Bernstein & Feldman, P.A.

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Commercial real estate risks

Maryland investors in commercial properties may be pleased with the results achieved in 2015, a year during which there was great demand accompanied by minimal vacancies. This has caused rental costs to increase, which benefits those owning the types of properties that have been in demand. Unfortunately, there could be a downturn in this industry as financing issues become a serious consideration.

Early commercial real estate statistics for 2016 may reflect the challenges that could be ahead. The market did not move much during January and February. Experts indicate that commercial mortgage backed securities play a crucial role in the situation. These bonds represent one of the largest areas of debt for commercial real estate. However, the investors that are needed to purchase these bonds are now opting for other avenues of investment because of low yield factors.

Commercial mortgage backed securities typically need to be refinanced after approximately 10 years, the point at which a CMBS normally matures. This financial tool was quite popular during the real estate boom during the middle part of the last decade, and many of these loans will be maturing shortly. An estimated $400 billion could be at issue in 2016 and 2017. The borrowers may face serious difficulties in refinancing. Experts expect that a number of the affected properties will be financed through the sale of assets. However, there is a significant possibility of increased foreclosures on commercial properties as well.

Owners who are anticipating serious financial challenges with their commercial properties might meet with a lawyer who is experienced in handling commercial real estate to discuss options. This might provide an opportunity to identify at-risk properties that would require new financing. It might also facilitate decisions related to selling off properties that could otherwise end up in foreclosure.

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