“I think 2010 will be noted as the turning point for commercial lending after the financial market collapse that began in fall 2007 and resulted in little commercial lending for the most part of two years,” according to Michael D. Sneden, Executive Vice President at ValueXpress.
In 2010, a boost to lending was provided in part by the Small Business Jobs Act. On September 27, 2010, President Obama signed the Act into law; it is the most significant piece of small business legislation in over a decade. The legislation extended 90% guarantees and reduced fees through December 31, 2010 on SBA loans, including the most popular 7(a) and 504 loans. While this temporary incentive helped boost lending through the fall of 2010, the permanent features of the legislation will provide increased loan originations in terms of gross dollars in future years. This is because the law permanently increases the maximum loan size to $5 million from $2 million in the 7(a) and up to $10 million (in combination with a first mortgage) in the 504 program. “We had many 7(a) and 504 borrowers with real estate collateral that requested 7(a) loans exceeding $2 million and 504 loans exceeding $5 million, the general limit in the market,” said Sneden. “With larger limits, we will be able to process more loans with larger balances, up to $10 million in the 504 program, thereby increasing both the amount of loans funded and gross dollar amounts going forward.”
Also in 2010, we saw the beginnings of a recovery in CMBS conduit loan lending. U.S. issuance amounted to $11.6 billion, a fourfold increase from 2009, although still a fraction of peak issuance of $228.6 billion in 2007. Nevertheless, seven multi-borrower fixed-rate deals were offered in 2010 at attractive bond spreads, indicating strong demand from investors. JPMorgan topped the rankings of bookrunners in 2010, leading $4.2 billion of transactions. More important, more than a dozen securitization shops either resumed or started originating commercial mortgages for securitization; Barclays is the latest lender considering getting back into the CMBS conduit loan business.
“Projections for CMBS originations are in the $35-billion area for 2011,” notes Gary Unkel, a senior loan originator at ValueXpress. “Alhough these are levels seen in 1999 and 2000, it shows improvement and we expect to participate in our share of these originations.”