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Fuchs Outlines Small Loan Market at MBA CREF

Randy Fuchs opened the "Small Loans Are Big" panel session at the annual Mortgage Bankers Association Commercial Real Estate Finance earlier this month with a presentation on the firm's latest research on this important mortgage segment. Some highlights of the speech included:

Organic Growth Prevails -Originations in the small balance commercial loan space, at roughly $100 Billion through third quarter 2005, are driven by internal or organic demands of small property investors and business owners. This situation is in stark contrast with the larger commercial mortgage market where excess capital inflows have inflated the loan volumes, with domestic issuance of CMBS a primary case in point.

OHow the Cookie Crumbles -What are the prevalent loan sizes? Forty percent of loan originations in this space are occurring in the $1m -$3m range. Another 32% fall into the $3m - $5m bracket and the remaining 28% of loans are under $1m.

Fragmentation Reigns - With the top four banks accounting for only 11% of total originations nationwide, this space is the poster child for industry fragmentation. This state of affairs leads to widespread market inefficiencies that have promoted variations in loan terms, pricing and credit availability.

Ripe for Change - Fuchs suggested that the history of the CMBS market may serve as a window onto the future of the small balance space. There are new market entrants attempting to seize opportunities here, with other trends including moves towards industry consolidation, increased Wall Street and capital markets involvement, and increased use of technology.