Ellen Comeaux of TIAA Bank: Surveying The Small Balance Space

Ellen Comeaux is Senior Vice President and Commercial Division Leader with TIAA Bank, Jacksonville, Fla. With more than 30 years of experience, her team has achieved a record amount of commercial real estate volume. She also focuses on developing the next generation of leaders, including programs that help spur professional development and promote diversity.

MBA NEWSLINK: What is the market like for small-balance/small-cap loans?

ELLEN COMEAUX: The current slowdown in the broader commercial real estate market notwithstanding, the market for investment in commercial real estate at lower price points continues to grow among individual investors and small investment groups seeking diversification. Advances in–and ease of access to–technology in the areas of research, brokerage and property management have contributed to growth in the sector.  In turn, the market for small-balance lending continues to grow and remains attractive among banks, life companies and the agencies. 

We actually launched a program in June to accelerate small-balance loans of $2 to $5 million, which represented about a quarter of our closed volume in the first half of the year. We have seen a trend, however, where some traditional lenders in the space have gradually shifted their appetites to larger balance loans as a means to deploy excess capital more efficiently.  This has driven lenders still desiring to compete in the small balance space to invest in technology, enabling more efficient onboarding of such loans. 

NEWSLINK: What trends in asset types are you seeing for this kind of loan? 

COMEAUX: As we continue to move away from the impacts of the pandemic, we are seeing an abundance of retail opportunities in the small-balance space. Small-cap industrial properties remain a driving component of small balance as well. Multifamily and self-storage continue to be significant contributors to loan growth in the space, though many of the properties that lent themselves to being categorized as small balance drifted away from what we would consider small over the past few years as cap rates for those assets were near historical lows. Perhaps we will see a shift back as cap rates normalize in those sectors.

NEWSLINK: Are there any regional trends that you’re seeing or markets where you anticipate more activity for these types of loans?

COMEAUX: Small investors have been largely priced out of primary markets. We see most of the growth occurring in secondary and emerging markets where value can be found and there is less competition from institutional investors. 

NEWSLINK: How is inflation and economic uncertainty affecting the process of securing these loans and working with borrowers?

COMEAUX: As with the broader market, originations in the small balance space have slowed.  We are seeing an increased level of “appraisal disappoints” as values correct, causing buyers and sellers to rethink trades.  With rising rates, the market for discretionary refinance has largely dried up.  That being said, we believe the small balance space will remain an attractive target for lenders given the preponderance of small cap properties that make up the CRE market and the shorter tenor of small balance loans, which leads to a natural flow of more frequent refinance opportunities.

NEWSLINK: What is the outlook for small-balance loans for the remainder of 2022? What is the outlook for CRE for the remainder of the year?

COMEAUX: Our view aligns with the consensus that seems to be forming in the marketplace from sources such as MBA and the large brokerage firms: muted growth, from what we have seen the past two years, for the remainder of 2022 and leading into 2023 as investors scrutinize deals more closely and look to see signs of increased stability in the market but rebounding in the second half of 2023.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to NewsLink Editor Mike Sorohan at msorohan@mba.org or NewsLink Editorial Manager Michael Tucker at mtucker@mba.org.)