A group of US lenders is focusing on loans for smaller properties, which is good news for ‘mom and pop’ type investors.
These lenders, including ones controlled by Guggenheim Partners LLC, Sabal Financial Group LLC, and Waterfall Asset Management, have started new programmes with an emphasis on loans of $10 million or less range.
Many banks and other financing companies have been avoiding these types of deals since the 2008 financial crisis due to the higher level of risk they present.
The banks are finding there is less competition for these smaller deals, which means that interest rates and profits can be higher.
BKM Capital Partners, based in Irvine, California, is an example of one company that has benefitted from this trend. The investment firm looked to ReadyCap Commercial LLC when it needed a $4.6 million loan earlier this year to buy Hayden Island Business Park, an industrial property in Portland, Oregon.
ReadyCap was able to offer terms that a bank would not be able to, such as limiting lender recourse if the loan went into default. A bank would want full recourse to the lender because of the property’s vacant space and worn condition.
Loans of $5 billion or less added $176 billion to lenders’coffers last year, representing a 75 per cent increase from 2010.
The pace has dropped to $36 billion in Q1 of 2014, but some new entrants to the market are projecting that volumes will pick up as they address niches that haven’t been able to meet standard banks’tight lending guidelines.
Large deals for Class A, “trophy”properties end up making the news, but many real estate markets rely just as much on funds being available for the purchase, sale, and refinancing of stand-alone restaurants and doctors’offices. About 15 per cent of the $3.2 trillion in outstanding commercial real estate debt is attributed to small or less expensive properties.
