Los Angeles Business & Commercial Law Blog

Banks in California may not be required to obtain a certified appraisal to approve loans for commercial properties valued at or under $400,000 if a new rule is approved. Currently, financial institutions that provide loans must have a certified appraisal for properties valued at more than $250,000. This increase could make it easier for commercial real estate buyers to be approved for loans. Federal banking agencies came together to propose the rule change since it would alleviate some of the regulatory burden placed on them under the current rule.

In 1989, banks became legally obligated to standardize their rules for appraisal internally. In 1992, an amendment to the law allowed federal banking agencies to set a dollar amount as the value at or above which properties must be evaluated by a professional appraiser in order to approve a loan. Two years later, federal banking agencies chose $250,000 as the minimum value. If the proposal goes through in 2017, the new minimum value for a property that would require a certified appraisal to be approved for a loan will be $400,000.

Prospective purchasers of California commercial real estate most likely do not look forward to performing due diligence, but they make the effort because they know that taking shortcuts in this area can cast a long shadow. Poring over documents may not provide much in the way of excitement, but the information this kind of research can yield about the legal, financial and physical condition of a property could be crucial.

The information uncovered during due diligence can protect commercial property sellers as well as buyers. While the process provides buyers with what they need to make more prudent decisions, sellers are less likely to be sued over undisclosed defects or misrepresentation. The due diligence process generally begins in earnest when an initial offer is made, and buyers often have 30 days or less to gather the required financial and legal documents and have the property physically inspected.

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.

A lawsuit against Starwood Hotels is moving forward in a California federal court. In a ruling on May 1, a judge moved forward the claim that Starwood's record-keeping and administrative fees were so excessive as to breach the company's fiduciary duty to 401(k) plan participants.

The judge noted in his opinion that the plaintiffs in the case have not yet specifically alleged exactly how Starwood's fiduciary duty was breached. However, the facts that they have so far brought forward were sufficient in order for the case to continue.