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Annapolis Real Estate and Business Litigation Law Blog

CRE growth in the Southeast

Commercial real estate investors in Maryland may be interested to know that because of rapid growth, the southeastern part of the country is becoming a major economic player with an expanding base. With the cities of Miami and Atlanta, which account for more than half of the region's global commercial real estate investments, and the strong growth and educated workforce of smaller cities, the Southeast region would be able to form the sixth largest country in the world and would have a growth rate that would surpass that of any of the top five countries.

The expansion of the industrial sector in the Southeast is being powered by not only import and export activity, but also by increases in employment and activity in manufacturing. As a result, the region has a record low industrial real estate vacancy rate. E-commerce users are taking advantage of the strategic settings of Orlando, Atlanta, and particularly Memphis, which has experienced an excessive distribution activity when compared to the market's size.

Oil prices and the effect on commercial real estate

Maryland commercial real estate investors and developers may have been hit hard by the plummeting price of oil in the last few years. While it might have been good for them as consumers, as business people involved in real estate, the opposite may have been true.

The drop in prices resulted in layoffs throughout the energy industry, and of the 350,000 people globally who lost their jobs, there were 217,000 in the United States. The effect of this economic slowdown was a drop in hotel stays, industrial occupancy and use of office space.

Commercial real estate is a factor in financial stress test

Maryland developers may have heard that the Federal Reserve is using commercial real estate as a measure of how the largest United States banks would perform if another financial crisis should occur. The annual stress test has certain criteria that must be met, and the banks that have outstanding loans have until April 5, 2017, to submit their results.

The test involves a scenario in which the country's unemployment rate quickly spikes to 10 percent, stocks fall and major global economies are battling significant declines in output. The imaginary crisis is more severe than the scenario provided in 2016, and it adds a larger decline the prices of commercial real estate. The first stress test was conducted during the aftermath of the 2008 financial crisis to confirm that banks had enough capital to be solvent.

Zoning laws for commercial real estate

Before purchasing a piece of property in Maryland, it is very important to understand the property's zoning. Every jurisdiction will categorize real estate zones in different ways, but combinations of letters and numbers are usually used. For example, the code for a commercial property will typically start with the letter 'C" followed by a specific number to signify the property's subcategory.

Commercial property is a broad category of real estate that may include nearly all types of real estate other than single-family homes. Apartment complexes, office buildings, shopping centers, hotels and vacant land with the potential for business development may all be zoned as commercial real estate. Some zoning categories may restrict the type of business that can be developed in an area due to available parking or the interests of a community. For example, adult entertainment establishments are usually restricted to specific areas in a city away from schools and churches.

Federal Reserve concerned about CRE speculation

While residential property prices in parts of Maryland and around the country have yet to recover the losses suffered in the wake of the financial crisis, commercial real estate values have soared in recent years. The investor services companies Moody's and Real Capital Analytics report that office, warehouse and manufacturing facility prices are now more than 20 percent higher than their pre-crisis peaks, and this has made some at the U.S. Federal Reserve nervous.

The nation's central bank raised interest rates by a quarter point in December 2016, and its Federal Open Market Committee reported on Feb. 1 that more rate hikes were likely in the year ahead. The goal of these increases is to calm exuberance and keep inflation tightly under control, but worries persist over spiraling commercial real estate prices in major cities like New York and Boston. The 2008 financial crisis was caused by rampant residential property speculation, and experts are worried that the same thing may now be happening in the commercial sector.

Handling complex real estate dispute matters

Maryland real estate transactions often involve complex issues, and they sometimes may lead to disputes that require litigation in order to resolve them. Whether you are a developer, seller, business, individual, investor, condominium association, tenant or commercial landlord, a lot can be at stake if you are embroiled in such a dispute.

They may arise in a broad spectrum of areas, including lease disputes, zoning and land use, purchase and sales. No matter what issue you are dealing with, litigation may be only one of several options you might have to reach a resolution.

Renting commercial space

Business owners in Maryland may opt to rent the business spaces they need instead of purchasing the commercial properties for a variety of reasons. However, before they sign a lease for a new business space, there are some factors they should consider.

When examining new business sites, people should verify that a prospective space will be able to handle the needs of their company. This may entail taking the time to write down what exactly qualifies as a want or need for their business and what would be unacceptable.

CRE lending outlook generally positive for 2017

The commercial real estate sector in Maryland and around the country performed well in 2016 as the economy continued to grow and unemployment remained low. Loans for commercial property topped $500 billion in 2016 according to a report compiled by the Mortgage Bankers Association, and rents and property values in most major markets rose. These trends are expected to continue during the next 12 months, but some analysts have voiced concerns over rising interest rates and regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act that will soon go into effect.

The interest rate hike announced by the U.S. Federal Reserve in December 2016 was just the second increase in a decade, and most experts expect rates to rise again at least once in the coming year. However, any increase is expected to be modest, and few analysts feel that interest rates will have a great influence on the commercial real estate market. Some predict that fears over rate hikes could push borrowers to refinance maturing debt early. Industry sources say that billions in commercial property loans will require refinancing in 2017.

Buying real estate at the right price

Investing in commercial real estate can help individuals expand their financial portfolios. Maryland investors considering purchasing commercial properties may benefit from learning about some rules for purchasing real estate at the right price.

First, investors have to determine what type of properties and in which locations they want to purchase that are within their price range. Figuring out this information helps investors focus on what they know and aids in making the business plan more effective.

Advice on buying commercial property

While many Maryland entrepreneurs prefer renting a property for their business, there are many benefits, such as greater freedom and flexibility, to purchasing land or building a brand-new facility. However, potential business owners may wish to consider some financial and legal aspects prior to buying a commercial property.

Business owners who are thinking of purchasing land where they can construct their facility should consider an important factor: the location. Commercial properties that are located in prime areas not only get more exposure, they tend to sell better than those that are located in obscure areas, which is an added benefit to owners who want to sell the business one day.