United Bank & Trust Blog

I attended the annual Mortgage Bankers Association – Commercial Real Estate Finance Conference (MBA-CREF) last week in San Diego and for the first time since 2007 felt a genuine sense of optimism and enthusiasm relative to the state of the commercial real estate finance industry…albeit cautious.

According to the MBA’s Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations, $110 billion of loans were originated in 2010, up 36% from 2009. Leading the way were life insurance companies with volumes 155% higher than in 2009. In addition, Fourth Quarter 2010 overall loan originations jumped 63% over the same period in 2009.

Additional reasons for optimism include:
1. Commercial Mortgage Backed Securities (CMBS) markets are poised for a comeback – 25 firms have now set up CMBS/Conduit operations and expect to originate $68 billion in new commercial real estate loans in 2011, up from only $12 billion in 2010. Although this pales in comparison to 2007’s record mark of $230 billion of CMBS originations, it represents significant head winds for liquidity in the market.
2. Life insurance companies will once again have capital available and continue to lend in 2011.
3. Government Sponsored Enterprises (GSE’s) such as Fannie Mae and Freddie Mac, along with HUD will increase deal flow this coming year.

With the fresh capital available and market enthusiasm we experienced, it generally means we are slowly returning to some form of normalcy in the commercial real estate finance industry. It could also mean competition is forming and well presented loan opportunities could experience improved loan terms (interest rates and leverage).

Negating some of the optimism was a general consensus from industry experts that 2011 could be the high water mark for distressed commercial real estate activity. Although the ratio of newly defaulted loans to resolved loans is leveling, this year could be the highest volume of distressed assets to hit the market.

For more information regarding commercial mortgage originations, please see the MBA “Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations” or contact me at jkleinschmidt@ubat.com if you have any specific questions or comments.

Last month the SBA announced two new lending initiatives that will provide small business borrowers quicker access, with less paperwork, to much needed capital. The SBA’s new Small Loan Advantage incentive will reduce the paperwork burden- and loans that are submitted electronically can be approved in minutes or within one business day.

The second initiative, called Community Advantage, will provide access to SBA-backed loans for under-served communities (such as minority-, women- and veteran-owned businesses as well as small businesses in lower-income and rural areas). The SBA recommends that borrowers work with an advisor to develop a business plan and loans can be approved within 5 to 10 days.

These streamlined programs will provide small business owners across the country an opportunity to create jobs in the local communities they serve and drive economic growth.

United Structured Finance is actively researching product development that will create a streamlined loan origination process for credits that are $350,000 and less.

More info:

http://money.cnn.com/2010/12/15/smallbusiness/sba_small_business_loan_programs/

Maybe…but let’s drill down a bit.

There’s no question these features of a HUD loan grab your attention:

• Low fixed rate mortgages – today, that rate is around 4%
• Up to 35 year fixed rate loans
• Up to 90% of value can be financed
• No personal guarantees

But, here are some of the things you may not realize:

• Only apartments, senior housing and some senior housing health care related properties are generally eligible to be financed by HUD
• As of today, it probably takes up to 12 months (longer if construction) to close due to the heavy volume of loan applications.  So, if you’re buying a property or have a loan maturity in the next couple of months and need to close by a specific date, it may not work for you.
• Escrows – real estate taxes, property insurance and replacement reserves for future capital repairs and maintenance must be deposited in  escrow each month on top of principal and interest payments
• Costs – legal, feasibility study, appraisal, environmental and survey costs are all slightly higher than a typical commercial mortgage

So, when all of the above elements are combined with the related HUD and Loan Origination Fees, it usually suggests a loan amount around $5 million+ for this type of loan to make economic sense.

For additional questions about HUD or any other commercial mortgage loans, please contact me at jkleinschmidt@ubat.com.

The President signed the Small Business Jobs and Credit Act on September 27, 2010 which will make some changes to the SBA lending programs that have been a long time coming.

These important changes provide the following benefits to small business owners:

• Permanently increases loan limits for the SBA 7a loan program – $5MM gross $3.75MM guaranty amount – and SBA 504 loan program – $5MM guaranty  amount or $5.5MM for manufacturing or energy loans

• New size standards for the borrower including a maximum tangible net worth of $15MM and a maximum 2 year average net income after federal tax of $5MM

• Added property types such as Storage Unit Facilities

We feel these changes provide a win-win situation for United Structured Finance, our communities, and most importantly our clients. To learn more check out articles on The White House Blog and the New York Times.

We are thrilled to celebrate with Beal Inc. and their recognition in the prestigious Inc. 500 list as one of the most entrepreneurial and fastest growing companies in America. United Structured Finance and United Bank & Trust have had a strong relationship with Beal Inc. during this growing phase and have been able to utilize several SBA loans to assist in providing Beal Inc. the funds needed to sustain this level of growth and to help position them for future opportunities.

While this is an exciting time for Beal Inc., we work with similar entrepreneurs on a daily basis and are always excited when we are able to offer solutions for our clients needs.