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Commercial property loans up, despite higher interest rates

Those who are thinking about purchasing commercial real estate in California may be encouraged to learn that commercial real estate lending activity is strong amidst growing interest rates. In fact, commercial lending is growing faster than other types of loans, such as retail and unsecured loans.

According to reports, the rate of loan growth in U.S. banks during the first months of 2017 was down, mainly because of higher interest rates. Less enterprises and individuals want to take on new debt at these higher rates. However, as of May 2017, about 22 percent of lending was for commercial real estate, while credit card loans accounted for only about 8 percent. Retail loans at 7 percent include student loans, vehicle loans and various other types of secured consumer loans, and credit card loans consist of unsecured consumer loans.

During the first quarter of 2017, the banking industry as a whole grew by approximately 5 percent over the comparable period in 2016, which is a large drop considering that during 2014 through 2016, the growth numbers were in excess of 10 percent. Commercial real estate loans, however, grew nearly 10 percent from the first quarter of 2016 to the first quarter of 2017. The sharp increase in CRE loans is largely due to the fact they are typically short-term loans of five to seven years that are regularly refinanced to help companies avoid paying higher rates.

Those who wish to purchase o commercial real estate might wish to speak with a lawyer that handles such transactions. In addition to loan paperwork, there are a variety of documents that have to be signed at a real estate closing, and an attorney can review them well in advance to ensure that they do not contain any provisions that could be problematic down the road.

Source: Forbes, "Commercial Real Estate Lending Growth Remains Strong Despite Fed Rate Hikes", May 31, 2017

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