Commercial Mortgage Lenders

There are essentially four sources of capital from commercial mortgage lenders.  Categories include: commercial private money lenders, conduit or CMBS lenders, government sponsored lenders and portfolio type lenders.  The distinctions between one type of lender from the next can be blurred.  Often a commercial mortgage lender will fill one or more categories.  For example, some national banks pool and sell their loans like CMBS lenders, while they may keep (portfolio) some of their loans for various reasons.  These four categories are what make up the majority of the commercial mortgage lending market.

1. Portfolio Banks/Lenders

Portfolio banks or lenders essentially loan their own money which they often receive from bank deposits or insurance premiums.  This is the most traditional type of commercial lending and was the norm in the past, before the days of securitization which became popular in the 80’s. 

Commercial mortgage lenders that still operate in this fashion are often insurance/pension funds and smaller local banks.  Insurance and pension funds often only consider loan requests over $2,000,000 while local banks are often only interested in deals around $1,000,000.  Portfolio lenders often have some flexibility with their underwriting as they are making much of the decisions to fund on their own.  However, most portfolio lenders are very conservative in nature, as the loans sit on their balance sheet.  

It’s interesting to note that portfolio lenders are experiencing good growth (relative to the whole banking industry) right now as many are in strong positions.  They are not dependant on the secondary markets for their capital. 

Commercial Lender Mortgage

2. Conduit or CMBS Lenders

CMBS or Commercial Mortgage Backed Securities type loans have been getting a lot of press lately as this category has been dragged down by the residential subprime mess.  This is the commercial secondary market.  Basically this is the Wall Street side of the business where commercial loans are originated, then pooled together, securitized and sold as bonds.  The bond buyers are mostly large investment companies such as insurance firms, pension funds, governments, etc.   

The main benefit for the commercial lenders is the liquidity created by selling the loans, rather than holding onto them in their portfolios/balance sheets.  By selling the loans they make fees and free up their capital.  The main benefit for borrowers with these types of loans are many, such as longer fixed rates, longer amortization periods and competitive rates.
 

Commercial Mortgage Lending

3. Government Sponsored Lenders

Lenders and banks that are set up with government sponsored programs, such as the USDA loans, SBA loans, HUD loans, FHA loansboast some strong advantages over conventional bank loans.  I.e. the highest levels of financing and longer fixed term rates are 2 examples.  The way the goverment "backs the loans varies.  The SBA, for example do not lend money but only guarantee banks, that they will receive all or a portion of their money back, in the event of borrower default.  Think of it as an insurance program for the bank.  However, Fannie Mae, FHA (multifamily side) do actually buy the debt on the secondary market.

The funding bank or lender are often more aggressive with their terms because of these guarantees.  Unfortunately SBA loans are only for businesses that occupy their building and not available for investors.   Note that many traditional banks offer SBA loans and can portfolio the loan or sell it on the secondary market (whether by choice or not).

This is a broad category and is comprised of individuals to private hedge funds that essentially lend their own money against commercial real estate.  These sources also go under the names bridge loans and or commercial hard money.  There terms are usually short at 12 -24 months, with interest only payments with rates and fees on the high side.  Borrowers should expect to shell out 3 -6% on the front with rates between 6% - 16%.  These programs are often used by individuals that have short time frames and or have been turned down by banks. 

These four categories make up the vast majority of commercial mortgage lenders.  We work with all of these types of commercial mortgage lenders, and not that they can offer you some very interesting options that your local banks con not.  For example we still can offer 10 year fixed rates, on 30 year amortization schedules. 

Looking for financing for your property?  Fill out the mini commercial loan application  now for meaningful answers.