The Commercial Lending Space
While the GSEs will dominate the multi-family space, borrowers have an array of options. Life companies have a strong appetite for quality properties and even “B” minus properties in some markets. With single family home ownership reversing course, apartment owners are the beneficiaries of lower vacancy rates and a selection of better tenants. On the acquisition/sales front, cap rates have compressed in strong metro markets driving investors to smaller markets having higher cap rates and thus a better entry price on the investment. All in all, it is a great time to be in the multi-family business and will be for years to come. Investors with pre-payment penalties may explore the cost-benefit of a refinancing at the new lower rates and longer terms. This is a smart strategy if an investor secures financing that is assumable because down the road available rates will be higher, the property will have a greater cash on cash return, higher net operating income and result in a higher cap rate on sale. Smart operators will be playing that game if the numbers pencil out.
Read MoreLending Update
Capital markets are functioning thanks to the GSEs lending, Life Company lending allocations coming on line and commercial banks having improved their balance sheets. Tertiary markets are having to rely on thrifts, credit unions and local banks to secure financing on acquisitions and loans coming due. Fannie Mae and HUD are still beating out other lenders in metro areas on leverage and amortization periods. Life companies are the leaders in rate on quality collateral with strong sponsorships. CMBS above 10M loan amounts are competitive in rate and amortization. Commercial bank lending above 5M is also competitive on class A in metro markets with strong sponsorship.
Current Trends in Commercial Real Estate Lending
The lending industry shows promise for 2011 as many commercial banks are rebuilding a customer base with small business and SBA loans to win deposits and gain new relationships. The secondary market is still very soft on conduit lending and life lending. Only high quality assets with good sponsorship are getting financing. CMBS is showing signs of life on quality assets in good market. The bulk of lending has a government guarantee attached with many troubled areas being scrutinized or outright rejected and any lending is done on a discretionary basis.
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