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Experts predict challenging times ahead for CRE market

| Mar 28, 2016 | Commercial Real Estate |

The nation’s commercial real estate market has seen six straight years of solid growth thanks largely to robust demand in states like California, New York and Illinois, but many industry experts are predicting that 2016 will be a far more challenging year. Demand for commercial property has been falling in recent months as economic growth has slowed, and these factors combined with a construction boom in cities like Los Angeles, New York and Chicago has created a glut of vacant office space, retail stores and warehouses.

Fears that a new wave of irrational lending could cause another financial crisis have led to the introduction of stricter commercial real estate underwriting standards, and a January 2016 survey of loan officers conducted by the Federal Reserve found that money is already becoming more difficult to obtain for property owners and developers. This is of particular concern to industry experts because the costly high-rise office buildings in major cities that have fueled recent growth are particularly vulnerable to credit market fluctuations.

Analysts have also blamed stricter regulations for a reduction in the demand for commercial mortgage backed securities. They say that many Wall Street investment firms are now eschewing CMBS, and the Bank of America has predicted that demand for the securities is likely to plummet by almost a third in 2016. Private lenders are expected to step in to fill the void, but experts say that the transition is likely to be a difficult one.

Experienced real estate attorneys could have witnessed many peaks and troughs in the commercial real estate market, and they may encourage their clients to consider possible regulatory changes when assessing the merits of a project or investment. Attorneys could also provide assistance with the legal disputes that can drain resources and cause projects to grind to a halt.