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Commercial real estate lending shifts to foreign banks

California developers may find smaller banks shying away from offering commercial real estate loans. Federal regulation is increasing, and the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency has stepped up pressure on banks to offer stronger loan terms. This has resulted in larger banks backing off as well.

In response, a number of foreign banks have moved in to fill the gap. Deutsche Bank and the Bank of China funded $1.5 billion in construction loans for the Shops & Restaurants at Hudson Yards in New York. Foreign banks' American offices hold more than $51 billion in commercial mortgages. This is an increase of more than 50 percent from the previous year.

One small bank that does still seem to be providing commercial real estate loans is the Bank of the Ozarks. This Arkansas-based bank had $1.9 billion in outstanding loans in the second quarter for New York City projects alone, compared to $1.6 billion outstanding at the end of 2015.

Regardless of how difficult loans may be to come by, commercial real estate development is complex, and loans from foreign banks may complicate it further. Developers may want to work with an attorney to ensure that they are following regulations and tax laws and that the loan agreements themselves do not contain provisions that could prove to be a problem in the future. An attorney may also be of assistance if the developer decides to sell or in issues that arise during ownership and management of the commercial real estate including title disputes or disputes with lenders, contractors and tenants.

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