Rochester developers adapt to financing challenges

How Rochester Developers Are Navigating a Tight Construction Financing Market

As 2025 draws to a close, Rochester-area bankers report that developers are navigating a tight but resilient construction financing market, according to an November 4, 2025 report in the Rochester Business Journal. Despite elevated interest rates, regulatory complexities, and rising labor and material costs, Rochester developers continue to pursue opportunities in multifamily housing, industrial projects, and mixed-use development—though with greater caution and more rigorous financial planning than in previous years.

Key Challenges Facing Rochester Developers

The financing environment for construction projects in Rochester presents multiple headwinds for developers:

• Interest Rate Uncertainty: Changes in interest rates and expectations of declining rates have made timing, planning, and budgeting more complex for developers, according to Jon Fogle, manager of commercial banking at ESL Federal Credit Union
• Labor and Material Costs: Rising labor costs and material prices driven by tariffs continue to pressure project feasibility and timelines. Finding available laborers remains a persistent challenge
• Site Availability: Growing competition for prime locations across the Greater Rochester area creates challenges, while developers often face extended timelines navigating zoning, permitting, regulatory processes, and utility infrastructure hook-ups
• Grid Infrastructure Concerns: Upcoming changes to state electrification requirements for new buildings are expected to stress an aging electrical grid, potentially influencing financing structures by increasing carrying costs and adding unexpected fees due to new requirements

Multi-Family and Industrial Projects Show Strength

Despite challenging conditions, specific market segments continue to show strong demand. According to Rochester-area banking leaders:

• Multifamily Housing: Multi-family projects continue to show strong demand, with new development opportunities emerging across Greater Rochester
• Industrial Development: Continued strong local demand in warehousing, flex, and mixed-use space drives activity
• Hospitality Sector: The hospitality sector is showing positive momentum

Charles J. Vita, executive vice president and chief lending officer at Canandaigua National Bank, noted that nationally, construction permits remain fairly low. Federal data showed nationwide building permits declined 3.7% from July to August 2025—the lowest rate since May 2020—driven in part by decreases in single-family and multi-unit permits in the Northeast, Midwest, and South. However, Rochester's performance differs from the national trend.

Financing Market Data: National Context

The national construction market context helps explain Rochester's challenges:

• National Permit Decline: Building permits fell 3.7% from July to August 2025, reflecting widespread construction headwinds
• High Interest Rates: Elevated borrowing costs have pressured developers nationwide, with many postponing projects
• Regional Variations: The Northeast has been particularly affected by permit declines, though Rochester developers remain relatively active

What This Means for Rochester Contractors

For construction firms in Rochester, the tight financing environment creates both challenges and opportunities. Developers are now requiring higher levels of preparedness before seeking financing:

Developers are engaging in more proactive planning, scenario modeling, and financial forecasting to mitigate risk, according to Jon Fogle of ESL. Developers with larger cash reserves are positioned to complete projects as originally planned, maintaining liquidity to cover unexpected higher costs.

Banks are shifting their underwriting criteria. Both developers and financial institutions are now placing greater emphasis on cash flow rather than loan-to-value for determining financing package sizes. This means projects need strong revenue projections and operational assumptions, not just valuable assets as collateral.

Shifting Market Sentiment and Future Outlook

Compared to the previous year, contractor sentiment is improving slightly. While uncertainty surrounding inflation and interest rate increases caused many developers to pause or delay projects in 2024, this year shows a notable shift.

"Developers have adapted to the new economic environment and are working closely with their financial partners to structure deals that allow for adequate rates of return given the increased costs," Fogle said. Interest rate decreases are generating more confidence among developers to move projects forward.

Martin Birmingham, president and CEO of Five Star Bank, emphasized continued optimism: "As we go into 2026, I actually think that trend will continue. But it is definitely subject to how people are feeling and how the underlying economy plays out."

Rochester Banking Community Maintains Appetite for Construction

Key Rochester-area lenders continue to support construction financing despite market challenges:

• ESL Federal Credit Union: Maintains consistent underwriting and appetite for construction loans, using a "collaborative, forward-looking approach" to identify obstacles and opportunities early
• Canandaigua National Bank (CNB): Reporting strong year-over-year growth in construction lending, particularly in multifamily, office, hospitality, and flex/warehouse industrial sectors
• Five Star Bank: Increased commercial real estate exposure year-over-year as local developers move forward with new projects and restart projects that had been paused in 2022-2023

Industry Outlook and Strategic Recommendations

For developers pursuing construction projects in Rochester, the current market environment requires:

• Strong cash reserves and liquidity planning
• Detailed financial forecasting and scenario modeling
• Realistic rate-of-return projections accounting for increased construction costs
• Early engagement with lenders to align expectations and structure appropriate financing
• Careful site selection and permitting timeline planning
• Workforce planning to address labor availability challenges

Conclusion: A Maturing Market

Rochester's construction financing market shows developers are entering projects with higher levels of preparedness than in previous years. While challenges remain—high interest rates, labor costs, material prices, and regulatory complexity—the combination of maintained lender appetite and developer adaptability suggests the Rochester market will continue to support development activity through 2026. The key differentiator: projects now require significantly more rigorous planning and financial discipline than in previous cycles.