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Fuchs Keynote Highlights SBC Market Dynamics

Far from monolithic, the small-balance commercial space comprises more than one "market" according to analysis by Randy Fuchs. Randy presented Boxwood's latest research findings during his keynote address at the Mortgage Brokers Forum on Small-Balance Commercial Real Estate Lending last month in Orlando, Florida.

Market trends show that growth in small-balance commercial (SBC) loan originations has been robust, but uneven. While loans of larger size have tracked the growth in the larger CMBS market, smaller SBC loan originations were adversely affected by the downturn in the residential housing market in the latter half of 2006.

Randy presented other evidence of the unique characteristics and opportunities of the space such as the variation in cap rates and property prices in the small-cap world versus the larger commercial property market. He concluded his address with an upbeat assessment of the prospects for the remainder of the year, but with a few caveats:

  • The possibility of near-term production volatility caused by continued contraction in the housing sector.
  • Further pressure on SBC underwriting standards.
  • Increased competition for loans sourced through the broker channel.