Chicago, Illinois, September 1, 2021 – Summer realty finance conditions stay hot, with lenders scouring the markets for funding opportunities. In addition to larger, institutional loans, funding sources actively pursue smaller loans – typically ten million dollars or less. Furthermore, deal flows remain strong because of low rates.
Important current underwriting terms for smaller loans are discussed as follows:
Property Types: Various types of residential (e.g., multifamily, home rentals) and industrial properties attract the most attention. Lodging, retail, and office follow, with some types of credit enhancement often included, namely recourse.
Markets: Like larger loans, lenders prefer major metro areas, but many sources (mainly banks) focus on secondary areas. Funding pricing premiums of 25 to 50 basis points are standard for such smaller markets.
Pricing: Smaller ten-year loans typically fall within the 200-to-250-basis-point range for conventional property types. Properties underwritten to 1.25X+ debt service coverage and 65% or less loan-to-value attract the low end of the rate range. Other commercial properties capture rates of 3.5% to 4.5%, reflecting a wide range of underwriting variance.
The director at The Real Estate Capital Institute®, Mr. John Oharenko, advises, “Small loans are the lifeblood of lending for most communities. Local lenders, especially banks and credit unions, offer the most competitive terms.”