Commercial mortgage lenders have many sources of capital to choose from when placing a commercial mortgage request with a lender. Who are these lenders, and which is best for your particular needs?
Commercial Banks – Although commercial banks are still major commercial real estate lenders, the recent economic and market conditions have caused commercial banks to be much more conservative in their guidelines. Commercial banks have severely limited their geographic lending areas, cut back on loan to value ratios, and toughened up their credit criteria. In addition, commercial banks have cut back on their loan terms, preferring to keep their loan terms short – usually three to five years.
Local and Community Banks – Many local and community banks have stopped lending altogether due to the economic downturn. Those that are still lending are looking for “relationships” with their borrowers. They want to see deposits and other banking activity moved to their banks. Most do not want one-time transactions or one-time loans.
Agency Lenders – Fannie Mae and Freddie Mac are actively engaged in apartment building and multi-family lending for qualifying properties and strong borrowers. Borrowers seeking agency loans should have excellent credit, personal net worth, liquidity, and experience. The property should be in good condition with a solid rental history. Properties with high turnover, vacancy or deferred maintenance will not qualify.
Conduit Lenders – Wall Street lenders have traditionally been active with Commercial Mortgage Backed Securities (CMBS) loans. These loans, usually $3,000,000 and more, are more difficult to obtain in today’s market due to the volatility in the credit markets. Rates and underwriting requirements have been swinging wildly in this sector of the market.
Insurance Companies – Insurance companies have always provided low rate and long term loans on commercial real estate. These loans are underwritten conservatively (low loan to value ratios) and are offered on strong properties and to strong borrowers. Insurance company rates do not fluctuate with each and every move in the market as these loans are tied to the company’s internal cost of funds.
Credit Unions – Many credit unions are beginning to aggressively lend on commercial real estate. These lenders typically like deals close to home and like to establish relationships (they like deposits). They most often compete with the local and community banks in the area. These lenders weren’t very active in the past and don’t usually have any bad loans on their books at this time.
Private Lenders – Due to the uncertainties in the market, private lenders have stepped in to create access to capital for those borrowers unable to obtain conventional financing. These loans are usually short term and at rates considerably higher than conventional rates. These loans require less underwriting time and usually close within 30 days. Private lenders are more concerned with property value and potential cash flow than with borrower credit issues.
There is a lot of uncertainty and volatility in today’s lending market. The days of walking into your local bank and obtaining the loan you need (and that is best for you) are long gone. A good commercial mortgage broker who understands your needs and has access to all of the lenders described above is a necessity to get the best commercial mortgage rates and terms. He will be able to guide you through this process and help you obtain a commercial mortgage that meets your needs.
If we can help you, please visit selectcommercial.com or call Stephen Sobin at 516-596-8537.