California commercial property owners and developers may be interested in a forecast by the National Association of Realtors. According to the trade association, commercial real estate is expected to be strong in the coming months.
August is usually the slowest month of the year for commercial real estate transactions in California and around the country. This August has been different, however. So far, the summer as a whole has been very busy for commercial real estate and has enjoyed more brisk sales than those of previous years.
Many investors have used real estate to build fortunes in California, but financing a real estate opportunity can be challenging. From a banker's perspective, the aspirations an investor might have for a property mean little compared to the financial nuts and bolts of building the deal.
While the commercial property market in California and around the country has performed well overall in recent years, the retail sector continues to struggle to cope with the nation's evolving shopping habits. The popularity of online operations like Amazon has prompted several prominent brick-and-mortar retailers to file for bankruptcy over the last few years, and abandoned malls and deserted big-box stores are becoming familiar sights on the American landscape. However, the consumer shift toward online buying has created a new and thriving commercial property segment in certain strategically placed communities.
California commercial real estate developers have likely heard about a looming tranche of commercial mortgage-backed securities that must be paid off or refinanced in 2017. About $2.4 billion of these loans became delinquent in June, and experts believe that this may have prompted the delinquency rate on secured commercial property loans to surge by 28 basis points to 5.75 percent. The increase marks the biggest increase in five years on a month-over-month basis. The delinquency rate stood at 4.6 percent at the end of June 2016.
California residents who own residential property may be interested in accommodating a growing tenant market. An app launching in the fall of 2017 is planning on pairing up young people, like millennials and college students, with older homeowners. In addition to helping the owners find new tenants to fill their available rooms, the app is combating rising home prices that are excluding many younger individuals from ownership.
Commercial property values have climbed steadily in recent years, and developers in California cities like Los Angeles and San Francisco have enjoyed particularly healthy returns. However, investors tend to become anxious after several years of sustained growth, and this uncertainty may soon begin to influence prices according to industry experts. More than half of the respondents to Knight, Dorin & Rountrey's 2016 market survey said that they were optimistic, but less than a third feel that way now according to the Virginia-based appraisal and consulting firm.
California residents may be aware that the U.S. Federal Reserve announced the latest in a series of interest rate increases on June 14, and the nation's central bank has braced markets for further rate hikes in late 2017 and 2018. Higher interest rates allow the economy to continue to grow while reining in inflation, but they also have an impact on lending. While most experts agree that banks should be active, many of them have raised concerns about a possible asset bubble developing in the commercial real estate sector.
Filing predatory lawsuits over alleged violations of the Americans with Disabilities Act has become so prevalent that the weekly news show '60 Minutes" recently ran a segment on the practice, and more of this litigation is filed in California than in any other state. One reason for the disproportionate amount of serial litigation in the Golden State is a law that increases the amount that plaintiffs can recover in ADA lawsuits from the $1,000 per violation allowed by the 1990 statute to $4,000. The defendants in ADA cases in California are also required to cover the legal costs of both sides.
Lawmakers in California introduced reforms in 2016 that were designed to reduce the number of predatory lawsuits filed against business owners for violations of the 1990 Americans with Disabilities Act, but the data suggests that more needs to be done. The disability litigation problem is an especially thorny one in California due to the state's Unruh Civil Rights Act. The federal penalty for ADA violations is $1,000, but this rises to $4,000 in the Golden State. Defendants must also pay the plaintiffs' legal fees in these cases under the Unruh Civil Rights Act.