Commercial mortgage lending is being reinvented every day. The landscape has changed wholly since the collapse of Lehman Bros. in 2008. Banks have struggled with non-performance, devaluation and burdensome regulatory oversight. Many banks have not survived and have been folded into other banks. Banks in general are very tight. Their guidelines with respect to valuation, income and credit are strictly adhered to wary of Federal Regulators routine exams. The last thing they want is to be told is they have to increase loan loss reserves.
The alternative to banks before the recession included insurance companies, the secondary market known as CMBS, (commercial mortgage backed securities), and private lenders. Some insurance companies have returned to the market but their appetite has always been “trophy” property lending and they are no less particular today. The CMBS market volume is about 10% of what it once was. Most deals being done are in gateway cities like San Francisco, Chicago, New York, etc. It will be quite some time before they return to compete in tertiary markets like those in Florida.
Private lenders have traditionally been lenders of last resort. Decision to lend is based on equity. Loan to values are low and interest rates are high. However, today, private lenders are not just lenders of last resort, they’re the only alternative for anything that’s not perfect or “bankable”. But, given what private investors are used to, the loans they see today are much better. Borrowers are stronger, properties are nicer, values are as solid now as they have ever been and,...... private investors are starving like everyone else for yield.
The stock market is frothy again and gold is already through the roof. The result is the rates private lenders charge today really aren’t that unfair. It’s not that unusual today to make a privately funded loan in the 8-11% range. That might sound high to anyone who hasn’t been alive that long. To the rest of us, it was a typical bank rate once upon a time.
Call and ask for John Argerious or Tim Krieg.
Tampa Office: 813-289-2727