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When looking to fund your commercial real estate project, there are numerous finance options to consider. The right funding for you will depend on various factors, such as your project’s size and scope.
One type of CRE financing solution to examine is small balance commercial loans. Typically, these loans are provided by small balance commercial lenders to aid borrowers that own small CRE properties. An example of a small CRE property eligible for a small balance loan is an apartment complex with at least five units.
This article examines several types of small balance commercial lenders to help you find a financial solution.
Freddie Mac was chartered by Congress in 1970 to aid mortgage lenders in support of homeownership and rental housing. As a result, Freddie Mac has established many programs to support and improve the housing finance system in the United States. Among those programs is the Optigo Small Balance Loan Program.
While Freddie Mac does not directly make loans to consumers, the organization has designated lender networks. Within the SBL program, 12 lenders offer Freddie Mac small balance loans. Some of these SBL program lenders include Capital One, CBRE, CPC Mortgage, and more.
The lenders offer small balance loan amounts ranging from $1 million to $7.5 million with amortization of up to 30 years. There are two types of loan terms offered by Freddie Mac lenders: hybrid ARM or fixed terms. Hybrid ARM refers to a 20-year term with an initial five, seven, or 10-year fixed-rate period. Conversely, a fixed term refers to a five, seven, or 10-year loan term.
Another type of small balance commercial lender is a local bank. According to the Mortgage Bankers Association, the most commercial multifamily mortgage debt outstanding investor groups were banks and thrift institutions. Overall, these institutions provided apartment loans that averaged around $2.7 million in 2019.
There are several reasons why commercial banks remain one of the top small balance commercial lenders. Richard Katzenstein, the senior VP and national director of Marcus & Millichap Capital, explains that borrowers with smaller portfolios tend to “rely on the same bank they use for everyday financial needs.” Simply put, borrowers with an established long-term relationship with a bank have more to gain.
While a borrower can utilize a local bank, there are scenarios where a bank’s small balance loans are not available. The impact that COVID-19 had on the multifamily finance industry is a prime example.
In 2020, roughly one-third of the banks offering small balance loans decided to scale back on making loans. As a result, borrowers that previously used their bank turned to other small balance commercial lenders, such as private debt funds. One example of a private debt fund that offers commercial real estate financing is AVANA Capital.
A private debt fund like AVANA Capital specializing in CRE lending is a beneficial financing option for borrowers. Thanks to this industry focus, a private debt fund can create a small balance loan for a borrower that centers on their unique needs.
With over 150 years of combined experience in the CRE industry, AVANA Capital excels as a commercial real estate lender. When working with borrowers, AVANA Capital ensures a loan aligns with their business strategy. This provides borrowers with timely results and a flexible financing solution.
AVANA Capital offers borrowers several commercial real estate loans, from SBA 504 loans to conventional construction and expansion loans. By consulting with AVANA Capital, borrowers determine the best loan terms that align with their CRE project goals.
Looking for the ideal commercial real estate loan for your project?
Contact AVANA Capital today and identify a fitting financing solution for you.