S.E.C. Real Estate Observer

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The Mortgage Bankers Association (MBA) had its annual conference in San Diego from Feb. 6-9, 2005 at the Hyatt. Mortgage brokers from around the country were there to interface with their underwriters who were keen for new commercial loan business. Several aisles of booths contained bankers/financiers speaking with people about their loan products. My partner, Dave, and our lending associate, Stan, and I were there primarily to further our underwriting relationships for our commercial lending company that we started over one year ago.

There was a positive and mildly aggressive atmosphere. I thought that I’d write this article in order to report how national bankers see the commercial real estate industry and to summarize some of the lending products that are available.

Speaking with several-seasoned mortgage bankers, ranging from serious roundtable discussions to bar room scuttlebutt, the attitude is that 2005 will be a good year. There is a lot of concern that caps have been driven too low; however, no one is stopping the funding out of fear that “your competitor will do the deal if you don’t.” As well, the banks are very eager for new commercial loans to add to their portfolios. General economic fundamentals are good and money is still historically cheap; however, each sub market presents its own set of pros and cons.

A whole range of traditional commercial banks were present, offering loans with various parameters including geographic preferences, product types, and funding limits.

The research services were fairly impressive (although some seemed quite affordable while others were over $25,000 annually).

The three of us saw many products and services but the following were more noteworthy than others:

Back End Compensation:

Commercial loan officers have traditionally received their commission through origination fees charged up front. However, as is common place in residential lending, some bankers are now offering loans where the borrower has a choice to pay a higher interest rate with no origination fee (with the commercial broker being compensated directly from the underwriting institution) or pay a lower interest rate but pay approximately 1% origination fee or more (as has been customary in the past for commercial mortgage lending).

Long Term Financing:

There were several conduit lenders and some Life Insurance lenders. Near their booths were ancillary services such as defeasance companies and mezzanine financiers. More creative capital was offered for unique situations that may include participating in the asset, senior and junior debt, equity or customizing capital for unique situations.

NINA Commercial Mortgages:

Another variation of what was traditionally a lower LTV product in residential mortgage brokerage is a NINA (no income, no asset) commercial mortgage. 60% to 70% of debt is possible if the property and personal credit (and experience) is decent. Due diligence of financials (property’s latest rent roll and historical financials) is not verified.

Niche bankers & service providers:

• One company visited from India and demonstrated financial benefits to outsource the transaction manager to an Indian specialist, loan production and post closing services.
• Small business bank specialists.
• A couple of lenders were there touting their ability to go for “outside-the-box” product – anything from restaurants and gas stations to casinos, churches, marinas, golf courses —- and the list goes on.

Private Money:

A couple of hard moneylenders called themselves soft “hard money.” They marketed themselves as charging lower origination and interest fees (2% to 3% origination and 9% to 12% interest only payments). And, of course, there were the regular hard “hard money” lenders.

That’s all for now folk. Let’s all hope we can keep enjoying the use of “Other People’s Money!”