There may be light at the end of the tunnel (finally) for borrowers in who are involved with commercial real estate (CRE) in Colorado.  This blog will summarize where things stand currently with 5 major types of CRE lenders:  Life companies – Federal agencies – Banks- Commercial mortgage backed securities (CMBS) and Private capital bridge lenders. All of these entities engage in commercial real estate lending.

Life insurance companies:

Life companies funded the highest volume of loans in 2011 in their history.  They are the best source for financing on high quality income producing properties such as office – multi-family or industrial.  They are frequently willing to provide non-recourse (i.e. no personal guaranties) financing, and their rates are at almost record lows.  However, life companies are not for everyone.  They are only interested in funding loans on the very best properties with stabilized income and great debt service coverage ratios. If you are playing in the A class market and have a strong financial statement – life companies are the place to go.

Federal agencies:

These are federally affiliated agencies like Freddie Mac, Fannie Mae, and the Federal Housing Authority (FHA) and Housing and Urban Development (HUD).  These are the primary source of construction loans for multi-family properties.  The upside is their rates and terms can’t be beaten. The downside is the completion for these loans; hence, often long delays occur when obtaining them. That is if they can be obtained at all.

Banks:

Commercial banks are turning a corner and beginning to become more willing to fund CRE loans.  However, they are enforcing very strict underwriting standards. Even though loans may be available, they are very hard to get.  Strong borrowers who will provide personal guarantees on good properties that are leased and have strong cash flow are the most likely to qualify for a bank loan at this time.  A low bank lending profile is better than the almost non-existing bank CRE lending profile of the past three years, but it will be some time before the commercial banks can regain their preeminent place in the CRE lending market.

CMBS:

The commercial mortgage backed security lenders (primary out of New York) are only for those borrowers who need high dollar amounts.  $5,000,000 is the minimum loan amount to receive serious consideration in this market and over $10,000,000 is better. The CMBS lender will consider highly complicated loans that life companies are unwilling to underwrite.  This market however is still a shadow of its former self during the real estate boom days and most observers feel that it will be years before the CMBS market reaches levels seen in the 2000 to 2008 era.

Private Capital Bridge Lenders:

These lenders are anticipated to play an ever-increasing role in the CRE lending arena over the next few years.  Because bridge lenders use private capital to fund loans they are not subject to the same restrictive requirements as banks and Federal agencies.  They are typically willing to consider properties that are less than the A quality demanded by life companies and don’t have the high dollar requirements of the CMBS lenders.  Another advantage is that it is possible to find a local private capital bridge lender (full disclosure – Montegra is one) which is almost always preferable than dealing with out of state lenders that are difficult to check out.   If the CRE borrower needs to get the deal done in 2012 then the private capital lender may be their best option.  A bridge loan for 3 to 5 years has the potential of getting the CRE borrower to a future date when more traditional loans become easily available.

[google_authorship], because of his more than 40 years of experience in funding hard money loans, is considered an authority on hard money or bridge financing.  He frequently speaks at meetings and conferences and writes articles on these subjects.