The Law Office of Lynnette Ariathurai A Professional Corporation

Debt maturity may affect commercial real estate in California

The real estate market took a significant hit upon the onslaught of the recent recession. However, commercial real estate in California may be rebounding from its dramatic downturn. On the other hand, despite promising signs, many experts are warning there may still be some bumps in the road to recovery for the commercial property sector. One of the issues which many experts are warning about involves maturing equity notes.

Many of the equity notes are set to hit maturity during 2013. Ten year loans that began in 2003 are now beginning to mature. Also, just before property values began to drop purchasers took out many shorter-term loans which are also now set to mature this year. Although more than 50 percent of issues regarding distressed properties have been resolved, there may potentially be a significant number of maturity defaults in 2013.

Experts expect that distressed properties will be made up mostly of commercial office space. Certain markets have only resolved approximately one-third of distressed commercial real estate. Also, vacancy issues have prevented many property owners from seeing enough investment returns. Some experts believe that some smaller properties may be overpriced on the rental market.

The potential volatility of the commercial real estate market in California and elsewhere makes it that much more important to guard against future losses when it comes to owning commercial property. This means property owners will want to ensure that the building is properly zoned for the intended business use. Taking these precautions will help avoid future legal problems, including fines for violating rules and regulations.

Source: Press-Enterprise, "REAL ESTATE: Some debt maturity clocks will ring in 2013," Jack Katzanek, Feb. 11, 2013

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