One Developer's Outlook

"I've talked with many developers over the past year, and most say the crisis has caused them to alter development plans. Repeatedly, I hear a couple of typical scenarios. If a developer was lucky enough not to have purchased a market-rate property and is now not obliged to close under a "hard" contract, then the developer will refrain from purchasing. If the developer is already holding property for development, then putting a project together in today's market becomes akin to doing a New York Times crossword puzzle, and the day of the week depends on your creativity as a developer when meeting more complex challenges. For a mid-size developer, that means exercising the right to request more money from partners and investors to get the deal done, as costs and capital requirements increased dramatically in 2008 alone. The additional capital is applied to a range of budgetary line items, which are amplified in a housing slump, including increased costs for construction, increased interest payments, changed equity requirements, and filling gaps between the sales and bank release prices.

To survive, there are three choices for mid-size developers: bankruptcy, a moratorium on new projects, or partnerships."