Exploring Commercial Blanket Loans for Single Family Assets

by Tim Leber, Relationship Manager

In today’s increasingly competitive brokerage environment, is there an asset class that mortgage brokers and investment sales professionals can turn to find full fees and a more simplified process? The answer is yes, but it might not be the easiest to grasp for sophisticated and more institutionally focused mortgage professionals.

With cap rates condensing and competition to win deals in the true multi-family space becoming substantially fiercer, there is a drastic shift in how real estate professionals and brokers aim to be compensated on transactions.  Long gone are the days of receiving high commissions baked into the yield spread on debt deals with compression in coupons for core and even secondary apartment deals. With so much competition among lenders and brokers to win the business of institutional multi-family and other asset classes, there is often not room for brokers to fit their fee in the spread and still win the business. The core asset classes are too well understood to have large rate volatility from lender to lender.

There is strong uniformity on shifting spreads in the CMBS space with all lenders adhering to similar ratings agencies when they securitize.

Let’s take a step back and analyze the reasons there has not been a strong pull for true commercial brokers to focus on the residential income property space. The first misconception to address is that these pools of rental homes and small multi-family properties will be a time suck and ultimately will end up being broken up into different pools for each profile or broken into individual mortgages.  This notion may have been true ten years ago, where the CMBS space had seen very few commercial blanket loans over pools of fractured asset class.

Outside of some creative deals in which i-banks or regional banks with large private clients would attack, mid-level and quasi-institutional investment groups simply could not find a one-stop-shop for their strategy.

The second major concern that both mortgage brokers and borrowers share is the amount of cost and time associated with these large pools of residential assets.  Commercial blanket mortgages have offered a streamline solution to the high closing costs associated with collateralizing hundreds of properties with individual mortgages all with separate rates and loan terms.  One pertinent way to think about it is that these loans are an institutional multi-family loan but instead of units, you are looking at separate properties.

There will be less uniform assumptions associated with the individual line items in the NOI calculation, but the ease of having one rate, one payment, and a drastically less expensive and less strenuous closing cost schedule, most operators and borrowers will choose to use the portfolio loan to save money up front, even though a cost of capital might be comparable to financing the assets individually in some cases.

Companies, like Corevest Finance, are beginning to offer solutions for the ‘out of the box’ financing requirements that would have previously been the bane of real estate professionals and mortgage brokers looking to lock down competitive debt solutions.  Being that these commercial blanket loans are a relatively new asset class (or at least not as well widely understood) it offers real estate professionals the opportunity to service some of their one off residential assets which many high net worth private investors plan on holding long term.

More often than not, real estate and mortgage brokers are given a ‘trial run’ of a more difficult portfolio to arrange financing for before private investors or large investor groups will give them a shot at their easily transactable institutional quality assets.

A savvy broker should know that this an easy home run if you know where to turn. With the asset class being not as well understood, brokers can bake a point, two points, or whatever they are comfortable including into the yield spread, as less sophisticated borrowers often do not understand spreads on these types of loans.  With less players in the space and more ambiguity in terms of asset profile, it leaves the opportunity for brokers to offer a high level of service to their client, do minimal amount of legwork from a broker standpoint, and still get paid a premium that would traditionally be ground down by the borrower/lender network in other more mainstream asset classes.

The true opportunity for brokers is not only to simply transact and execute at a high level, but in finding a new and creative way to finance something that doesn’t fit the mold in the mainstream financing community.  The strong track record and certainty of close that Corevest Finance offers its borrowers gives real estate professionals and brokers confidence they need when referring business our way. With the growing need for borrowers to find creative financing for an aggregation of residential real estate assets, the space is becoming more and more attractive.  With the volatility in the capital markets environment over the past year, borrowers with

With the growing need for borrowers to find creative financing for an aggregation of residential real estate assets, the space is becoming more and more attractive.  With the volatility in the capital markets environment over the past year, borrowers with long term holds are beginning to turn to long term commercial blanket loans as a mean to maintain an certainty in an uncertain world.

CoreVest is a leading provider of financing solutions to residential real estate investors. We provide attractive long-term debt products for stabilized rental portfolios as well as credit lines for new acquisitions. For more information about how Corevest can help grow your rental and rehab business, please call Tim Leber at 949.344.7889 or email [email protected]

Sources:

Faber, David. “CNBC Exclusive: CNBC’s David Faber Interviews Blackstonr’s Jonathan Gray from CNBC Institutional Investor Delivering Alpha Conference.” CNBC. CNBC, 22 July 2015. Web. 18 July 2016.
See link: http://www.cnbc.com/2015/07/22/cnbc-exclusive-cnbcs-david-faber-interviews-blackstones-jonathan-gray-from-cnbc-institutional-investor-delivering-alpha-conference.html

Russ. “Big Investors Impact on Investing in Single Family Homes.” The Real Estate Guys Radio Show RSS. N.p., 04 Jan. 2016. Web. 18 July 2016.
See link: https://realestateguysradio.com/investing-in-single-family-homes-industry-changes/

*This article was originally published on the Fall 2016 Edition of California Mortgage Finance News