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Birmingham, Michigan

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Commercial Mortgage Lenders – Overview

Posted at Commercial Real Estate Loans by Jeff Rauth

Oct. 22, 2008

Tagged with: commercial mortgage lenders

There’s essentially four types of commercial mortgage lenders: commercial private money lenders, conduit or CMBS lenders, government sponsored lenders and portfolio/traditional lenders. The distinctions between them can be narrow. Often a commercial mortgage lender will fill one or more of these niches. For example, many portfolio lenders will sometimes sell their debt of into the secondary market, like a conduit lender. These four categories are what make up the commercial mortgage lending market.

Commercial Mortgage Lenders - Traditional or Portfolio Banks

Portfolio banks or lenders essentially loan their own money which they receive from deposits or premiums in the case of an insurance company. This is the most traditional type of commercial lending and was the norm, before 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 normally only consider deals greater than $40,000,000 while local banks typically like deals less than $5,000,000.

Commercial Lender Mortgage - Conduit or CMBS Lenders

CMBS (Commercial Mortgage Backed Security) type lenders have been getting a lot of press lately as this category has been dragged down by the entire credit crisis which is really a result of the residential subprime disaster. This is the commercial secondary market. Basically this is the Wall Street side of the business where commercial loans are originated and then pooled together, securitized and sold as bonds.

The structure has allowed liquidity for commercial lenders, by being able to sell their loans, rather than holding onto them. By selling the loans they make their spread on the front. Borrowers have enjoyed long term fixed rates, longer amortization periods and competitive rates. We’ll see how long it takes for this segment of the market to return.

Commercial Mortgage Lending – Government Sponsored Lenders

Government sponsored lenders include, SBA, USDA, Fannie Mae, etc. Lenders and banks that are set up with these programs have the benefit of having their capital guaranteed by the government. In turn, many the loan programs have some great features, like 90% financing (on SBA commercial loans) and longer fixed term rates, are a couple of examples.

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. However B & I loans can cover investors in rural areas.

Commercial Mortgage Lenders - Commercial Private Money

This is a broad category and there are many different set ups from individuals that are literally lending their own cash to large private hedge funds that have put together pools of capital from high net worth investors. 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 12% - 16%. These programs are often used by individuals that have very short time frames and or have been turned down by banks.

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