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Banks want more equity before financing CRE

On Behalf of | Nov 2, 2017 | Commercial Real Estate

Many factors, like equity, interest rates, economic conditions and climate change, influence the financing of commercial real estate in Missouri and around the country. The conservatism of some banks in recent years has led to requirements that investors bring more equity to their deals. One bank executive said that deals with 75 percent of financing coming from a bank were not happening anymore.

Many groups are meeting these requests to put more money on the table. Insurance companies, wealthy people and family trusts have the deep pockets to fund property purchases and developments in addition to large equity firms. The industrial sector has become particularly attractive to investors.

Banking regulations, however, impose limits on how low lenders can go with interest rates. Deals that might have worked two years ago have to be turned down now, the bank executive said. Concerns about a bad turn for the economy also continue to exert pressure on banks to be cautious. The floods associated with climate change also pose a new form of risk on real estate development. Cities that invest in infrastructure meant to mitigate the effects of climate change represent locations that investors and lenders will favor.

Companies pursuing the commercial development of a property might want legal representation when sorting through the details of a deal. An attorney could oversee the writing of contracts with a construction company and investigate zoning and environmental regulations. An attorney could also provide advice while negotiating the terms of a loan from either a public or private party. Language that protects the client from excessive liability might be built into contracts.