Small-Balance Loans Exceed $180B

Small-balance loan originations grew 10 percent year-over-year in 2015 to eclipse 2013’s previous peak of $176.2 billion, reported Boxwood Means, Stamford, Conn.

“Against a backdrop of strong core fundamentals, cheap and plentiful debt and an improving U.S. economy, small-balance lenders originated more than $180 billion of sub-$5 million loans last year,” said Boxwood Means Principal Randy Fuchs.

Fuchs said small-cap asset sales declined 4.8 percent year-over-year in January. “But while the decline may suggest a bigger slowdown to come, we think small-cap CRE investors are simply taking a breather rather than pulling back,” he said, noting that December property sales reached a “whopping” $11.2 billion. “Granted, December is typically the busiest month of the year, but that was the greatest deal volume since at least 2005.”

Looking at small-balance multifamily loans, Arbor Commercial Mortgage and Chandan Economics said the volume of new loans with original balances between $1 million and $5 million climbed to $44.3 billion [both acquisition and refinancing loans] in 2015, up nearly 6 percent from 2014.

“While the 2015 increase was modest, small-balance apartment lending has grown nearly four-fold since the market trough in 2009, when a sharp drop in new mortgages by banks and the virtual collapse of the commercial mortgage-backed securities market dragged activity down,” the Chandan-Arbor Small Balance Multifamily Investment Trends report said.

Chandan Economics Chief Economist Sam Chandan said he expects small balance lending growth to converge in a “sustainable” range of between 5 and 10 percent in 2016. “While there are downside risks of a decline in overall commercial real estate investment activity, lower sales financing volume will be offset in part by post-crisis borrowers’refinancing needs,” he said. “Market shares are expected to shift further as well as agency lenders compete with incumbents with increasing frequency for new lending opportunities.”

Fuchs noted that very small–sub-$1 million–loans accounted for more than 70 percent of the 207,000-plus individual mortgages issued last year, which he said highlights the breadth and depth of demand for smaller assets by private investors and small business real estate owners.

Fuchs noted just five states–California, Texas, Florida, New York and Illinois–accounted for 50 percent of national purchase loan originations.

The Mortgage Bankers Association will host a Small Balance Lending Summit June 22 and 23 in Chicago.