probably send 2012 volume to near $40 billion,” says Woodwell. CMBS lenders are also extending their reach to secondary markets, says Hughes.
New Sources Step Up
Despite big gains in financing activity, loan volume
in 2012 remains only about half of what it was in
2007, according to the MBA. That has opened up
niche opportunities for alternative lending sources.
“The newest kid on the block for commercial
deals is credit unions,” says Todd Clarke, ;;;;, pres-
ident of NM Apartment Advisors in Albuquerque,
N.M. Because credit unions are not under the same
regulatory scrutiny as banks, they are often able to
be more flexible in their lending. “They can often
fund a transaction the same day,” says Charlie Fox-
worth, ;;;;, ;;;;, president of RE/MAX Commer-
cial in Beaumont, Texas. And because credit unions
know their borrowers, who must be members to se-
cure a loan, defaults have been low and most balance
sheets are healthy, says Fred Becker, president of the
National Association of Federal Credit Unions.;
The R;;;;;;;® Federal Credit Union, a Division
of Northwest Federal Credit Union, has increased
its capabilities for making commercial real estate
loans since its merger with Northwest in August.
“We are actively seeking loans for owner-occupied
commercial properties. This segment of the com-
mercial real estate market has a lower risk profile
and o;ers us the opportunity to build long-term
relationships with operating companies that have
a variety of banking needs,”;says Jim Northington,
RFCU’s chief credit o;cer.
Credit unions’ commercial lending rose 8. 2 percent in 2011 but may decline this year as more credit
unions reach the 12. 25 percent lending cap, says
Becker. The group is working to increase the cap,
an initiative supported by NAR. Credit unions have
also found creative ways to continue to lend. “I’ve
seen several credit unions join together and finance a
$7.5 million transaction,” says Fox worth.
Another lending group that’s finding opportunities to increase market share is mortgage REITs.
“REITs aren’t tainted like private mortgage securities and aren’t encumbered with bad real estate loans
like banks,” says Anthony Sanders, professor of real
estate finance at George Mason University in Fairfax County, Va. Some mortgage REITs are positioning themselves to make longer-term loans that are
too small to appeal to CMBS lenders, notes Korologos. “REITs are patient capital and fill a gap bet ween
hard money lenders and life companies,” he says.
REITs can raise capital in the public market and
leverage funds,;which lets them lend at a reasonable
rate and still get a decent yield, Korologos says. The
yield on the NAREIT Mortgage REIT Index was
13. 7 percent in the second quarter of 2012, far outperforming equity REI Ts.
Uncertainty Could Undercut Gains
Although there’s plenty to feel good about, lender
optimism is diminished by uncertainty over future
employment, economic growth, and European debt.
And because only about 30 percent of the regulations for the Dodd-Frank Act have been completed,
the regulatory environment is also creating tremendous uncertainty among lenders, says Sanders.
The recovery itself may be sowing some seeds of
future trouble, says K.C. Conway, executive managing director of market analytics at Colliers International. Conway is concerned that many institutional
lenders are so eager for current yields that they aren’t
considering how these loans will be refinanced in a
few years. “When you see structures like a 1. 3 debt
coverage ratio on an interest-only loan at a 3. 5 percent interest rate, in a secondary market, you have to
wonder who is going to take that out,” he says.
Another concern is what will happen if the GSEs
pull back from multifamily lending. Freddie Mac
and Fannie Mae saw their loan volumes grow 50 percent in the second quarter of 2012 over the preceding year. The good news is that reforming the GSEs
“will make Dodd-Frank look easy,” says Conway, so
it’s likely to take years before allocations change.
Still, as 2013 nears, most commercial analysts
and practitioners expect next year to look much like
2012. “There are those properties that will struggle,
but in the main, the lending market is looking positive,” Hughes says. W