Commercial real estate investors have enjoyed several years of healthy returns thanks largely to robust demand in major markets like California, but analysts predict that 2016 will be a more difficult year. Stricter lending criteria introduced to prevent irresponsible lending and avoid another financial crisis began to impact the commercial property market in late 2015, and a Federal Reserve survey of loan officers conducted in January 2016 found that developers were already finding financing more difficult to obtain.
Experts are particularly worried about expensive hotel and condominium projects in cities like Miami, Los Angeles and New York. These developments have significant capital requirements, but reports indicate that there may be far less cash available as the year unfolds. Analysts at the Bank of America originally projected that about $183 billion in commercial mortgage backed securities would be issued in 2016, but that figure has since been slashed by 30 percent.
As Wall Street begins to back away from these bonds due to regulatory concerns, private lenders are becoming increasingly active and the unregulated services they provide are becoming increasingly important. The transition is expected to be a difficult one for developers and investors alike, and experts predict widespread volatility in the months ahead. The situation is made more urgent by a looming mountain of CMBS scheduled to mature in 2016 that will place a huge strain on this evolving financial ecosystem.
Experienced real estate attorneys will likely understand that time is money and even minor delays can have dire financial consequences, but they may still advise commercial real estate developers to perform thorough due diligence before entering into a transaction. Attorneys could also recommend strategies designed to account for future capital requirements and limit exposure to an unpredictable lending market.