Commercial property developers in Colorado and around the country generally take short loans of between five and seven years to get their projects started. These loans must then be paid off and refinanced after construction work has been completed. Sources of refinancing capital have been relatively easy to find in recent years as the economy thrived and commercial property values soared, but industry experts say that a confluence of factors is now making things far more difficult for developers in need of cash.
One of the biggest problems that commercial property developers are facing is the reluctance of community banks to extend credit. The costs of complying with the provisions of the Dodd-Frank law can be prohibitive for banks with modest assets, and financial industry analysts say that smaller banks are now being far more cautious and rarely consider loan-to-value ratios higher than 65 or 70 percent. The strict capital requirements of the Third Basel Accord have also placed additional stress on the nation’s banks and impacted commercial real estate borrowing.
Developers who are unable to secure the financing they need may choose to place their properties on the market. However, many who choose to take this path are finding it increasingly difficult to attract buyers. Sales have been especially slow in economically disadvantaged areas of the country as well as troubled segments such as retail establishments and multifamily residences.
When traditional banks are unwilling to lend, commercial property developers may consider approaching private lenders for the refinancing funds they need. These lenders are not generally required to meet the standards laid down by laws like Dodd-Frank, but they also tend to charge higher rates of interest. Attorneys with experience in this area will likely be familiar with private lenders, and they could help developers avoid costly mistakes by performing thorough due diligence and scrutinizing loan documentation carefully.
