In the wake of the most recent recession that started during 2007/2008, the sub prime lending market for both residential and commercial properties all but disappeared as many institutions were not able to survive the red ink being split all over their balance sheets.
But over the course of the last year or so, more an more sub prime commercial property financing sources have been popping up in both Canada and the U.S.
In some cases, its hard to even call these lenders sub prime as many are after the very same business that is currently being done by the major banks and secondary institutional lenders.
While the economy slowly strengths, drawing lenders back into the market, there is a slight change in market dynamics due to the behavior of the major banks towards deals that are a notch or so below a grade “A” rating.
This has created more demand in the market place for the types of lending sources that are still after solid commercial property financing deals, but willing to bend the requirements slightly here and there to get the deal done.
In the past, this was almost the exclusive domain of the front line, major brands.
But since the recession, requirements for business financing have not only become more stringent for the larger commercial mortgage deal, but also very time consuming as major lenders continue to react slowly to less than perfect financing opportunities.
Even for commercial deals that fit the lending box of the majors, the time it takes to get a deal done can take several months and loads of red tape to get completed.
Cue the sub prime or alternative mortgage lender.
These commercial mortgage lenders are also neither private mortgage lender or mortgage investment corporation.
They typically have a handful of very wealthy investors, which in some cases may be institutional lenders that are moving down market to operate through someone else’s business model.
These lenders are looking for the border line “A” deals, the A minus deals, and the B plus deals.
Cash flow, security, and credit are still very important, but there is less of an emphasis on some of the extensive due diligence requirements that you will find when working with front line lenders.
This type of funding source is also interesting to borrowers that might be able to qualify for a slightly better rate at a major bank, but don’t have the time or don’t want to invest the time and effort going through the application and approval process.
The alternative property financing market tends to work strictly through brokers with very little if any front line advertising or promotional efforts of their own.
In many instances, these lending groups will set up a number of different funds to target different risk profiles and/or property types in order to match up better with the return and risk expectations of a specific group of investors.
There is a lot of money out there trying to find a home, and commercial real estate mortgage financing in the right markets is very appealing to a certain profile of investors these days.
While there can be considerable range in the amount of financing that can be provided, the minimum deal size is typically several million dollars with the maximum size topping out at several hundred million.
With rates be relative to risk, you can find deals in the market that are very close to the conventional market for similar commercial property.
If you’re in the market for commercial property financing, this might be a category of lender that you should be considering.