredictable market conditions.
To learn more about Continental Villages, visit Continental East – Fund III, LLC.
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