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The Deutsche Bank fine and its possible effects

9/30/2016 | Real Estate Blog

Pennsylvanians who are involved in the commercial real estate market might want to follow Deutsche Bank. The U.S. Department of Justice has announced that it is fining the bank $14 billion for its role in issuing residential mortgage-backed securities leading up to the mortgage crisis in 2008.

Deutsche Bank is one of the biggest overseas originators of commercial real estate loans and one of the largest issuers of commercial mortgage-backed securities in the U.S. The German bank reportedly has $6 billion in reserves for litigation, far below the amount needed for the fine. A bank spokesperson indicated that the bank intends to negotiate with the federal government to secure a settlement far below the amount of the fine that was announced.

The situation may have a couple of different effects on the U.S. commercial real estate marketplace. The bank may be more reticent to extend new loan offers and it may scale back its CMBS activities. Other large foreign banks are also being investigated by the DOJ, including Credit Suisse, the Royal Bank of Scotland and others. With the hefty fine levied against Deutsche Bank, they may also scale back their U.S. market presence for commercial real estate loans and CMBS. This might make it more difficult for developers to secure the financing they need for their projects.

Real estate developers may now be hard-pressed to secure traditional debt financing for projects that are on the drawing board. They may want to meet with their attorneys in order to see if alternatives like crowdfunding are available.