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For a while now I’ve written about the latest “change” in commercial lending: “The Small Balance Commercial Lender.” These guys are re-writing the rules on commercial loans that are less than $3 Million. While this might not impact your business immediately if you are dealing with larger properties, it will eventually affect you because of something else they are doing:
Stated Income or EZ Document Loans
Commercial lending, with the exception of private money loans, has been strictly a “full document” underwriting proposition. This meant that the borrower had to show up with a mountain of paperwork including personal tax returns, business tax returns, and financial statements in addition to the documents related to the property such as the leases, rent roll, and income and expense history. And in the end, the lender would underwrite the loan based entirely on the property’s cash flow, ignoring the borrower’s income, anyway!
These new lenders are willing to take into account the borrower’s free cash flow on a stated basis, and make their underwriting decision using the borrower’s credit score, the property’s cash flow, and the borrower’s reserve liquidity. This is unprecedented in commercial lending and will most likely force conventional lenders to come up with competing programs in the near future or they will lose too much loan volume.
Another consideration is that the investors who buy these loans will most likely increase their loan amounts in the future if they have a good experience with the smaller loans. Why wouldn’t they? It costs as much to underwrite and fund a $5 Million loan as it does a $500K one, yet the return is 10 times as much. This will put even more pressure on conventional lenders to create some kind of competing program or sell the same programs from the same investors.
So my personal take on the situation is that there will be some significant changes in the loan marketplace if the Small Balance Commercial Lender has a winning formula. They are too new to have any real experience in a down market and I’m sure that the conventional lenders will be watching them closely.
WANT TO USE THIS ARTICLE IN YOUR E-ZINE OR WEB SITE? You can, as long as you include this complete statement with it: ?Craig Higdon, ?The Investment Property Insider,? works as a commercial mortgage broker. He publishes the weekly ?Investment Property Insider? e-zine and blog, www.InvestmentPropertyInsider.com. Visit the blog and get a complimentary report on commercial financing techniques.?
Watch My LIVE Broadcasts (On-Demand): www.livestream.com Add me as a friend on Facebook! www.facebook.com Get DAILY GrowBy10 Updates on Twitter! twitter.com Aug. 10 (Bloomberg) — The collapse in commercial real estate is preventing Federal Reserve Chairman Ben S. Bernanke from declaring the economy and financial markets are healed. Property values have fallen 35 percent since October 2007, according to Moodys Investors Service. Thats making it tough for owners to refinance almost $165 billion of mortgages for skyscrapers, shopping malls and hotels this year, pressuring companies such as Maguire Properties Inc., the largest office landlord in downtown Los Angeles, to put buildings up for sale. Negative Fundamental Demand for commercial space comes from employment and the income generated by that employment, said University of Pennsylvania Professor Joseph Gyourko, director of the Wharton Schools Samuel Zell and Robert Lurie Real Estate Center in Philadelphia. Mounting job losses are a really significant negative fundamental, signaling that conditions are going to be tough for the industry for a while, he said. That may spill over into mounting losses at some banks. Forty-seven percent of loans at the 7000-plus smaller US lenders are in commercial real estate, compared with 17 percent for the biggest banks, according to New York-based Goldman Sachs Group Inc.
Many commercial lenders have effectively (if not actually) shut their doors. For the rest of us, the resulting volume is so great our appraisal and processing systems are stressed to the limit. Several of our competitors are not even taking any more loans just to get through the current overload in their systems. We have chosen to push through the current avalanche of loans, and will continuing to entertain your new loan requests – all while trying to keep our rates very competitive.
What has changed (at least for now, and especially on larger loans) is our desire to only look at solid apartment and commercial properties, with borrowers that add to the overall strength of the loan. To lessen our processing overload, we have temporarily “closed the tap” on hotels/motels, gas stations, owner/user properties, environmental issue properties, “poor-credit” borrowers, etc. This is intended to help “unclog” the backlog so that your more traditional loans will go through faster.
For loans $3,000,000 and above, we are going to be strictly looking for traditional properties, nothing exotic, no stories, issues, or moving parts. Policy DSCRs and LTVs will be strictly adhered to. Borrowers will need to have average credit scores of 680 or better, their adjusted net worth must be 150% or greater than the loan amount, personal debt ratios cannot exceed 40%, etc.
Loans under $3,000,000 have more flexibility in all these areas. The range of acceptable product types is greater, we will look at a wider range of borrower credit and issues, and we can look at offsetting strengths and weakness (where we will not in larger loans).
Debt Service Coverage Ratios are on the rise as we see the economy weaken… 1.20 ratios for residential and 1.25 (or higher) ratios for commercial for the time being…
Though I’m not sure for how much longer… we are still offering to lock your loan, for up to 90 days, at no cost to your borrower.
