Earlier this summer, the Mortgage Bankers Association had its first-ever Small Balance Lending Summit, in Chicago. Many members of GRS Group attended the conference to gain further insight into this sector of commercial real estate lending, in which the firm is already very highly involved. One of them was Steve Canty, a director with the firm. He said that there was a lot of excitement about this booming lending platform. Following are his thoughts on why small-balance loans have a bright future.
What were your impressions of the small-balance conference?
It was the first-ever small-balance summit. There were about 230 people there, so it was pretty well attended. They did a good job overall at presenting the material, but you could tell it was the first time they had done it. That said, I think this will be the first of many. Everybody was in a good mood, it’s trending up.
What is the upside to the small-balance sector for agency lending?
In the agency world, it’s for loans that are between $1 million and $5 million. There are a ton of those properties out there, and it gives the smaller borrower an opportunity to play the market, with Fannie Mae and Freddie Mac which can give a more attractive loan package to the borrower than the banks.
Was multifamily the only sector discussed?
It did center a lot around multifamily, and Fannie and Freddie, because that’s where the largest chunk of small balance lies. But they also do industrial and retail, too, though it’s a smaller part of it, and it’s typically done through the banks and the life companies.
How much is small balance growing?
They gave an overview of how small balance is starting to impact the industry. Year over year they see a new high in numbers in the total dollar amount. Last year they set a record by doing $95 billion in small loans. This year, there was $40 billion done in just the first quarter, which is a record over three months. The second quarter numbers are expected to come in at $48 billion. It’s a hot area right now, and this year is predicted to smash the 2015 record.
Does this mean there is overall increase in appetite, in general, for commercial real estate investments?
Yes, an individual can break into this market buying a five-unit complex and have the ability to shop their property to agency lenders, banks or life companies. This market segment is very fragmented. The top 15 small-balance groups make up a really small percentage of the overall market. Even though Agency lenders are the biggest players overall, they have a very small piece of the small-balance sector. It’s very fragmented as far as the lenders that participate. Most of them are single-property and not a portfolio.
How can GRS Group assist clients interested in the small-balance arena?
We got there right in the beginning with Freddie small balances and helped them by giving them feedback on their small-balance forms and Property Condition Phase 1’s. We’ve been doing a higher volume, and more of these, since 2014, when it really started taking off. We’ve been doing about as much, if not more, than any other due-diligence consulting firm. We are leading the charge and helping them mold their templates and helping clients with their decisions on how to handle things.
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