Strong demand in major California markets like Los Angeles and the Bay Area helped spur the commercial real estate market in 2015, but the low yields offered by mortgage backed bonds are prompting some investors to move their money elsewhere. This is a concern for property developers as only the major banks provide more financing for office, warehouse and retail projects than the buyers of commercial mortgage backed securities.
These bonds are usually refinanced at maturity, and industry experts say that developers may have difficulty refinancing about $43 billion of troubled loans scheduled to mature in 2016 and 2017. Selling assets may provide the necessary funds in some cases, but a surge in commercial real estate foreclosures is widely expected. The loans experts worry most about will begin to mature in large numbers in June 2016.
Fears of another financial crisis prompted lawmakers to introduce stricter commercial lending rules that go into effect in 2016, and this may make things even more difficult for any projects that could be considered high risk. However, not all of the news concerning the commercial real estate market is bad. The U.S. economy continues to strengthen, and American real estate is still seen as a sound investment in many parts of the world.
Securing the right real estate financing package is sometimes a major hurdle for developers, and even minor differences in repayment terms can add up when the projects involved are worth seven figures or more. Experienced real estate attorneys are likely to be familiar with these challenges, and they could review loan documents and purchase agreements in order to identify potentially troublesome clauses or provisions.