When interest rates are low, investors in California and around the country tend to be attracted to long-term opportunities that provide robust yields. The U.S. Federal Reserve increased the cost of borrowing by a quarter point in December 2016, and experts expect at least one more rate hike in 2017. The Federal Reserve also conducts a stress test each year to determine how well the nation’s financial system would cope with another crisis, and the central bank released the criteria of the 2017 test on Feb. 3.
Legislation passed in the aftermath of the 2008 banking meltdown introduced a number of new lending regulations and requires the Federal Reserve to run a simulation each year to gauge the strength of the nation’s financial system. The scenario being used for the 2017 stress test is far more severe than the one used a year ago, and it imagines a situation where world markets are plunging, global output is falling and unemployment across the country has soared to 10 percent.
The search for yields has prompted many investors to put their money into commercial real estate, and the Office of the Comptroller of the Currency has raised concerns about looser underwriting standards and mounting risk. If the large banks fare poorly in the stress test, the Federal Reserve could place limits on their activities to encourage them to replenish their capital reserves.
Experienced real estate attorneys may help commercial property developers to weather uncertain economic times by taking steps to ensure that their projects obtain sufficient financing and are completed on schedule. Attorneys could also help to ensure that all zoning, land use and permit issues have been addressed before work begins.