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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.

There are more serious concerns about looming commercial mortgage backed securities regulations that will require CMBS lenders to keep at least 5 percent of the loans they make on their books. Several CMBS lenders have already tightened underwriting standards in anticipation of the new rules, and many smaller lenders could abandon the sector altogether. This has experts worried because these securities are often crucial components of high-leverage deals and are considered an important part of the commercial lending landscape.

Commercial property developers face numerous challenges, and selecting the right loan package is often chief among them. Attorneys could provide them with assistance by scrutinizing financing documents and comparing the terms that are being offered.

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