May 7th, 2013 3:06 PM by Chuck Green
Today it dawned on me that the commercial lending market is finally on the move, and improving.
For the last four years the market has been controlled by the mid size to bigger banks, who were only “in theory” lending into the commercial market, but in reality fighting intensely over the same few assets that were performing strongly, at a low LTV, with perfection in both their personal (sponsor) financials, and tenant mix, tenant strength, vacancy, and debt coverage and LTV.
The market has been difficult for so long that I barely remember what a normal market is like. Good files have been turned down routinely over the last few years for all sorts of reasons; the most common reasons being:
· Strength of sponsor (If the building is performing, why is this so critical?)
· Stability (banks want 6 or more months of tenant stability – why?)
· LTV (current appraisal process is flawed badly)
· Cash out (If the building will perform at this loan size, why is this so critical?)
· Foreign National (If the building provides good collateral, where is the risk?)
Recently we have started working with some new commercial mortgage funds. These are massive investors that are entering the commercial lending scene in a big way; with a great deal more of a common sense approach that seen by any of the banks.
We now have established good relationships with five of these funds, and they have aggressive rates and manageable fees. They are not going after the hard money / private money commercial business exactly, but have positioned themselves perfectly so as to be able to compete with the banks, offer some still good options for loans that do not quite meet bank guidelines, and can still manage some decent pricing for commercial loans that are even somewhat “less than perfect” that used to be (over the last several years) forced to consider hard money loan options.
Assets in poor condition, with high vacancy, deferred maintenance, poor debt service coverage, and very poor sponsors will still need to look at hard money and private money……but the field is expanding and we have some very good options now that were not available this time last year.
If you have a commercial loan that was accepted into a bank, reviewed, and yet somehow fell short of their lofty expectations, then we need to talk. We are doing multifamily commercial loans all over the United States.