Commercial Real Estate Lending Lowdown

March 2, 2016

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 commercial real estate lending segments.

CMBS securitizations have been very volatile for the past 4-6 months. While CMBS lenders have remained active during this period, pricing during loan closings have been erratic. It’s been common for pricing and other terms to change while these loans are being processed. Consequently the CMBS space has seen a major slowdown. According to Commercial Mortgage Alert, “The volatility of commercial MBS spreads has prompted conduit programs to significantly scale back lending over the past few weeks”.

Life Companies
Expect loans from 3-25 years with 10-year fixed terms in the 3.50-4.50% 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 2016.

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.