California developers are likely aware that some smaller banks are cutting back on financing commercial real estate projects due to increased federal scrutiny. In particular, commercial property deals that involve construction or redevelopment and are in the range of $5 to $10 million are seeing less competition. As a result, more foreign banks are funding commercial real estate in the United States. Deutsche Bank and the Bank of China are among the banks providing the biggest loans. The commercial mortgage holdings of foreign banks' American offices increased more than 50 percent in 2015.
Banks are under pressure from the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency to make loan terms stronger, and this has smaller banks moving out of the commercial real estate lending business altogether. As they step back from new loans and sell off existing ones, institutional lenders such as private equity funds are beginning to fund more commercial real estate as well.
Because large banks are unable now to sell parts of their loans to smaller banks, many are getting out of the commercial real estate lending business too. In some cases, banks that are still involved are working with mezzanine lenders to make deals more efficient.
Commercial real estate development is complex, and it may be even more so when foreign lenders are involved. Investors may want to work with an attorney who can assist in the process as well as with many other issues that might arise over the course of ownership. These include zoning issues, contract disputes, issues with tenants or property management, easements, liens and many forms of real estate litigation.
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