Types of Commercial Real Estate Lenders

There are many types of lenders for commercial real estate. I’ll cover the most popular ones.

• Banks – These are the Citibank, Key Bank, and Bank of America’s of the world, but also includes local and regional banks. Banks specialize in construction and short term (less than 5 years) loans. Depending on the size of the bank, will determine the maximum loan size as well as how much exposure each bank will want to each borrower. Prepayment is the most flexible with banks.
• Life Insurance Companies – Almost all insurance companies invest in real estate as a lender (John Hancock, Nationwide, Genworth, State Farm). Typically their loans are long term (10 years) and conservatively underwritten but the larger life companies can be more flexible with term. Prepayment is usually calculated by yield maintenance.
• Conduits – Most Wall Street banks have a conduit arm (Goldman Sachs, Artesia, Deutsche Bank) . This type of lender is aggressive in terms of loan dollars and interest rate. The prepayment is usually defeasance. The term is almost always a 10 year term. The lenders are inflexible because all conduit loans are packaged together and sold as commercial mortgage backed securities (CMBS). Also called CMBS lenders.
• REITs -Real Estate Investment Trusts can offer short term loans, mezzanine loans, construction loans and joint ventures. Typically REITs loan on bigger projects with large loan amounts to experienced borrowers.
• Credit Union – In one word, flexible. Typically funkier deals that don’t fit in the conduit/life company box. Can be smaller sized deals.
• Pension Funds – Similar to REITs, Pension Funds like the experienced borrower who needs a large loan or a joint venture partner.
• Private/Hard Money Lenders – Quick moving lender that charges a higher interest for a shorter term, typically a 6 months to 3 years. They will lend any loan amount and on any property type. An expensive lender but often necessary for the quick turnaround.
• Government Agencies – This includes Fannie Mae, Freddie Mac and HUD. Typically a Designated Underwriter Servicer will underwrite the loan and then sell it to an agency. Look for an article covering this topic soon. These lenders only loan on multi-family type properties.

Banks, life insurance companies and conduits are the top three most popular lenders currently. But each lender has a particular type of loan that it likes. So for each unique piece of real estate, there is a lender to put a loan on it.

If you have a question about something above, leave a comment and I’ll clarify.