California commercial real estate developers who own lower-quality malls or multi-family properties may soon find that their ability to secure needed financing will be hampered. Current market and regulatory pressures combined with what industry insiders call a wall of maturing loans may make small banks less willing to offer financing to owners of these property types.
According to Morgan Stanley, 2017 will see an estimated 50 percent refinancing rate for maturing commercial real estate loans. The estimate by Morgan Stanley is reportedly between 10 and 20 points below the consensus estimate. Commercial real estate, real estate investment trusts and commercial mortgage-backed securities all pose increased risk in smaller markets.
In secondary and tertiary markets, small banks have historically filled the gap in funding for property owners who are ineligible for government-sponsored enterprise financing. Multi-family properties are not eligible for GSE financing. Commercial real estate prices have become increasingly flattened in these markets. At the same time, smaller banks had a record 52 percent of the loan originations. Regulators are likely to scrutinize banks that issue loans in these markets due to the risks involved.
People who are involved in the commercial real estate market may want to consider alternative funding sources for their projects in the event they have difficulty securing financing from their traditional lenders. They may want to speak with their attorneys to see what options might be available. Crowdfunding may be one way, now that the Securities and Exchange Commission has loosened up its rules and regulations, the consequence of which has allowed more people to participate in the market.