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New Lenders Enter Market and Think Small

Wednesday, July 23, 2014

Source: The Wall Street Journal

In its Property Report section, The Wall Street Journal reported that a new group of lenders is targeting the small-balance commercial loan space of assets under $10 million. Players, including ReadyCap Commercial LLC, Guggenheim Partners LLC and Sabal Financial Group LLC have joined the fray as the U.S. Economy has improved and small loans are now viewed as less risky. The small commercial property and loan market is "starting to percolate," said Randy Fuchs, principal of Boxwood Means, Inc. a commercial property analytics firm.

ReadyCap anticipates its volume to grow substantially, to $1.25 billion by 2016, by furnishing small-balance loans to investors and small businesses under a U.S. Small Business Administration program according to Tom Capasse, chief executive of Sutherland Asset Management that owns ReadyCap and is externally managed by Waterfall Asset Management.

Lenders originated $176 billion in loans of $5 million or less last year, a 75% increase from 2010 according to Boxwood. The pace has slowed to $36 billion during the first quarter of this year, but some of the new entrants expect volume to increase as they penetrate areas of need that have yet to be satisfied by still constrained bank-lending guidelines.

In part because debt financing has been tight, prices of small commercial properties have lagged the overall market. Small cap CRE prices rose 7% since hitting bottom in January 2012, according to a Boxwood Means index. In comparison, prices for larger properties have returned more than 27% over the same time period according to Moody's/RCA Core Commercial Property Price Index which covers sales transactions averaging $22 million.

New Lenders Enter Market and Think Small

For the full article, please visit The Wall Street Journal: "New Lenders Enter Market and Think Small" (subscription may apply)