Last Year Saw $118Bln of Small-Balance Commercial Loan Originations
Friday, May 05, 2006
Commercial Real Estate Direct Staff Report

Last year, some $118 billion of small commercial mortgages were originated, according to Boxwood Means Inc.

That's an increase of roughly 11 percent from 2004, according to the Stamford, Conn., research firm. In terms of number of loans, some 180,000 were originated, up 4 percent from the year before.

Small loans are loosely defined as having balances of $5 million or less. The average loan, according to Boxwood, is $708,000. That's up 8 percent from a year ago.

Much of the increase in volumes is due to an increase of 6 percent, to $138 billion, in property sales volumes.

"Obviously, we've had healthy market conditions," said Randy Fuchs, a principal and co-founder of Boxwood. "In addition, we're starting to see more lenders focusing on this space."

So not only is borrower demand stronger as a result of the increase in property sales volume, but supply is heftier as well.

But the business remains extremely fragmented. The biggest player is Washington Mutual, which held a 4 percent share of the market. Wells Fargo, Bank of America and Wachovia Bank each held 2 percent shares. Seller financing comprises the largest share of the market, with some 5 percent of all small-balance loans being provided by property sellers.

Small-balance loans get securitized, but relatively infrequently when compared to larger conduit-style loans. Their massive volume - on a par with conduit loans - indicates a ripe opportunity.

By nature, small loans aren't neatly homogeneous like conduit loans, and underwriting is highly specialized by lenders. But an increasing number of lenders, especially those with large residential mortgage origination networks, have begun exploiting the potential opportunities.

Comments? E-mail Orest Mandzy or call him at (215) 504-2860, Ext. 211.

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