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Imminent commercial real estate concerns

On Behalf of | Mar 15, 2016 | Uncategorized

The real estate boom and collapse in recent years may still be fresh in the minds of Missouri investors and business owners. However, 2015 was an excellent year in terms of commercial real estate profits. The factors contributing to a successful year included low numbers of vacancies accompanied by a high demand for properties, which worked well for those involved in this industry. Unfortunately, there is potential for a dramatic downturn in this industry in the next couple of years.

One of the main issues that could affect the profitability with commercial real estate ventures is financing. Commercial mortgage backed securities have been used heavily to finance such properties, but the return on CMBS is not at a level that tends to appeal to today’s investors. These securities have a life of approximately 10 years, at which point a property owner is faced with the need to refinance. CMBS popularity surged in 2005, and many of these securities are expected to mature during the next two years. In 2017, nearly 30 percent of commercial real estate loans could be at risk based on refinancing challenges.

In some cases, property owners are expected to sell assets to avoid the financial challenges tied to trying to refinance. However, a foreclosure increase is also probable as some owners face the inability to refinance. While there is still a healthy amount of foreign investment in commercial real estate, the CMBS situation could affect interest in commercial properties on a large scale.

An investor who is interested in commercial real estate might work with a lawyer to explore options, especially if an investment opportunity that requires significant financing arises. A commercial real estate lawyer might also assist with issues such as zoning needs and retrofitting requirements related to preparing a property for leasing.