And yes, we still offer you 1/2% rebate pricing – up to $15,000.00 per transaction.
I have enclosed our latest rate sheet for your review, and I will be happy to discuss your next transaction. On loans over $3,000,000 I will want to see reliable borrower financial data along with your submission – but feel free to call to discuss the transaction even if you do not have “everything” in hand.
For the short term, loans can be expected to take 60-90 days to close. We cannot handle any “rush” transactions for at least the next 60 days. Please let your borrowers all know to structure sales with longer closing dates!! If you have a 1031 exchange, make sure all parties can live with the reality of these closing times. The shortage of quality lenders with good rates, and the uncertainty of the market, will pass and the market will settle. Until then, we will try hard to meet your financing needs. My best wishes to you for the New Year!
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Brookfield Properties Corporation to Hold Conference Call & Webcast of 2010 Second Quarter Financial Results Friday …
NEW YORK—-Brookfield Properties Corporation announced today that its 2010 second quarter results will be released prior to the market open on Friday, July 30, 2010. Analysts, investors and other interested parties are invited to participate in the company’s live conference call reviewing the results on July 30 at 11:00 a.m. .
Read more on Business Wire via Yahoo! Finance
Bristlecone Supports Newell Rubbermaid’s Global Go-Live of SAP® BusinessObjects Spend Performance Management
Bristlecone, a trusted SAP services partner and one of the industry’s most experienced supply-chain business advisors and solution providers, today announced that Newell Rubbermaid, a global marketer of consumer and commercial products, utilized its services to implement the SAP® BusinessObjects⢠Spend Performance Management application.  The deployment, which addresses Newell Rubbermaid’s …
Read more on PR Newswire via Yahoo! Finance
Apprentices Act of 1961 to be amended to make youth ready for changing market
The Apprentices Act of 1961 will be amended to fix the apprenticeship training scheme (ATS) that has been a failure because of to rigid norms, little private sector interest and abysmally low stipends for trainees ranging from Rs 1,060 to Rs 1,620 per month.
Read more on The Economic Times
www.lendinguniverse.com Commercial Lending Loans in Mississippi All industries need lender combine with commercial real estate mortgages, private loans, together with commercial real estate lenders, commercial hard money lender, the hard money, commercial real estate loan. Fix and flip loans www.youtube.com flip that house also known as how to flip houses can be done with the help of flip housesResidential property or Commercial property. In case you need a fix and flip loans Contact private Investors for best results on flip houses. Hard money commercial loans www.lendinguniverse.com In a deed of trust, the borrower (trustor) transfers the Property, in trust, to an independent third party (trustee) who holds conditional title on behalf of the lender or note holder (beneficiary) for the purpose of exercising the following powers: (1) to reconvey the deed of trust once the borrower satisfies all obligations under the promissory note; or (2) to sell the Property if the borrower de faults (known as a foreclosure). Foreclosure involves the process of selling the Property to a third-party bidder or, in the absence of a sufficient third-party bid, acquiring title to the Property. The foreclosure sale, in most cases, satisfies the debt.
Housing Crisis – Analysis and Discussion with Harrison LeFrak of LeFrak Organization: Commercial Real Estate is in a Slow-Motion Car Crash; No Green Shoots Ahead (Bloomberg News)
Fed’s Duke says bank lending dropping, may lag for years
U.S. bank lending continues to decline even though the banking sector is recovering, and it may be years before lending returns to pre-crisis levels, Federal Reserve Governor Elizabeth Duke said on Wednesday.
Read more on Reuters via Yahoo! News
West Coast Bank Expands Commercial Banking Team in Lane County
West Coast Bank has hired Shanna L. Reichenberger to lead their Lane County Commercial Banking team as Vice President â Team Leader. She will work with commercial banking clients to provide lending, depository and treasury management products and services from her office at the Eugene North branch, 1005 Green Acres Road.
Read more on PR Newswire via Yahoo! Finance
HSBC snaps up RBS banking assets in India
Asia-focused bank HSBC on Friday bought the Indian commercial and retail banking assets of British state-controlled Royal Bank of Scotland, expanding its footprint in the emerging market nation.
Read more on AFP via Yahoo! News
Bank of China to raise $8.9B as lenders replenish capital after lending boom
BEIJING, China – Bank of China Ltd. announced Friday it will raise up to 60 billion yuan (US$8.9 billion) in a new effort by a major Chinese state-owned lender to replenish capital following last year’s lending boom.
Read more on The Canadian Press via Yahoo! Canada News
I want to work in commercial real estate. I am working in Hotel Management at the moment, but think commercial real estate is interesting. Im young enough where a career change is not out of the question. What types of things do employers look for? Is there a high demand for people in commercial real estate?