Commercial real estate financing may be weakening

Experts say that although commercial real estate pricing has been healthy for some time, January 2016 marked the first instance of a national dip in seven years, and this could have an impact on investors in Illinois. Agencies like Moody believe that tumultuous financial markets and other factors contribute to flagging demand. Other experts claim lending changes that impact commercial mortgage backed securities, are going to continue hindering the market in various ways.

One Mortgage Bankers Associationanalyst said that changes in how these bonds are priced have reduced liquidity and may also impact whether certain loans can be refinanced. New laws concerning lending and high-volatility commercial real estate have also rendered banks less certain about stepping into to fill refinancing voids. One finance company CEO said that if things didn't change before refinancing becomes a big issue in June 2016, the market would likely suffer more.

Bonds backed by mortgages provide funding for a significant amount of commercial properties, such as retail spaces and offices. Because these bonds are the second-leading source of debt for commercial property developers, experts believe they could cause serious problems. CMBS debts include time limitations before which they must be refinanced by their owners, and in 2016 and 2017 approximately $400 billion will come due.

Commercial real estate projects, such as mall renovations and store building, commonly include long-term development. Financing and market factors play a big role in determining the viability of these endeavors, especially when factors could easily compromise profitability. An attorney who has commercial real estate experience can often suggest alternative forms of financing to a developer client.

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