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CRE- Finance Explains Different Types of Commercial Lenders

The confusing world of commercial lending types are clarified for you.

There are different types of Commercial Lenders, and the mortgage professionals at CRE-Finance want to clarify what they are and what they offer.

Conduit Lenders

These CMBS (Commercial Mortgage Backed Securities) are long term, fixed rate financing that is typically permanent and non-recourse.

Portfolio Lenders

Banks or Savings & Loans

They have shorter terms (3-5 yrs) with fixed or variable rates. Usually they are for permanent and construction financing and they are full recourse.

Credit companies

They offer long or short term with fixed or variable rate financing. As well as permanent and construction.

Life Insurance Companies

These commercial lenders are institutional quality with long term, fixed rate financing. Typically the loans are permanent and non-recourse.

Government Sponsored Enterprise (GSE)

Fannie Mae/DUS and Freddie Mac

Fannie Mae and Freddie Mac purchases loans from commercial lenders. The rates on 5+ multifamily apartments are comparable to CMBS loans, but they are properties that would not otherwise qualify.

FHA HUD 223(f)

FHA loans are backed by the U.S. government. They offer higher LTVs and better terms & rates on 5+ unit multifamily apartments for properties that would not otherwise qualify.

Small Business Administration (SBA)

Backed by the U.S. government, these are loans for 51%+ owner occupied properties.

Non-Bank Lenders

These types of loans are also known as Stated Income, Low or No doc, private and hard money. These loans are more flexible with fast closings (great if you're in a pinch for financing). But they also tend to have higher interest rates and back end or participation fees.

According to the Mortgage Bankers Association of America, about 20% of commercial mortgage loans done in the U.S. are with conduits, 20% are done with commercial banks, 20% done with life insurance companies, 13% with Fannie Mae and 8% with FHA.

In general, there are basically two types of commercial lenders in the market: those that hold the loan on their balance (portfolio lenders) and those that sell the loan into the secondary market (conduit lenders). The secondary market represents Wall Street funds, also known as Commercial Mortgage Backed Securities (CMBS).

A portfolio lender makes their profits from the spread or margin above the interest rate index. A conduit lender makes their profits based on the difference from what they can sell the bond for on Wall Street and the value of the sum of all of the loans in the pool. That is the main reason why conduit lenders are able to price a commercial mortgage loan more aggressively than a portfolio lender.

For another questions regarding commercial real estate or if are seeking financing, please contact the mortgage professionals at CRE-Finance. Please reach out to Todd Tretsky at 212-257-7305 or Rich Tretsky at 212-257-7307. You can also visit us at www.cre-finance.com.