Federal Reserve stress testing focuses on commercial real estate

Commercial real estate in Florida sometimes offers investors good returns. However, lenders have raised their standards for financing property purchases. A report issued by the Federal Reserve System shared the results from a survey of loan officers, who have placed stricter qualifications on business property mortgages. The survey collected responses from officers at 98 banks operating in the United States.

Actions this year by the Federal Reserve have likely prompted this action. Recent stress testing of financial institutions conducted by the Fed looked specifically at commercial real estate and banks’ ability to withstand financial turmoil. Policymakers have shown concern about the potential of rising prices for commercial real estate to exacerbate an economic downturn. As a result, some of the banks surveyed have increased their scrutiny of loan applications for construction and land development as well as apartment buildings.

During the second quarter, demand dropped for commercial real estate loans and business loans. Higher lending standards are also drifting into the market for automobile loans and credit cards. Consumer demand for those financial products has also ebbed.

An increasingly conservative view among lenders could impede the financing for a person who wishes to invest in commercial real estate. If someone is looking for private investors, an attorney could provide support during the drafting of terms for the loan. A client might gain information about rights and obligations within such a transaction and learn about liabilities before making financial decisions. Legal advice could also help a client navigate the details of purchasing a distressed commercial property threatened by foreclosure. An attorney could research issues such as liens, easements and environmental regulations as part of the due diligence effort.