TheMReport — News and strategies for the evolving mortgage marketplace.
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FEATURE ORIGINATION Who Is Setting the Pace in the Non- Residential Sector? Going Commercial: Banks and lenders speak out on the strategies leading to success in the current commercial marketplace. By Bob Calandra T finding it difficult to meet the new, unforgiving requirements necessary to secure a mortgage. Meanwhile, in July the average number of homes entering default, the first step toward foreclosure, was 6 percent higher than the same time last year, according to the Associated Press. he past six years have not been the best of times for the mortgage industry. Even with historically low interest rates, homebuyers are still coming out of the mortgage industry. Large commercial lend- ers are doing just fine, relatively speaking. The big commercial lenders like Wells Fargo, Bank of America Merrill Lynch, PNC/ Midland, Berkadia Commercial Mortgage, and KeyBank Real Estate Capital are not only suc- cessfully weathering the economic storm but continue to underwrite hundreds of millions of dollars in loans for major projects. "All you read in the headlines But there is some good news CEO of Silo Financial, a private equity real estate finance com- pany in Stamford, Connecticut. "Here seems to be a segment of the environment that you can actually get a lot of capital for commercial real estate, especially straightforward, conventional cookie-cutter projects." That's not to say the Great impact on commercial real estate, it was bad and brought a lot of stress" to lenders, says Jamie Woodwell, VP of Commercial Real Estate Research at the Mortgage Bankers Association (MBA) in Washington, D.C. "But when you look at the performance, in that sense the commercial multifamily mortgages have performed relatively well." So why have commercial "In terms of this recession's ers have is they underwrite their loans using commercial mortgage-backed securities (MBS). Using CMBS allows large banks to significantly reduce their exposure while extending their lending ability by packaging mortgages and selling them off to investors. "A developer getting a loan Another advantage big lend- lenders fared better than their residential cousins? Mortgage industry insiders say there are several reasons. For starters, large lenders have name recognition and a reputation for closing com- mercial deals. Additionally, the market has stabilized, product demand has returned, and loan rates and projects are a good fit. Ultimately, however, the success today is that banks aren't lending," says Jonathan Daniel, founder and 44 | THE M REPORT Recession didn't hit commer- cial lenders equally as hard as other sectors of the American economy. It did. After the bubble burst in 2008, property prices dropped, delinquencies went up, and defaults increased. of the large commercial lenders comes down to who they serve. Major developers need money and lots of it for their projects. The fact is there simply aren't that many lenders with balance sheets that can support loans with so many zeros and commas. from a big bank is getting a more compelling loan than one from a local bank that is going to need recourse and a little more cer- tainty of execution," Daniel says. "Middle-size and community banks are prohibited from doing a lot of things by regulators." But even the big boys of lend- ing must adhere to new regula- tions that restrict the parameters of granting loans. Before the housing meltdown, a developer with a blemish or two on their record could still get a hefty loan with the right assets or proper- ties. But in the brave new world of commercial lending, regulators are ever vigilant. Banks large and small have had to be pickier about who gets their money. "Now if there is one little SECONDARY MARKET ANALYTICS SERVICING ORIGINATION