Regulators issue strong warning about lax CRE lending practices

Commercial real estate investors and developers in Illinois and around the country may have been surprised by a harshly worded warning about loose lending practices in the sector issued by regulators on Dec. 18. The statement was issued by the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Board of Governors of the U.S. Federal reserve.

The banking regulators were prompted to speak out after noticing a number of concerning trends in commercial real estate lending. The statement warned that underwriting standards were falling and some lenders were not paying sufficient attention to market conditions. Irresponsible lending practices led to the 2008 financial crisis, and regulators are now worried that similar behavior among commercial real estate lenders jeopardizes the entire financial sector and poses a threat to the United States.

The regulators said that they would be keeping a close watch on commercial property lending in the coming year. Lenders hoping to avoid such scrutiny are advised by the regulators to shore up their financial reserves and keep their activities in particularly risky areas of the market to a minimum.

The lure of fast and sizable returns can be a powerful influence on commercial real estate investors and developers in Illinois, but bringing complex property transactions to a successful conclusion when time is of the essence can be extremely challenging. Attorneys with commercial real estate experience will likely understand the importance of keeping things moving and how quickly paperwork problems can drag even meticulously planned projects to a standstill. Attorneys may be able to help their clients to avoid costly disputes or delays by identifying possible issues and suggesting ways of dealing with them.

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