Commercial real estate developers were for the most part able to secure loans for their planned California projects more easily in 2015 as banks increased their commercial real estate lending activities. Banks were more eager to make loans last year for a variety of reasons. However, the loss rates on the commercial real estate loans that banks had made went up towards the end of 2015.
Before banks' commercial real estate loan loss rates went up in the fourth quarter, the rates had been at multi-year lows. The increase in loss rates occurred at the same time that a warning was issued by regulators who said they would be scrutinizing banks' commercial real estate lending practices.
The higher loss rates at the end of 2015 match a pattern that has been seen over recent years, according to a senior risk management consultant from Sageworks. He said that loss rates have risen during the fourth quarter in six of the past eight years. Commercial real estate loan loss rates are also much lower than they were in 2008. The Sageworks spokesman also pointed out that banks have been trying to issue commercial real estate loans whenever they can because they have higher rates.
If the regulatory climate for banks who are in the CRE lending market stiffens, it may be more difficult for a developer to refinance an existing commercial real estate loan or to obtain debt financing for a new project. An experienced real estate attorney could suggest alternative lending sources and financing platforms if and when that becomes the case.