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CRE refinancing growing more complex

California commercial real estate developers may already have felt the impact of credit constraints and Dodd-Frank regulations on their ability to refinance their projects. Hesitant lenders, a scarcity of loan funds and growing piles of required paperwork have made it a difficult, time-consuming process to refinance commercial real estate.

The Dodd-Frank Wall Street Reform and Consumer Protection Act made banks subject to more restrictive lending rules, including a requirement that lenders retain more capital in loan loss reserves. The managing director of JLL Finance Group said the amount lenders are able to lend has decreased by around 10 percentage points on a loan-to-value basis. Where banks might previously have lent a commercial property owner 75 to 80 percent of the property value, they are now lending 65 to 70 percent.

At the same time, there is a feeling among buyers that property values are at or near their peak, making them less likely to shop for real estate. Commercial property owners are thus faced with a difficult circumstance. Borrowing has become more cumbersome and less effective and selling property is hard too because of a lack of buyers. According to the manager of JLL Finance, commercial refinance applications have grown from ten pages long to more than a hundred. The increased time associated with the application process deters many from refinancing, and it can be a deal-killer.

Many developers have begun to seek funds from the private lending market to avoid breaching contracts or real estate litigation. They are often required to pay higher interest rates though, or agree to terms that are not required by banks and other lenders. An attorney with experience handling commercial real estate matters may be able to help by negotiating finance terms with lenders or by offering advice regarding the structure of a commercial real estate transaction.

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