After a multi-year period of low activity and loan problems, banks, insurance companies and other lenders have rediscovered commercial real estate and it may be the right time to discuss it with them.
The resurgence began with multi-family refinancing and construction lending, which has been strong for the last two plus years. The multi-family segment benefitted from the combination of tougher single family residential underwriting criteria as a result of the housing crisis, low interest rates, and changing perspectives on home ownership, especially among younger workers. Many multi-family borrowers have already benefitted, receiving low rate financing, and now may be the time for borrowers in other real estate sectors. More recently this turnaround has spread to the industrial and lodging sectors, and to a lesser degree to the retail and office markets.
The gradually improving economy combined with a low interest rate environment and a slowly healing financial industry has benefitted commercial real estate. The office and retail sectors have been the most constrained, affected by both technological changes and dependent upon a sustained jobs recovery.
Today is a good time to evaluate your commercial real estate financing, as the great majority of banks are actively involved in the origination of new commercial real estate loans after being primarily focused on loan problems and cleaning up their balance sheets in recent years during the financial crisis. Banks continue to be the primary providers of construction, acquisition and bridge loans with terms seven years and less while insurance companies, pension funds and other securitized alternatives continue to be the primary providers for loans on stabilized properties for terms of ten years and greater. Recently, banks and other lenders have become more competitive in the structuring and pricing of loans benefitting borrowers.
The primary risks to these improving trends are a sharp increase in interest rates or a new recession that would disrupt the slow, fragile recovery.