Interest rates impacting development planning

[Jon H.]

We're currently halfway through development planning (including soft costs) to a coastal multifamily development project. Looking for any anecdotal references on developers who have delayed current WIP projects due to rate increases. 

I'm aware every project is different and there are a lot of complex details that impact a financial decision whereas simple responses here would not be reflective of great advice. We're primarily looking for some feedback on general topics that are included in decision making that cause a delay in MF developments. There are many fellow San Diego based large developers holding off on projects, so I want to see how far down in project size that trend is going.

The options we have are:

1. We stall development, cleanup current property, rent at market, hold our I/O 2.9% rate for the next 5 years while still locked in and pick back up development when rates fall in the next few years. Essentially any Reno costs need to be recouped at +ROI before development begins.

2. Continue with development but stall until we believe rates are good enough to move forward with an 18mo construction plan. Essentially this leads to worse loan terms, higher debt allowance and worse ROI on the project.

We'll surely run this evaluation in detail and we would appreciate any feedback from Socal or National developers who are involved in 2-20 unit projects.

Thanks BP Pros!