With a heavy dose of foreclosures and declines in market values, as well as the impact of the recent financial crisis, the real estate market has experienced significant changes during the last few years. How have these changes affected today’s real estate financing availability? Here are three trends:
- Refinancing demand: Commercial real estate lenders have experienced increased regulation and stringent underwriting practices while owners of commercial properties are facing maturing debt that requires extension or refinancing. During the slow economic recovery, some lenders have continued to extend these commercial mortgages since they are secured by solid, revenue-generating properties with stable cash flows. However, some commercial properties that are not performing strongly could face possible disclosure, and banks typically do not have the appetite to take ownership of these distressed assets. A major bright spot in this process is the continued low interest rates, which have led commercial property investors and owners to seek refinancing. Maturing debt and attractive interest rates mean more business for the commercial mortgage industry. In addition, while indicators point to rates remaining low in the near-term, there are no guarantees. Investors do not want to get caught with floating-rate debt and, as a result, some are locking in long-term fixed rates.
- Multifamily projects remain strong. While the homebuilding market continues to struggle and construction activity has remained very slow so far in 2012, investment and development prospects continue to be strong for multifamily projects. Demand remains high, occupancy rates are increasing, and rental rates for apartments are solid. As a result, financing availability for multifamily projects has been active, given the strength of the borrowers and the upfront cash equity. Other property sectors continue to show slow progress and are lagging the attention that apartments are generating.
- Growth and scrutiny for commercial real estate financing. Borrowers and lenders are optimistic that commercial real estate financing will continue to improve this year. The favorable interest rate environment has played a key role in the broader commercial real estate market recovery. While lenders continue to remain conservative, volumes of commercial and multifamily loans are expected to increase. However, borrowers need to be aware of the financing requirements for commercial real estate loans. Today’s lenders are closely scrutinizing market values and stable revenue streams when they underwrite loans.
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