Real estate developers in Missouri and around the country are turning to private equity firms, institutional lenders and foreign banks more often in 2016 as both small and large domestic banks take a more cautious approach to commercial property loans. Federal watchdogs have strong memories of the 2008 financial crisis, and both the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation have issued strongly worded warnings in recent months about lax underwriting standards in the commercial property sector.
Industry insiders say that a lack of competition for loans of between $5 million and $10 million has opened the door for private and nontraditional lenders, and money for redevelopment or construction projects has been particularly difficult to come by. The reluctance of small banks to take on commercial real estate loans or buy portions of larger loans taken on elsewhere has prompted even the nation’s most prominent financial institutions to reconsider their commercial property positions.
Foreign banks have also been quick to capitalize on the situation, and a consortium of foreign lenders including Deutsche Bank and the Bank of China are putting up $1.5 billion to fund construction at New York’s Hudson Yards development. However, not all U.S. lenders have heeded the FDIC and OCC warnings, and one Arkansas-based bank increased its New York City construction lending by $300 million during the first two quarters of 2016.
Lenders who do not accept deposits from the public are able to make loans that traditional banks are not, but they often charge high fees and demand quick repayment. While the profits offered by commercial property development may sometimes make this kind of financing seem attractive, attorneys with experience in this area could recommend that it only be taken on after all of the relevant documents have been studied and all of the responsibilities of the borrowers have been made clear.
