3 Commercial Real Estate Lending Segments

February 18, 2015

The commercial real estate lending landscape is a moving target, effected by market developments, current events, and boardroom decisions. Different lenders have different goals, as well as disparate reactions to economic news, which can have a major effect on a borrower’s bottom line. Here’s what you need to know about the three major lending segments right now.

CMBS lenders offer loans that are packaged and resold in bond securitizations, which are currently in high demand. That means these lenders are pricing deals competitively right now, with debt yields at the 8% mark for most property types—less for multifamily and high quality properties. Loan structures are more restrictive than insurance or bank loans, but can offer higher leverage and interest only.

At the end of last year, one survey predicted $124 billion in CMBS production in 2015. According to a recent Commercial Mortgage Alert article, “the projected $36.7 billion first quarter total would be the highest quarterly volume since Q3 2007”.

Life Companies
Expect loans from 3-25 years with 10-year fixed terms in the 3.25-4.50% range from insurance lenders. As portfolio lenders, profits for these companies are generated from collected interest—with interest rate yields on commercial real estate loans 1-2% higher than alternative bond investments, most life companies are aggressively seeking high quality loans. A recent survey conducted by Slatt indicates that polled correspondent lenders will be increasing allocations for 2015.

These lenders focus on shorter term fixed rate bridge and construction loans. Interest rates vary greatly, but with deposit pay rates at historic lows and the ability to borrow from the Fed at 0%, bank terms are increasingly competitive. They have been very aggressive lately, targeting borrowers who want to mitigate rate risk and lock in long term.

For more information about commercial real estate lending, please contact us.