Originators that focus on small balance CMBS loans (roughly $3-$20 million) in the N.Y. metropolitan area are having a tough time competing with community bank portfolio lenders on interest rates when the sponsor is indifferent to recourse. While CMBS conduit loan rates are currently in the low 5% area for 10-year fixed-rate terms and in the high 4% area for 5- and 7-year terms, N.Y. metro community banks are offering rates in the high 3% area for 5-year terms and low 4% rates for 7- and 10-year deals. In addition, transaction costs for a community bank commercial loan are typically much lower than a CMBS conduit loan. However, nearly all community banks require personal recourse, so the lower rates are only effective when the sponsor is willing to personally guarantee the loan.
“I can get six quotes in a couple of hours for a 5-year loan on a commercial property in both New York and New Jersey at 3.75% fixed,” commented Gary Unkel, senior loan originator for ValueXpress. “I even saw a 2.99% 3-year fixed-rate deal recently and a 5-year multifamily offer at 3.5%.”
“When we get a deal with no cash-out and the sponsor does not require non-recourse, we rarely get that deal as the borrower usually accepts the better community bank deal over CMBS,” commented Michael D. Sneden, Executive Vice President at ValueXpress. “But if the sponsor requires non-recourse and/or a significant cash-out, the community bank usually drops out, putting CMBS in the catbird seat.”