Commercial banks have pulled back on commercial lending amid the COVID-19 pandemic. While CMBS lenders originate and sell loans, pushing servicing and administration on to others, problem loans at commercial banks are addressed in-house, which is diverting internal bank resources to solving payment issues for loans on their balance sheets. In combination with a stressed economy and its impact on tenants’ and owner-occupants’ abilities to pay rent and mortgages, loan officers at commercial banks are happy to sit on the sidelines rather than originate what could be shaky new loans.
To reduce risk, large commercial bank lenders like Wells Fargo and Bank of America have reduced the size of loans they will hold in portfolio. Prior to COVID-19, these lenders considered loans north of $200 million routinely, while now some of these lenders have reduced maximum portfolio loan size to a little as $75 million. Pre-COVID, large lenders could close loans of more than $200 million knowing some part could be sold down later. Now this certainty has evaporated.
However, the CMBS market is stepping forward to provide large and small balance loans in instances when commercial banks step back. With CMBS spreads returning to pre-pandemic levels, interest rates on CMBS loans are competitive with commercial bank and insurance company loan quotes. CMBS can close loans of more than $200 million because pieces of these loans can be sprinkled into multiple CMBS offerings.
