Ground-Up Development Faces Headwinds Amid High Costs

By RadCRE Research · 2026-10-10 · Industry Insights

Ground-up hotel development in Charlotte is encountering barriers due to high costs, a trend mirroring broader challenges in construction lending and financing [1].

Current Landscape of Ground-Up Development and Financing

The landscape for ground-up development and its financing is currently navigating significant challenges, characterized by increasing costs and evolving market dynamics. Development efforts in various sectors are facing headwinds, with some regions experiencing particular difficulties. For instance, ground-up hotel development in Charlotte is described as encountering barriers due to high costs [1]. This sentiment underscores a broader trend where traditional development approaches may no longer suffice. In Brooklyn, for example, it has been noted that "the old ways of development just won't cut it," suggesting a need for innovative strategies in the face of contemporary economic and urban challenges [4].

Industry leaders are actively discussing these macro trends. Jessica Rascionato, head of commercial real estate at Citizens Bank, is engaging in discussions about these macro trends, as well as bank crises and client insights [2]. These conversations highlight the intricate relationship between broader economic factors and the viability of new construction projects. Financial institutions, as key providers of construction lending, are pivotal in shaping the availability and terms of financing, making their perspectives crucial for developers.

Economic Factors Influencing Construction Lending

Several economic factors are exerting pressure on construction lending and ground-up development. A primary concern is the sustained period of high costs across various markets [1]. These elevated costs directly impact project proformas, potentially reducing feasibility and returns for developers. This environment necessitates a careful recalibration of financial models and a more stringent approach to underwriting by lenders.

Furthermore, broader economic discussions at major industry events are centering on critical financial metrics. Delegates at Expo Real 2026 are focusing on rate rises, inflation, and strategies for 'hunkering down' [6]. These discussions indicate a cautious sentiment pervading the commercial real estate finance sector. Rising interest rates directly increase the cost of capital for construction loans, while inflation drives up material and labor costs, exacerbating the high-cost environment developers are already facing. These conditions demand robust financial planning and a clear understanding of market cycles from both developers and their financing partners.

Innovation and Adaptation in Development Strategies

In response to the current challenges, there is an increasing emphasis on innovation and adaptability within development strategies. The recognition that "the old ways of development just won't cut it" in areas like Brooklyn suggests a shift towards new methodologies for housing and property development [4]. This might involve exploring alternative construction methods, more efficient project management, or innovative financing structures to mitigate risks and overcome cost barriers.

The industry is also seeing a recognition of achievements in the face of these challenges. Commercial Observer's 2026 Breakthrough Awards will celebrate teams, deals, developments, and executives who have succeeded despite economic and urban difficulties [3]. Such recognition underscores the resilience and ingenuity required to thrive in a demanding market. The awards span various asset classes and verticals, indicating that the need for innovation is broad-based across the commercial real estate spectrum [3].

RadCRE Perspective

"The current environment for ground-up development demands a pragmatic and agile approach. The mention of 'high costs' creating 'barriers' for new hotel construction in Charlotte [1], alongside the recognition that 'the old ways of development just won't cut it' in Brooklyn [4], clearly signals a recalibration is underway. Developers and lenders must confront rising interest rates and inflation [6] by embracing innovative financing structures and value-add strategies. At RadCRE, we are advising our clients to meticulously underwrite projects, focus on markets with strong demand fundamentals, and explore creative capital stacks to navigate these headwinds and unlock opportunities in a challenging yet evolving market."

Tags: construction lending trends, ground-up development finance, commercial real estate costs, hotel development challenges, CRE financing