Commercial Real Estate Lenders: Involved In Big Transactions

2007-03-08 10:33:40

( Business )



Unlike small business lending, you may not often read about the commercial real estate finance industry. Yet, you'd be surprised to know that the business transactions involved in this industry reach billions of dollars each year. There are at least three entities here: the developers, the mortgage bankers, and the commercial real estate lenders.

Commercial real estate lenders are institutions or companies that provide funding to buildings and other commercial real estate developments. Normally, they retain a large portion of the loans as part of their assets. They are classified into two broad groups, primarily based on the terms of the loans in their portfolio: long-term commercial real estate lenders, and short-term commercial real estate lenders.

Institutional lenders, like pension funds and life insurance companies fall into the category of long-term commercial real estate lenders. The sources of funds (reserves for future life insurance obligations, in case of a life insurance company) and investment objectives of these organizations are longer-term. Commercial banks, savings and loans associations, thrift banks and some non-bank lenders belong to short-term commercial real estate lenders. Their sources of funds which include demand deposits, certificate of deposits, savings deposits and the like are short term.

You may not be too concerned with these distinctions of commercial real estate lenders as a simple borrower. However, mortgage bankers need to acquire an in-depth knowledge about this. Through familiarity with differences, mortgage bankers can carefully match loan proposals from borrowers with the best opportunities for financing from commercial real estate lenders.

Similar to commercial mortgage lenders, commercial real estate lenders evaluate loans based on the appraisal value of the property. You will find that these lenders meticulously analyze every detail of the loans, taking into account the key financial ratios that include break-even occupancy, loan-to-value, value and loan per square foot, and the like.


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