Beginning Signs of a Commercial Lending Recovery

For the first time in several years, it appears the lending markets are starting to get more aggressive, and we are seeing some financing options reappear in the market.  Although commercial lenders remain very risk adverse, meaning they are still completely focused on low risk transactions and not taking on any requests with any hair on them, commercial lenders have gotten much more active in what they will take on and much more aggressive in the terms and pricing they are offering.  This is a marked change from the last couple of years where commercial lenders claimed to be more active with their commercial lending, only to have them deny the vast majority of what they looked at.  Although many more commercial loan requests are still being denied these days than approved, overall the number of deals getting approved and the terms under which those deals are getting improved has improved dramatically.

It appears the lenders that have been sitting on the sidelines for the past several years have worked through many of their problem loans, and are now looking to redeploy capital.  That combined with the fact that the overnight funds rate is so low, the only way for these Banks to get solid returns and to begin to return to the strong profitability of the past is to lend money.  Because most of the institutions are risk adverse, what has happened is they have gotten more aggressive on their rates and terms to the most qualified borrowers.  In essence they are willing to buy low risk business at low rates, because although it provides a low return, that return is much better and much safer than any other investment they can make with their capital.  Some of the more aggressive loan programs we have seen are as follows:

1)   Private lending groups offering 3, 5, 7 & 10-year fixed-rate commercial loans on historically performing apartment buildings and investment properties with rates starting in the low to mid 4% range with cash-out up to 75% of appraised value.

2)   Banks offering aggressive financing programs on apartment buildings up to 80% loan to value with rates starting in some cases below 4% as the Banks look to compete with Fannie Mae and Freddie Mac for the apartment market.

3)   Traditional Banks in certain markets getting aggressive on investment real estate including mixed-use, retail, industrial, and office properties, with rates starting in the low 4% range for conforming and historically cash-flowing properties with loan to values up to between 70% and 75%.

4)   Insurance companies have come back into the market and are offering non-recourse financing for credit tenant properties up to as high as an 80% loan to value at rates starting in the low 4% range and going up from there with terms up to 10 years and beyond.

5)   Traditional Banks getting very aggressive on owner-occupied properties with interest rates starting in the low 4% range and sometimes below 4% for strong borrowers with solid relationships and good historical cash-flow.

6)   Traditional Banks offering operating lines of credit and equipment financing at very aggressive interest rates starting as low as Libor plus 2.00% (roughly 2.35% today) for strong Borrowers with solid historical cash-flow and good business models.

Although aggressive pricing has certainly returned to the market, and loan demand from all likes of commercial lenders is much higher than it has been in years, credit quality is still the challenge, and many lenders are still cautious about any property, business or loan request with any sort of troubled history or where the cash-flow, loan to value, and business model are not very solid.  Because of this many requests are still not getting done by most lenders, and many lenders are still hesitant to take on certain types of requests, so finding the right financing for every borrower can still be challenging.  However, with many commercial lenders available, including many outside of traditional financing that most borrowers do not run into every day like private lenders, insurance companies, conduits, etc., there are many options available to get not only quality deals done at very competitive rates, but also higher risk deals done as well that the traditional banks still have not gotten comfortable with doing.

For the first time in years it once again makes sense for commercial loan borrowers to check the rates on their current loans and to consider refinancing to a lower rate, because based on where rates are at today they can look in financing at some of the most historically low rates commercial lending has ever seen.  Here at Commercial Lending X we are always available to answer questions about what type of loan programs are out there and to assist our Clients in getting the best financing available in the market for their loan request.  Please never hesitate to contact us with any questions at anytime.