Commercial real estate values could start to decline due to the lack of good financing. Until one year ago, half of all new commercial real estate loans were made by conduits. Conduits offered life company level interest rates to average quality commercial properties. Conduits were regularly making loans on retail properties as high as 80% loan-to-value, and these loans were non-recourse as well. It's no wonder commercial real estate cap rates were so low.
But conduit lending is down by 90%, and the spreads over Treasuries have increased by 200+ basis points. As a result, commercial real estate does not cash flow nearly as well.
These changes will negatively impact commercial real estate values. Even if rental rates and occupancy rates remain unchanged (unlikely due to the recession), the lack of favorable financing alone could lead to a 15% decline in commercial real estate values.
Commercial real estate financing from banks, fortunately, is still available. You can apply to 750 different commercial lenders with just one simple mini-app using C-Loans.com. And C-Loans is free.
Monday, July 14, 2008
Friday, July 11, 2008
Lehman's Departure is Huge
Lehman Brothers Small Business Finance just closed up shop. Lehman was the second largest subprime commercial lender in the country, and their departure is huge. I almost fell off my chair when I learned that they are servicing a portfolio of $200 billion in subprime commercial loans.
C-Loans.com and Lehman had a good relationship, and they closed on the order of 25 loans for us. Their credit underwriting was fairly reasonable. They made the riskier loans, but for the most part their borrowers will make their payments.
The problem that will eventually kill their investors, I predict, is bad appraisals. Bad commercial appraisals are the bane of any hard money lender's existence. Appraisers tend to fall in love with the property owners and often try to help them by stretching their appraisals. Unless a hard money lender is constantly on guard for this, these inflated appraisals often lead to immense losses.
If Lehman Brothers Small Business Finance had obtained one or two BPO's (Broker Professional Opinions) on every deal from a local commercial real estate broker to double-check the appraisal, they will end up being okay. But I don't think they did, so I predict that when this portfolio starts to unwind that they will discover they had a lot of overblown appraisals.
There are still some lenders actively seeking subprime commercial loans. You can apply to my own company, Blackburne & Brown, using this link. I will personally review your deal.
C-Loans.com and Lehman had a good relationship, and they closed on the order of 25 loans for us. Their credit underwriting was fairly reasonable. They made the riskier loans, but for the most part their borrowers will make their payments.
The problem that will eventually kill their investors, I predict, is bad appraisals. Bad commercial appraisals are the bane of any hard money lender's existence. Appraisers tend to fall in love with the property owners and often try to help them by stretching their appraisals. Unless a hard money lender is constantly on guard for this, these inflated appraisals often lead to immense losses.
If Lehman Brothers Small Business Finance had obtained one or two BPO's (Broker Professional Opinions) on every deal from a local commercial real estate broker to double-check the appraisal, they will end up being okay. But I don't think they did, so I predict that when this portfolio starts to unwind that they will discover they had a lot of overblown appraisals.
There are still some lenders actively seeking subprime commercial loans. You can apply to my own company, Blackburne & Brown, using this link. I will personally review your deal.
Thursday, July 10, 2008
More Commercial Lenders Close Their Doors
According to the popular website, The Mortgage Lender Implode-o-Meter, Lehman Brothers Small Business Finance, Indymac Commercial, and Mortgages, Limited all closed their commercial loan origination channels in the past few days. The powerhouse subprime commercial lender, Bayview Financial, parent of Interbay Financial, Silverhill Financial, and Commercial Direct, was also placed on their watchlist.
We certainly live in interesting times. Conduits once originated more than 50% of all new commercial loans. Today conduits are originating just 10% of last year's commercial mortgage production volume. The subprime commercial mortgage market is drying up quickly. Only small banks and credit unions appear to have much of an appetite.
If you need a commercial real estate loan, you can apply to 750 commercial lenders for free in just four minutes using C-Loans.com.
We certainly live in interesting times. Conduits once originated more than 50% of all new commercial loans. Today conduits are originating just 10% of last year's commercial mortgage production volume. The subprime commercial mortgage market is drying up quickly. Only small banks and credit unions appear to have much of an appetite.
If you need a commercial real estate loan, you can apply to 750 commercial lenders for free in just four minutes using C-Loans.com.
Wednesday, July 9, 2008
Stick to Small Commercial Loans
If you're a commercial mortgage broker, you would be wise to only work on small commercial loans right now. Smaller commercial real estate loans have a much greater chance of closing. Small commercial loans can be closed by hard money lenders, and hard money commercial lenders are one of the few classes of commercial lenders which are aggressively seeking deals right now.
In addition, you may also be able to place some very clean commercial loans with small banks and credit unions. Small banks and credit unions were too small to get caught up in the subprime fiasco, so they still have money to lend right now. But you should focus your efforts on the small deals. Residential subdivisions are almost impossible to finance today, and commercial construction deals are very difficult to finance as well.
If you need a commercial real estate loan right now, you can apply to 750 commercial lenders in just four minutes for free using C-Loans.com.
In addition, you may also be able to place some very clean commercial loans with small banks and credit unions. Small banks and credit unions were too small to get caught up in the subprime fiasco, so they still have money to lend right now. But you should focus your efforts on the small deals. Residential subdivisions are almost impossible to finance today, and commercial construction deals are very difficult to finance as well.
If you need a commercial real estate loan right now, you can apply to 750 commercial lenders in just four minutes for free using C-Loans.com.
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