(Sponsored Content) Don’t Overlook This Surprising CRE Capital Source
Paul Letourneau is Manager of Originations with Alliant Credit Union, Chicago.
As economists debate when a recession might hit and where interest rates are heading, is there anything commercial real estate investors can count on?
The short answer is yes: uncertainty is always certain. In this fast-changing business environment, borrowers need more capital provider choices to get deals done. And there is one capital provider that everyone in the industry knows, but has often overlooked: credit unions.
Uncertain times make it more important than ever to have a firm grasp on the range of capital sources that can help get a deal closed. As the market becomes more complex, lenders don’t always act as expected, so it’s necessary to have a longer list of options on-hand. And there’s a strong case for including credit unions on that list.
When many people think of credit unions, they picture a small institution that offers savings accounts and residential mortgages for starter homes. While most credit unions do indeed count consumer banking and loan products among their offerings, they also fund big commercial deals, from large shopping centers and multifamily portfolios to self-storage properties and parking structures.
For example, Alliant Credit Union financed more than $371 million of commercial real estate in 2019, including a $61.9 million loan for a 1,540-unit, seven-property apartment portfolio in Tulsa, Okla.
Credit Union 101
While credit unions aren’t always top of mind, there’s ample reason for borrowers and brokers to open their eyes to this source of capital for deals of many sizes and types.
First, a primer on this type of institution. Credit unions fundamentally operate to serve their members, typically by providing attractive yields on depository accounts and by offering lower interest rates on vehicle loans, mortgages, and yes, commercial loans. Credit unions return their profits to their membership rather than shareholders.
But the similarities between the many different types of credit unions end there. Each credit union serves its own unique member base. Some focus on a local geographic region, while others offer loans nationwide. Some may serve niche markets and employers while others target a diverse membership base in a local community.
Because their membership base can vary substantially, so does their lending capacity and interest. Each credit union holds its own ideas about what types of services and offerings best benefit its members. When a credit union evaluates a lending proposal, it views it through the lens of its members. How can a particular opportunity enhance the membership experience and returns for depositors and borrowers?
At Alliant Credit Union, for example, we’re always striving to deliver the best possible returns through a conservative and prudent approach to financing commercial real estate. However, our approach includes a wide range of property types, and many times we’re open to geographic markets that are excluded by more traditional lenders. The long-term needs of members are always at the forefront of a credit union’s strategy, so a national credit union is not restricted to a region or local footprint, as some people in the market assume.
Is a Credit Union an Option for Your Deal?
A credit union can be a great choice to supplement the geographic and structure constraints of local capital providers. For example, borrowers who need flexibility may need to look beyond their traditional deal partners. Credit unions can offer tailor-made yield maintenance and structuring such as interest-only, short-term bridge, flexible yield maintenance penalties, longer-term fixed rates, floating rates or bridge-to-permanent capital.
Like life companies, credit unions typically hold mortgages on their balance sheet for the long term. However, life companies, which may have tighter lending policies and terms, often focus on Class A properties in highly desirable markets. Because of their more rigid term expectations, a life company may not be able to match a credit union’s flexibility when it comes to prepayment and renegotiations. On the other end of the spectrum, commercial mortgage-backed securities lending often requires complex documentation and typically offers no flexibility for additional funding or renegotiations.
As a portfolio lender, a credit union can be receptive to discussing additional capital requirements or unique challenges the sponsor may be facing. This is an important consideration given the uncertainty of the 2020 market outlook.
One unusual requirement compared to other lenders: Credit unions require borrowers to be members. Membership requirements can vary widely, and can be as simple as escrow and reserve deposits. A little research will uncover whether a credit union is a viable lending source for you or your clients. One thing to remember: If one credit union does not offer a good fit, another may have different lending parameters since there is variety within the credit union lender category.
Are You Getting the Best Terms for an Uncertain Future?
Uncertain times call for more creativity and flexibility to get deals done. Working with a capital provider that can provide tailored structures helps remove some anxiety in volatile environments.
Savvy commercial real estate borrowers know to look beyond the obvious deal partners to ensure they are getting the best terms. And they know that the best terms don’t simply mean the lowest interest rate; deal structure and flexibility are major considerations.
No matter what type of deal you’re striving to get closed, don’t overlook credit unions as a potential financing partner. These often-misunderstood institutions offer more than meets the eye.
(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. For sponsored content opportunities in MBA NewsLink, contact Bill Farmakis at 203/834-8832 or firstname.lastname@example.org.)