Looking back over the last many years, industrial real estate finance has gotten more complex and smarter. CMBS has imposed a few uncommon measures and fields. Federal regulation and regulators have played a role, too. If one considers the most effective primary industrial loans, not a lot has changed. Each loan still begins with a promissory note, a security interest in commercial real property, and a package of promises to attempt to protect the lender’s collateral and maximize the probability of compensation.
Just as we noticed after previous downturns, after the Great Financial Crisis, real estate creditors’ rights and treatments remained noticeably unscathed through innovative arguments made by debtors, and they suggest that when deals have long passed awful. And we nonetheless bear the recording device, the antiquated legal ideas that go with it, legalistic formalisms rooted in records, lien precedence, and (in New York, at least) a mortgage recording tax that is frequently incompatible with cutting-edge real property finance. Our documents keep growing to handle the nuances of those conventional and often bulky and impractical ideas.
Many other things have been modified in the most important approaches. And they’ll trade in greater ways due to the ongoing consequences of the 2016 election and the mid-term elections in 2018. September 11 spawned federal concern about terrorism and money laundering. The results: new due diligence requirements and delays, and new verbiage, paperwork, and disclosures. But deal systems and documents remained about the same.
The 2008 Great Financial Crisis caused a spate of new laws, nevertheless, working its way through the regulatory and deal-burdening procedure. That’s not necessarily awful because the federal government, in the end, bears all of the risks of the complete banking system. Remember TARP?
Dodd-Frank, Basel III, and the global regulatory environment have led banks to tighten their purse strings and decrease their threat tolerance. That now complicates credit decisions on a macro and micro basis, as by no means earlier than. The Trump Administration may dial back a number of those. However, that’s yet to be decided. For now, the ever-developing regulatory burden on banks has created a gap for less-regulated lenders—shadow creditors, which include private equity, hedge fund, debt fund, and private “actual estate family” lenders—to make first loans, a business the banks once owned.
