Lenders have plenty of cheap money burning holes their pockets, so the commercial real estate loan market is coming back. Because many properties are underwater, the competition to lend on those that aren’t is keen. The New York Times, Julie Satow reports,
This means that banks, insurance companies, hedge funds and others are competing fiercely to underwrite the few viable loans that are available. Because of the competition, some lenders have begun to compromise their underwriting standards, say ratings agencies and market professionals.
The market for commercial mortgage backed securities peaked in 2007 at $243 billion. Two years later, the market was only $2.4 billion. Now lenders are ramping up with just short of $17 billion issued this year. Interest-only deals have returned and “[s]ome of the assets are also less stable, with lenders underwriting deals for mobile home parks and self-storage units,” explains Satow. “Increasingly, appraisers are taking into consideration higher future rents and occupancy rates, rather than using only current figures.”
Barbara Duka, a managing director at Standard & Poor’s, says “what has surprised us is the speed at which the metrics have gone from very conservative to much less so.”
At the same time, the latest results of the Moodys/REAL CPPI show a price change return of negative 3.69% in April for the all properties national index.
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Why I am not surprised…. these are the same people who let buyers pay for their loans with ‘equity’ gained on what they brought with the loan… Taking into account future rental rates is crazy! Never heard of that before.
Interesting post, I am taking out a small commercial loan <$100,000 to purchase some rental units and after shopping around for the best rates I was surprised to have several bankers calling me daily trying to get me to sign the loan with their certain bank. A Chase banker even told me "well wherever you get it, Chase will probably buy it anyway so better to get the loan from us now".
Rentals are hot. Not sure how it will pan out. I hope it pans out for you.
Gosh i did not know that it was that bad: “The market for commercial mortgage backed securities peaked in 2007 at $243 billion. Two years later, the market was only $2.4 billion. Now lenders are ramping up with just short of $17 billion issued this year”.
it is surprising how the metrics have gone from very conservative to low.
Interesting, I was thinking about getting loans to invest in some town homes and remodeling them.
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