By Russ Mabry Senior Consultant Moran Construction Consultants Mitigating CRE Risk in a Volatile Market With the ever-growing concern of rising construction costs, it is imperative to understand what’s happening in the market, the impact it can have on your next deal and how to mitigate the risk. According to a recent analysis by the Associated General Contractors of America, construction material costs have increased by 20% year-over-year from January 2021 to January 2022. This is the largest recorded material cost increase since 1970. Due to recent geopolitical events, persistent demand and the continuing supply chain issues, the trend of inflation and rising construction costs are projected to continue for the foreseeable future. In this time of uncertainty, it is more important than ever to properly structure CRE transactions with a focus on industry best practices and risk mitigation to move deals forward. Rising Costs & Price Volatility Since the start of the pandemic, a multitude of factors have been attributed to the material cost increases the industry is experiencing today. To better understand how to identify and mitigate this risk, let’s look at some of the main contributing factors: • Inflation: Costs for construction materials, like most other goods today, continue to rise. Take lumber for example: over the past year, lumber experienced record highs followed by sharp drops; however, www.coloradobankers.org 22
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