Monday, July 18, 2011 - Article by: Ulysses Fletcher - Ulysses Fletcher Mortgage Services -
Bankers begin to reach further and CMBS small balance deals under $10M will increase during the remainder of the year. There is a disconnect between what people are saying and what people are doing. While chatter in the industry is saying there is no institutional money for loans less than $10M; a handful of CMBS deals at $3M to $10M have already been inked this year. Office, multifamily and retail have dominated the small-balance space thus far, but expect these deals to expand to select-service hotels and self storage by Q4. Cantor Fitzgerald has stuck to the $5M to $10M range so far in 2011, so odds are the company will start to entertain deals under $5M going forward. Wells Fargo inked a handful of $3M to $5M loans already this year. It's likely that Wells will increase the presence of this loan size in future tranches. Until more lenders jump in, Wells controls the scene and can cherry pick the best loans. It's only a matter of time before the other conduits enter to compete on the smaller deals. By year's end, it is extremely probably that Goldman Sachs, UBS, BofA and Citigroup will follow suit and get active it the $3M and up space.
A vast boost in small balance acquisition loans will come to light in the next six months. CMBS lenders will favor office and retail because buyers in these segments can get smaller Class A and B assets for single-digit millions. Self storage will benefit from this shift as well. It is less likely that full-service hotels and quality multifamily properties will fall into that price range, so don't expect many small balance loans for those asset types.
Small balance refis will also begin to emerge in 2012. However, properties looking to ink a loan for less than $5M will need to appraise for more than the loan amount to be able to access financing. Typically the holds will be for shorter time periods at one to two years.
Watch for New York City and major Texas markets to be at the top of lender's lists for smaller deals due to the fundamentals and vacancy rates in those MSAs. Toward the end of Q4, smaller balance loans will begin to pop up in unusual markets. Look for conduits to target top markets in Michigan, Florida, New Mexico and Georgia. Overbuilt markets such as California and Arizona may see a deal or two squeak through, but many lenders will avoid the hard hit Southwest.
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