Recently, an entirely new group of lenders have started targeting lower valued properties. With these lenders keeping a watchful eye on properties of $10 million or less, small business owners, as well as landlords, feel more optimistic.
New Loan Programs
In the past year, several lenders have launched new programs specific to loans for smaller and less valued properties. Two such lenders are Sabal Financial Group LLC and Guggenheim Partners LLC, both controlled by Waterfall Asset Management.
The challenge is that a large number of traditional lending institutions have shied away from lending money for smaller and less valued properties following the recession. To banks, these properties come with big risks and relative to size, the cost of underwriting is too high.
However, as the economy strengthens, some lenders are starting to take note of smaller and less valued properties. To these lenders, the risk is worth taking but in addition, there is less competition. As a result, a good deal could quickly turn solid profit.
For years, commercial real estate struggled but according to Randy Fuchs, principal with Boxwood Means, Inc., an analytics firm for commercial property, things are beginning to change and for the better.
A prime example of how less valued properties are getting attention from lenders is seen with California-based BKM Capital Partners. As reported by PR News Wire, this year the company lent $4.6 million to ReadyCap Commercial LLC for the purchase of the Hayden Island Business Park in Oregon.
Director of acquisition for BKM, Brett Turner, offered terms that no bank would have considered. For instance, in case of default, lender recourse was limited. As explained by Turner, banks demanded much stricter terms, which included full lender recourse due to the property having vacant space and needing some repair.
However, the expectation of ReadyCap is that by next year, the volume will reach $1.25 billion through real estate loans to investors and small businesses working under a program with the US Small Business Administration. Tom Capasse, chief executive of Sutherland said the loans mentioned are for an eight-unit multifamily owner who got left behind or a small manufacturer in the Midwest.
In 2014, combined loans of $5 million or less ultimately totaled $176 billion. From 2010, this is an impressive 75 percent increase. Although there was some slowing in the first quarter of this year, experts anticipate that volume will again increase as opportunities that have not been able to meet tight bank lending practices are addressed.
Capturing headlines are the big deals for state-of-the-art properties but in order for real estate markets to thrive and survive, they also depend on the availability of debt financing for restaurants, standalone doctors’ offices, and low rent apartments to be purchased, sold, or refinanced.
Various lenders that are not overseen by bank regulators are once again going to smaller loans. As stated by Chris Haynes, president of commercial real estate finance advisor, Broadacre Financial, lenders take profits of less than 1 percent for larger loans whereas more than a 2 percent profit is still feasible with smaller loans.