Law Office of Ryan S. Shipp, PLLC

Interest rate increases not yet affecting CRE lending

Figures from the financial sector reveal that banks in Florida and around the country have been making fewer loans since the U.S. Federal Reserve started inching interest rates upward in December, but the commercial property sector has so far been able to avoid this trend. However, experts say that this is likely due to the nature of commercial real estate loans and not a reflection of the overall strength of the property market.

While residential mortgages generally have terms of up to 30 years, the commercial real estate loans made to developers to get commercial projects off the ground must usually be refinanced or paid off within a far shorter period of time. The Federal Reserve announced its third interest rate increase in six months on June 14, and the flurry of commercial property loan activity during the first quarter may be a sign that developers are seeking to refinance their loans early to avoid further rate hikes.

Traditional home loans grew by 2.5 percent between the first quarter of 2016 and the first quarter of 2017, but commercial property loans surged by 10 percent during the same period. The banking sector grew by a healthy 10 percent per year between 2014 and 2016, but the latest figures show that this rate of growth has now slowed to just 5 percent.

Lenders generally expect all legal issues to be addressed before funds are released, and disputes over regulatory issues can cause ruinously expensive delays. Attorneys who have experience in this area will likely understand the pressure that developers work under, and they may seek to settle disputes quickly to keep their projects on track.

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