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Commercial Real Estate Loans Draw Increased Scrutiny for Banks Image

Commercial Real Estate Loans Draw Increased Scrutiny for Banks

Posted by: Reed H. Glawe

Banking and real estate problems of recent years may be fresh in the minds of Minnesota residents. Those involved in commercial real estate activity may want to be aware of banking regulators’ plans to pay closer attention to lending activity in 2016. A Dec. 18 announcement noted that there is a high level of concern because there has been a significant increase in lending with less stringent standards in 2015. This could threaten the health of the banks involved in activity that is considered to be riskier.

Various agencies indicate that commercial real estate loans have been underwritten with relaxed standards in recent times. Additionally, there have been observations of exceptions to underwriting policies being made. The agencies also note that the banks in question are failing to monitor market conditions sufficiently. The primary area in which underwriting standards have been looser is the commercial sector. The concern is that both the national economy and the stability of the banks could be negatively affected if these practices are not changed.

Those banks that are identified as having a significant level of growth in lending in this sector will face increased scrutiny. Those that have plans to increase commercial real estate lending or become more active in markets deemed to be risky or growing will also be monitored more carefully. Banks may be expected to implement more stringent underwriting requirements. They might also be required to increase their capital. There are also recommendations that banks may use to reduce the level of risk involved in lending practices.

As a company works to expand, additional properties may be needed for a variety of reasons. A business lawyer might be helpful for helping to coordinate real estate transactions to ensure that all details are understood and correctly spelled out in legal documents. Additionally, a lawyer may review the final documents prior to signing to ensure that there are no errors.

This information is general in nature and should not be construed as tax or legal advice.