The possible effect of Deutsche Bank’s $14 billion fine

Missouri commercial real estate developers might be affected by the $14 billion fine the U.S. Department of Justice announced. The fine is against Deutsche Bank, one of the largest commercial real estate loan originators, for its residential mortgage-backed securities activities prior to the burst of the housing bubble in 2008.

A German institution, Deutsche Bank has a large U.S. presence in the commercial real estate marketplace. In addition to originating a large number of loans, it is also one of the largest issuers of commercial mortgage-backed securities. The fine could result in Deutsche Bank scaling back on the loans it offers and the CMBS it issues.

Other banks watching the DOJ’s actions with Deutsche Bank may also become stricter on their lending criteria for commercial real estate loans. This could cause a tightening of the available financing sources for developers of some commercial real estate projects. Other large European banks are also being investigated by the DOJ, including Barclays, the Royal Bank of Scotland and Credit Suisse. While a spokesperson for Deutsche Bank stated that it would negotiate the fine down to something substantially lower, the bank reportedly has just $6 billion in its litigation reserves, making it severely undercapitalized.

Developers may want to investigate alternate financing options for the commercial property developments they have on the drawing boards as well as for those that are near completion but need take-out financing to replace the original construction loan. One possibility that they and their attorneys could pursue would be the several crowdfunding platforms that focus on these types of loans.

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