Commercial real estate lending has been falling as regulators voice their concerns about the sector and buyers grow nervous, according to The Wall Street Journal. Property values for this particular segment of real estate have reached all-time highs after eight years of steady gains, and sales of commercial real estate have slowed sharply as of late. In addition, the number of Federal Deposit Insurance Corp. (FDIC) insured institutions with potentially troubling concentrations of risk has been on the rise.

As a result of these trends, real estate funds such as Vanguard REIT Index Fund (VNQ), First Trust S&P REIT Index Fund (FRI) and Fidelity MSCI Real Estate Index ETF (FREL) could suffer losses. (For more, see also: Add Some Real Estate to Your Portfolio.)

Falling Sales Activity

One indicator that helps illustrate the potential concerns brewing in this particular sector is sales activity, which plunged nearly 40% in the first two months of 2017 when compared to the same period last year, according to figures provided by Real Capital Analytics and reported on by the Journal. During January and February of this year, investors bought $50.3 billion worth of commercial property, versus $80.1 during the prior period.

New lenders are getting involved in the space, including funds created by private equity firms, and both banks and insurers have become more aggressive when it comes to securing new deals, according to the Journal. "It’s tougher right now," Craig Bender, a managing director with ING Real Estate Finance, told the Journal. "The banks are hungry. The life insurance companies are hungry." (For more, see also: Commercial Real Estate Loans.)

Growing Risk

As industry trends change, the number of FDIC-insured institutions that are carrying potentially worrisome concentrations of risk rose to 521 by the end of the third quarter of 2016, according to a FDIC report, compared to 474 during the third quarter of 2015, the Journal reported. This represents a roughly 10% increase. In spite of these developments, many bank executives have a positive view of the commercial real estate sector.

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