Bank regulations may be making CRE borrowing more difficult

A combination of market forces and more conservative lending practices are making it more difficult for commercial property developers in Florida and around the country to refinance their loans, according to some industry experts. Developers planning new projects generally take out construction loans that must be refinanced after five to seven years, but insiders say that fears about a looming commercial real estate asset bubble and strict new regulations introduced by laws like the Dodd-Frank Wall Street Reform and Consumer Protection Act have made banks less willing to lend.

According to industry sources, banks that would have routinely approved finance packages with loan-to-value ratios as high as 75 or 80 percent just a few months ago are now shying away from loans with LTVs of between 65 and 70 percent. Part of this reluctance can be put down to market concerns, but experts say that much of it is a reflection of the costs of complying with laws like Dodd-Frank and international agreements like the Third Basel Accord. The unwillingness to lend is particularly strong among community banks that may not be able to justify the investment required to meet these new standards.

Developers often choose to sell their properties when loans are difficult to obtain. However, some experts suggest that buyers are becoming more difficult to find in many markets. Fears that commercial property prices may be nearing a peak have been growing steadily, and this has made buyers in many parts of the country anxious and more careful. Struggling sectors like retail stores and apartment buildings have been hit especially hard.

Developers sometimes turn to private lenders when traditional banks are unwilling to extend credit. These lenders are not subject to the same regulations as banks because they are lending their own money. However, their rates are usually high and their terms can be onerous. Attorneys familiar with commercial real estate transactions may be able to help developers choose an appropriate private lender and avoid common pitfalls by performing rigorous due diligence checks and studying loan paperwork carefully.