Commercial real estate loans, and the industry in general, have gone through a tremendous amount of volatility in 2009. Huge banks have gone out of business and many more have ceased lending. Many of the banks that are still lending have created such conservative programs that very few borrower can even qualify. Many of those that can qualify won't accept the terms as they are to harsh. Borrowers have become baffled as they take their perfectly good loan request to their previous sources only to hear "no and no and no..."
The market is bad, you know this. We estimate that literally 80% of all previous banks and lenders are either out of business or are not lending. For example the conduit market was down 98% in 2008 compared to 2007.
However, there still are commercial real estate loan options out there. None of them are perfect but a few of them are viable. For folks that operate their small business out of their commercial building, or at least 51% of it, they will have some of the reliable loans in the nation.
These programs are government guaranteed and go beyond just SBA loans. As you probably guessed, because the government has step up and further guaranteed the loans, it makes it a much safer, and attractive for the banks to take on the risk of a new loan.
Further the secondary market for these types of loans has become stronger, year to date. We are currently back up to about 60% of where we were in 2007 (Up from about 10% of where we were in the beginning of the year). This is where banks sell mortgages to one another. So the returning of the secondary market and the stability of having the government backing has kept this segment of the industry alive.
As far as terms, by far the biggest benefit of these loans is high levels of financing available. For example, most conventional lenders will now only go up to 60% loan to value, while most of the government programs will still go up to 80% - 85% on refinances or 80% - 90% on purchases. This high level of financing makes a huge difference in a market such as this where property values are declining. Many conventional deals are getting killed as the bank lowers there loan to value guidelines and at the same time, property values decline.
Another benefit is the amortization schedule offered. Government programs are typically amortized over 25 to 30 years while most banks are reducing their amortization schedule to 15 or 20 years. The issue here cash flow for the borrower. The difference in payment between a 15 year amortization schedules vs. a 25 year is often 20 - 25%. Most businesses need to keep as much cash flow in their operation as possible. Aggressively paying down their commercial real estate loan is not as important as having enough cash to pay the rest of their bills.
The current market is frustrating for all involved. However, commercial real estate loans are still closing and often loan requests that keep getting declined are often fundable, if in the hands of the right lender/bank. Keep working.
