Bernstein & Feldman, P.A.

Providing Personal Counsel
And Representation For Over
30 Years

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.

Signs that this overheating may be coming to an end include dire reports about the weakening commercial rental market in New York City and predictions that commercial mortgage delinquency rates could reach 5.75 percent in 2017. Of particular concern are an abundance of multi-family units and high-priced apartment towers springing up in many U.S. cities. The Federal Reserve has said that regulations and not monetary policy may be the best way to address the problem, and industry experts will likely be paying close attention to how President Trump's experience in this area influences his policy decisions.

It can take years to complete a major commercial real estate project, and much can change in that time. Attorneys familiar with real estate law will likely be aware of this, and they could help investors and developers to avoid costly delays by anticipating and addressing potential pitfalls like zoning disputes, land use issues and regulatory hurdles.

No Comments

Leave a comment
Comment Information