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Commercial real estate market may be overheating

On Behalf of | Feb 6, 2017 | Commercial Real Estate

Commercial real estate values in Missouri and around the country have climbed sharply in recent years, and this has many industry experts worried. Data from leading investment firms indicate that commercial property prices in the United States are now 20 percent higher than they were in 2008, but a looming glut of multi-family properties and a noticeable weakening of the commercial rental markets in major cities are major concerns. Historically low interest rates have fueled borrowing and investment, but the U.S. Federal Reserve has warned about the kind of irresponsible lending practices that led to the financial crisis and collapse of the residential real estate market.

The nation’s central bank sought to rein in this type of behavior and keep inflation under control by raising interest rates in December, and another rate hike is expected to be announced when the Federal Open Market Committee meets in June. Federal Reserve Chair Janet Yellen spoke in September about bubbles forming in the economy, but stricter regulations are viewed as a better way to tackle the problem than monetary policy.

Another sobering prediction comes from Fitch Ratings. The credit rating agency says that the delinquency rate for commercial mortgages could reach 5.75 percent in 2017, and this could be an ominous sign for those who feel that a commercial property market correction is long overdue.

Market conditions can change dramatically in the time it takes to move a major commercial property development from the drafting table to completion, and delays caused by legal disputes and regulatory problems can be ruinously expensive. Attorneys with experience in this area may help developers to avoid these pitfalls by understanding the type of problems that may arise and putting plans in place to address them in a proactive way.