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Monday, 19 March 2018

Brokers Expect to Place More Loans with Alternative Lenders This Year

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Commercial Real Estate Direct Staff Report

Mortgage brokers expect that alternative lenders will become a greater source of financing for the commercial real estate sector this year.

More than three-quarters of brokers surveyed recently said they expected to place more loans with alternative lenders this year compared to 2017. In addition, just more than 41 percent of those surveyed said between 25 percent and 50 percent of the deals they arranged involved loans from alternative lenders. Another 29 percent said between 50 percent and 75 percent of their deals are done with alternative lenders.

The survey commissioned by Money360 of Ladera Ranch, Calif., itself an alternative lender, was conducted last month at the Mortgage Bankers Association's Commercial Real Estate Finance conference in San Diego. Prosek Partners, a New York communications and public relations firm, interviewed a total of 148 mortgage brokers to get their views on alternative lenders. It did not disclose that it represented Money360.

Results of the survey indicate that alternative lenders have become mainstream. They're no longer the lenders that borrowers turn to when all other borrowing avenues have been exhausted. They're now turned to for more complex transactions, when more proceeds are sought or speed is of the essence.

"Brokers have shifted because alternative lenders can be more flexible," explained Evan Gentry, founder of Money360, which focuses on small- to middle-market loans, meaning those from $1 million to $20 million. However, it occasionally will climb up to $25 million.

The survey, he said, validated "what we believed to be true. That there's been a significant shift to alternative lenders and away from bank lenders."

Banks typically require recourse on their loans, meaning that a sponsor's assets - besides the collateral for a loan - are at risk in the event of a default. Alternative lenders, meanwhile, often have the flexibility to offer non-recourse loans.

Alternative lenders also typically can provide more flexible terms and can be quick to close. Gentry noted that a repeat client of Money360's "does high-quality deals that are bankable. But he comes to us because we can close in three weeks. We're flexible, which allows him to transact." His customer, he said, was aggregating properties that eventually should qualify for permanent financing.

While the borrower shift to alternative lenders is good news to investment managers with capital to lend, some argue that the space might be getting crowded.

Gentry, however, says Money360 doesn't see the same lenders competing for every loan. "We like our niche," he said, noting that the small- to middle-market space is dominated by regional, rather than national players, which prefer large loans in major markets.

Nonetheless, no fewer than 70 alternative lenders are plying the waters looking for lending opportunities. That's not a surprise. As property values escalate, managers often turn their attention to loan products, which could be viewed as defensive. After all, they typically have an equity buffer of 20 percent to 30 percent in the event of a default. And leveraged returns can compare favorably in today's low-capitalization rate environment.

While lenders generally say underwriting practices have remained disciplined, lenders are tightening their loan spreads. A rate pegged to Libor plus 200 to 225 basis points on a loan representing 65 percent of a property's value would be common. That could be at least 75 bps tighter than a comparable loan last year. Some lenders, like Money360, write loans with fixed coupons.

Not only are more alternative lenders competing in the space, many say they're now often running into banks and insurance companies as competitors. Banks, meanwhile, often provide the financing that allows alternative lenders to leverage the returns they get from their loan coupons.

And it was banks' pullback from providing construction and short-term commercial real estate loans that led to the recent increase in interest in the sector.

Comments? E-mail Orest Mandzy, or call him at (267) 327-4281.

Commercial Real Estate Direct Staff Report

Mortgage brokers expect that alternative lenders will become a greater source of financing for the commercial real estate sector this year.

More than three-quarters of brokers surveyed recently said they expected to place more loans with alternative lenders this year compared to 2017. In addition, just more than 41 percent of those surveyed said between 25 percent and 50 percent of the deals they arranged involved loans from alternative lenders. Another 29 percent said between 50 percent and 75 percent of their deals are done with alternative lenders.

The survey commissioned by Money360 of Ladera Ranch, Calif., itself an alternative lender, was conducted last month at the Mortgage Bankers Association's Commercial Real Estate Finance conference in San Diego. Prosek Partners, a New York communications and public relations firm, interviewed a total of 148 mortgage brokers to get their views on alternative lenders. It did not disclose that it represented Money360.

Results of the survey indicate that alternative lenders have become mainstream. They're no longer the lenders that borrowers turn to when all other borrowing avenues have been exhausted. They're now turned to for more complex transactions, when more proceeds are sought or speed is of the essence.

"Brokers have shifted because alternative lenders can be more flexible," explained Evan Gentry, founder of Money360, which focuses on small- to middle-market loans, meaning those from $1 million to $20 million. However, it occasionally will climb up to $25 million.

The survey, he said, validated "what we believed to be true. That there's been a significant shift to alternative lenders and away from bank lenders."

Banks typically require recourse on their loans, meaning that a sponsor's assets - besides the collateral for a loan - are at risk in the event of a default. Alternative lenders, meanwhile, often have the flexibility to offer non-recourse loans.

Alternative lenders also typically can provide more flexible terms and can be quick to close. Gentry noted that a repeat client of Money360's "does high-quality deals that are bankable. But he comes to us because we can close in three weeks. We're flexible, which allows him to transact." His customer, he said, was aggregating properties that eventually should qualify for permanent financing.

While the borrower shift to alternative lenders is good news to investment managers with capital to lend, some argue that the space might be getting crowded.

Gentry, however, says Money360 doesn't see the same lenders competing for every loan. "We like our niche," he said, noting that the small- to middle-market space is dominated by regional, rather than national players, which prefer large loans in major markets.

Nonetheless, no fewer than 70 alternative lenders are plying the waters looking for lending opportunities. That's not a surprise. As property values escalate, managers often turn their attention to loan products, which could be viewed as defensive. After all, they typically have an equity buffer of 20 percent to 30 percent in the event of a default. And leveraged returns can compare favorably in today's low-capitalization rate environment.

While lenders generally say underwriting practices have remained disciplined, lenders are tightening their loan spreads. A rate pegged to Libor plus 200 to 225 basis points on a loan representing 65 percent of a property's value would be common. That could be at least 75 bps tighter than a comparable loan last year.

Not only are more alternative lenders competing in the space, many say they're now often running into banks and insurance companies as competing lenders. Banks, meanwhile, often provide the financing that allows alternative lenders to leverage the returns they get from their loan coupons.

And it was banks' pullback from providing construction and short-term commercial real estate loans that led to the recent increase in interest in the sector.

Comments? E-mail Orest Mandzy, or call him at (267) 327-4281.



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“The Weekly” is Commercial Real Estate Direct’s PDF newsletter, sent to subscribers every Friday morning. With over 100 news stories published on Commercial Real Estate Direct each week, “The Weekly” features the top stories in commercial real estate that industry participants need to know first. “The Weekly” also contains:

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  • Subject: Mortgages/Financing (MOR)
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Read 925 times Last modified on Wednesday, 21 March 2018

Data Digest

 

CMBS DELINQUENCY VOLUME

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CMBS SPECIAL SERVICING VOLUME

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Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44

 

RCA CPPI

 

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CMBS 2.0 Spreads

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Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41

 

 

 

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