The commercial real estate and business financing markets continue to improve following the 2008 financial crisis and institutional investors have increased their allocations and now have record amounts of uncalled investor capital “dry powder” in excess of $200 billion (www.preqin.com/refm14). As returns have stabilized investors and fund managers are more aggressively seeking deals that can be structured to achieve targeted returns.
Smaller investors have seen markets improve but to a lesser degree as the continued “slow growth” recovery has kept businesses from expanding and a number of retailers that are closing or consolidating.
Pension funds, life insurance companies and other institutional sources continue to focus on larger loans, a minimum range of $15 million to $20 million but typically targeting loans even larger in size.
The smaller loans in the $1 million to $20 million range are again being financed by lenders in the CMBS (commercial mortgage backed securities) market. While many banks are still constrained in their commercial lending due to Dodd-Frank restrictions, many are active in SBA lending or on shorter term portfolio loans.
Where location used to be the key word for real estate, now the key word is Equity followed closely by Cashflow. Having a property today with hard equity and consistent cashflow is much more attractive to a lender than being on that high traffic corner in that best neighborhood.