In March 2015, the National Association of Realtors (NAR) invited a random sample of 49,485 realtors who worked in commercial real estate to fill out an online survey. A total of 791 responses were received for an overall response rate of 1.6 percent. The survey queried realtors’ opinion of how they found their lending environment to be during that past year. Living and working in California, I find it interesting and informative to compare general results to survey opinions in our state. I think you will find it instructive, too. Without further ado, here are the opinions of the brokers and private lenders as mentioned state by state:
States that provided difficult lending situations
The National Association of Realtors (NAR) found that 58% of investors preferred approaching banks but not all banks were ready to lend. Of those that did, these traditional lending institutions aggravated the situation with clumsy procedures, irksome schedules and terms, and long drawn out processes. Few banks,too, exerted themselves to please their clients or to make the situation more comfortable for them.
Said a private lender in New York
Banks have been very aggressive to get deals financed.
Such a situation can be expected from a city like New York where banks have to be on their feet regarding delays and have had to cut back due to bad loans. Besides, New York is known for its aggressive and abrasive environment. Deficiency of empathy to clients is one of its sore points.
More unexpected has been the fact that genteel places such as Louisiana are reporting the same difficulties.
Said a local agent:
Banks are doing well but they make it hard to do business, and is hard to move forward in an environment like this. – Louisiana
And in North Carolina:
The money is cheap, but still very difficult to obtain. – North Carolina
Apparently, the banks place monopoly on investors and act like nefarious scrooges. Other investors had this to say:
The rules put in place for the big banks are handcuffing the regional and community banks. – North Carolina
Just refinanced 3 properties from $150,000 to $1,000,000. Low loan to value deals. – Colorado
Secondary market commercial financing terms are either so burdensome that it’s not worth the process, or terms so tough that purchasers do not see the value in financing and just pay cash for smaller commercial deals. – New Mexico
States who found the lending environment good
If you want to invest, you may wish to consider moving to one of these areas. There is less opportunity than in California. There may be a flatter market in place with distressed inventory and possibly less promise, but the banks are more eager to help investors.
There is plenty of money available for qualified buyers of commercial properties. – Texas
Financing has not been a problem with reasonable transactions. Massachusetts
States that provide a positive environment for commercial private lenders to work in
Lending conditions of banks in the majority of the states in 2015 have been frustrating for consumers which makes it an ideal situation for private money lenders such as hard money lenders who thrive on disappointed investors. Hard money lenders step in where banks fail with promises of convenience, solid attention, client comfort, fast hand-overs (think of receiving a loan in the same week as compared to a 60 days plus of the banks!) and far less paperwork. All you’d have to do is sign your name on a few forms and fill out details regarding the value of your property and your work, experience, and/ or credit background. Nothing major and far smoother than the banks. The underwriting, in short, is lovely. Even the loan-to-value structures in some places (particularly in California) has picked up with commercial private lenders now offering higher to full percentages.
The downside is the high interest rates and balloon payments (think of payments that are double as much as banks). On the other hand, shunned want to-be-investors may have no alternative.
Agents in Pennsylvania and Carolina lauded the private lending market:
Generally, entrepreneurs have vision and are way ahead of the cultural curve while banks operate seemingly in a closed cave and compensate for their lack of skill with aggressive rates and terms, or an unrealistic client process. – Pennsylvania
Carolina was more severe. One investor explained that he preferred the alternate sector because:
I think the banks have let down the entire country. They are mindless lemmings and have abandoned their role in the greatest economy. – North Carolina
These agents in Georgia, Carolina and Illinois, for instance, who were let down by their banks may have no choice but to seek out private commercial lenders especially if they want to invest.
Illinois: Commercial funding is a problem. I have a great property on the market for 1 year and no takers.
Another commented that banks are
Slow in processing loans. Abnormal waiting time to be funded. – Illinois
North Carolina: Commercial land loans almost non-existent.
And Georgia. (He sounds really caustic):
When lenders begin lending again, the demand backed up by buyers is very high and the economy will perk along. No money – no recovery.
Agents in Wisconsin found a similar situation:
Banks have gotten much more aggressive for owner occupied transactions.
Seems as though, some private investors would find a ready market in Kentucky:
Generally speaking only local banks are lending commercially. It takes twice as long to get a loan and the underwriting requirements are too restrictive. – Kentucky
Finally, it seems as though in Ohio, small businesses have no choice but to approach hard money lenders:
Big banks are not making loans to small companies anymore… only to big businesses.
Flip to the private commercial lending environment in California…
The National Association of Realtors discovered that private lenders run a booming lending business in California. More brokers have joined and more are investing in the field. Private lenders in California have profited from a growing interest in investing that came upon the shorttails of the recession. 2015 was a good year with private lenders mainly servicing entrepreneurs and small business owners. As mentioned, these were ones who were turned away from the banks.
During the last year, private lenders also boosted the attractiveness of their field by eliminating one of their problems: the low loan-to-value (LTV) rate. Originally, lenders only doled out LTV rates that ranged from 50- 60% which is hugely low for the value of private property. A growing number of agents felt comfortable enough to raise their LTV rates to 80%. Some meet full property percentages. This and tightening government regulations to protect borrowers (particularly residential borrowers) has made investors more willing to see private commercial lenders as an attractive alternative.
On the flip side, growing prices and the bonus high interest rates of lenders resulted in a rising percentage of defaults. Inexperienced and new agents had more of these collapsed repayments than others. Defaults are predicted to rise the coming year largely due to an increase In interest rates. Government regulations, too, have meddled in the situation with irksome and complicated rules that force lenders to protract time to acquire loans thus making an original attractive private lending situation less so.
Nonetheless, these years seem to be a good time to enter the private commercial lending market in California, particularly if you know how to do it.
Here are some of the reports as published by NAR:
Most people say they will talk to their bank for commercial loans. – California
True. But then, a majority are turned away. This is particularly due to the fact that:
Excessive regulations and self-imposed bank red tape have made commercial borrowing difficult for legitimate customers. – California
This causes many investors to turn to hard money lenders.
I think there’s enough money available, the problem is not the Banks; it’s the borrower’s inability to qualify for financing. – California
And said another private lender who world in California:
Many, many obstacles to getting a loan. Even experienced loan brokers aren’t sure of their deals until the very end of the process. – California
Which is why hard money lending in California is thriving…