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Opportunities and challenges for the CRE lending sector in 2017

On Behalf of | Jan 25, 2017 | Commercial Real Estate |

Strong performance in major California markets like Los Angeles, San Diego and the San Francisco Bay Area contributed to a good overall year for U.S. commercial real estate in 2016. The Mortgage Bankers Association released a report that put the amount of commercial property loans originated in 2016 at more than $500 billion, and robust economic performance contributed to healthy increases in property values and rents in most major American cities. Experts are generally fairly optimistic about the outlook for 2017, but concerns about rising interest rates and looming regulations linger.

Many analysts predict at least one increase in interest rates in 2017. However, few feel that they will increase enough to greatly influence the commercial real estate market. In fact, the fear of rising rates could spur a flurry of lending as borrowers scramble to refinance their debt to avoid the predicted increases. Industry data indicates that about $400 billion of commercial property debt will have to be refinanced in 2017.

While unemployment remains low and the economy continues to grow, some experts are worried about the impact of commercial mortgage-backed securities regulations that will go into effect in 2017. The new rules require CMBS lenders to hold onto at least 5 percent of the loans they issue, and many have already tightened up their underwriting standards as a result. Several smaller CMBS lenders could abandon the market completely. This is a concern because CMBS are a vital resource for high-leverage borrowers and play a key role in the commercial lending market.

Taking a commercial property project from blueprints to completion can be extremely challenging for developers, and choosing the right financing package is an important part of the process. Attorneys with real estate law experience may be able to help developers make prudent decisions by comparing the rates and terms that are available. Lawyers could also provide assistance with issues like zoning or land use disputes that can cause ruinously expensive delays.