Commercial Mortgage Loans – Portfolio Lenders Offer Best Chance For Approval Today
This credit squeeze is bad; not only are many edges not lending at-all, but the ones that are lending are being ultra conservative. LTV (loan-to-value) ratios have dropped considerably; it is nearly impossible to get a loan for more than 75% of a similarities value now-a-days, and underwriting standards have tightened across the board.
To have any hope of securing funding from a bank or other traditional, institutional lender a commercial real estate deal must posses all of the following attributes, good location (not in a particularly economically depressed area), good quality (not a-lot of deferred maintenance), low LTV, good sponsor (borrower must have a net worth at the minimum equal to the loan amount and must have a track record of success in commercial real estate), and good cash flow. (Underperforming buildings, raw land and construction deals need not apply.) The traditional lenders (edges, Wall Street & insurance companies) are worried about their own survival. in spite of of what their ads say, they will not fund your loan unless they are absolutely sure they can sell it into the secondary market if they need to.
So where can investors seeking commercial mortgage loans go to get the financing they so desperately need? The best chance a commercial character owner, investor or developer has of securing an approval and ultimately closing a deal is with a “portfolio” lender.
A portfolio lender is a rare funding source that truly lends its own money for its own account and holds the loans is makes in its own portfolio. A portfolio lender need not be concerned with the CMBS (commercial mortgage backed securities) market or with the day to day swings in the mortgage debt prices. Portfolio lenders are not constrained by any without of liquidity in the overall credit market; they are not dependent on any markets for their liquidity.
Most lenders borrow money, using their depositors’ assets as collateral, and then lend the borrowed money to you. They then sell the loan to the secondary mortgage market in-order to retrieve their capital and pay their bills. That’s how a bank with $1,000,000.00 in it can make $25,000,000.00 worth of loans. They need a liquid, flowing credit market to survive. Portfolio lenders, on-the-other-hand, only lend money they have on place; no leverage, no selling of paper, no securitization, just plain old-fashioned lending.
Many portfolio lenders are private financial firms set up to make a profit by lending money against commercial real estate assets. These lenders can be organized as LLCs (limited liability companies), LPs (limited partnerships), corporations or trusts. Some are truly hedge funds or private equity firms. Other portfolio lenders are really divisions or subsidiaries of regional and community edges or smaller insurance companies.
Portfolio lenders will charge a higher rate and more points than traditional lenders do, but they tend to be more flexible and more responsive to their borrowers. For many borrowers, private, portfolio lenders have become the only game in town and, when faced with the possibility of losing a building to foreclosure or missing out on a great deal, the cost of the loan is a secondary concern.
The meaningful to getting funded is finding the right lender for your loan. The big edges and other traditional funding supplies are virtually out of the picture; they just want to make it by this. Identifying a lender that nevertheless has the capacity to lend and presenting your loan package in the most advantages manner possible, represent your last best chance of getting a loan closed.