While banks are attempting to take advantage of Boston’s commercial real estate market, there are concerns regarding another possible real estate bubble. Lending by the Boston area’s 25 largest banks has risen by approximately 40 percent over the past three years. The national average during this same period was 16 percent.
One lender in Hyde Park had real estate loans of $332 million during the second quarter of the year. This same lender only had $2 million in loans during the same period in 2011. There remains concern that lending standards are relaxing while developers are committing far more money for commercial real estate projects.
Certain concerns revolve around the amount of financing for office projects, luxury apartments, and condominiums. As one lending executive suggests, “there certainly are some signals at least, some red flats, that we could be reaching a point where valuations are at their peak, and the only place for them to go is down.” Not everyone agrees with this assessment, however, as others have suggested that there remains room for the Boston market to grow.
Back in the 1980s, commercial real estate was booming in Boston. However, the optimism during that period dried up by the 1990s as Massachusetts experienced an extremely deep recession. This put a halt to many commercial real estate projects and resulted in significant consequences for banks.
At Phillips & Angley, we share your concerns regarding instability in the market. We understand how complex, time-consuming and costly the entire real estate transaction process can be. Besides taking all of the necessary steps to make the process move smoothly for you, we also counsel everyone we represent regarding the benefits and risks of every transaction. We have been providing this real estate representation for over four decades and understand what is at stake in every transaction.
Source: Boston Globe, “Red flags follow commercial real estate lending’s fast rise,” Deirdre Fernandes, Aug. 31, 2015