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Banks plan to approve fewer commercial real estate loans in 2017

United States banks say that they will be tightening their standards for granting commercial real estate loans during 2017 and into 2018. The Federal Reserve reported the news last Monday, commenting that this could affect the future of commercial real estate business in the immediate future.

According to the U.S. central bank -- and the president of Boston Fed -- commercial real estate prices might be in danger of triggering another economic crisis. Especially if commercial real estate prices suddenly spike in value, it could precipitate such a crisis.

The Fed also stated in its quarterly report that business overall looks like it has not changed significantly since the last quarter. Nevertheless, the Fed has especially been interested in polling senior loan officers about commercial real estate lending in recent months. In fact, the Fed is putting more attention on commercial real estate numbers for its annual stress test that seeks to evaluate whether big banks will perform well during another bout of financial turmoil.

In providing a reason for tightening their commercial real estate lending standards, banks in the United States say that commercial real estate prices are more uncertain now than they were previously, and they see the outlook to be "less than favorable." Banks report that vacancy rates and capitalization rates also appear less than favorable and more uncertain.

If you're considering making a major commercial real estate purchase, you are well advised to seek counsel from a qualified real estate lawyer. Your real estate lawyer can look at a potential purchase, help you negotiate with the seller and ensure that all your legal ducks are in a row to limit the potential for unforeseen problems later on down the road.

Source: Reuters, "Banks are tightening commercial real estate loan standards," May 08, 2017

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