Conduit Lenders List: The Largest Conduit Lenders of 2018
While in an earlier article, we looked at the top CMBS lenders of 2017, we’ll now take a look at some more recent data. As of the first quarter of 2018, the top conduit lenders included JP Morgan Chase Bank, Deutsche Bank, and Goldman Sachs, each which issued more than $3 billion of conduit loans during this time.
Start Your Application and Unlock the Power of Choice$5.6M offered by a Bank$1.2M offered by a Bank$2M offered by an Agency$1.4M offered by a Credit UnionClick Here to Get Quotes!The Top CMBS Lenders of the First Half of 2018
While in an earlier article, we looked at the top CMBS lenders of 2017, we’ll now take a look at some more recent data. As of the first quarter of 2018, the top conduit lenders included JP Morgan Chase Bank, Deutsche Bank, and Goldman Sachs, each which issued more than $3 billion of conduit loans during this time. Overall, nearly $40 billion of CMBS loans were issued during this time period, a 17% increase from the first half of 2o17. In order of size, the top 8 conduit lenders of H1 2018 were:
JP Morgan Chase Bank: $5.71 billion, with a 14.42% market share
Deutsche Bank: $5.54 billion, with a 13.8% market share
Goldman Sachs: $3.85 billion, with a 9.59% market share
Wells Fargo Bank: $3.06 billion, with a 7.62% market share
Citigroup: $3.08 billion, with a 7.57% market share
Morgan Stanley: $2.72 billion, with a 6.78% market share
Natixis: $2.32 billion, with a 5.78% market share
Barclay’s Bank: $2.30 billion, with a 5.75% market share
What are the benefits of using a conduit lender for commercial real estate financing?
The benefits of using a conduit lender for commercial real estate financing include lower interest rates than banks and other types of lenders, flexible underwriting guidelines, and access to capital without the red tape of traditional loans. CMBS loans also offer leverages up to 75%, with rates, on average, as low as 4.30%, and are typically fixed-rate. Additionally, CMBS loans are fully assumable, so if a borrower wants to sell their property, they can transfer the loan to the new buyer.
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What are the risks associated with conduit loans?
The risks associated with conduit loans include not having a great servicing experience, as CMBS lenders don't service these loans themselves and hire a third-party servicer instead. Additionally, since these loans are pooled, securitized, and sold on the secondary market, borrowers are usually required to conduct either yield maintenance or defeasance in order to repay their loan. Furthermore, since these loans are securitized, borrowers who have trouble repaying their loans are unlikely to get any form of forbearance or foreclosure/default prevention assistance. Instead, if the borrower cannot make their monthly payments, they will likely default on the loan relatively quickly.
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What are the criteria for qualifying for a conduit loan?
In general, lenders look at three major factors, DSCR, Cap Rate and LTV, when deciding if a borrower is eligible for a conduit loan. LTV, or loan-to-value ratio, is determined by dividing the loan amount by the appraised value of the commercial property, while DSCR is determined by the net operating income by the total debt service of the property. Most borrowers will accept properties with a maximum LTV of 75% and a DSCR of 1.25 to 1.35x. Lenders also look at a property’s debt yield, which can be determined by taking a property’s net operating income, dividing it by the loan amount, and multiplying it by 100. CMBS lenders typically prefer properties with a debt yield of 7% or more.
CMBS loans are generally available with 10-year fixed-rate terms. Most of the time, they are non-recourse, and have a maximum LTV of 75%. In terms of prepayment, conduit loans often allow for defeasance, though yield maintenance can be an option in some cases.
CMBS loans or conduit loans are available for income-producing properties. These would include multifamily properties, self-storage facilities, hotels, industrial buildings, retail properties, and office buildings. Any company seeking to invest in commercial real estate can use — and should consider — CMBS loans as an option for their funding if they are seeking 75% or less leverage and have a loan request of at least $2 million.
What are the differences between conduit loans and other types of commercial real estate financing?
Conduit loans, also known as CMBS loans, are one of the most popular ways to finance commercial real estate in the United States. They are offered for almost all types of income-producing commercial properties, such as office buildings, shopping centers, apartment buildings, and hotels. When compared to other types of commercial property loans, CMBS loans have a variety of advantages and disadvantages.
The main advantages of CMBS loans are:
- Lower interest rates than banks and other types of lenders
- The ability to spread the risk associated with the loan across multiple investors through the CMBS market
- Loans starting as low as $2 million
The main disadvantages of CMBS loans are:
- Longer closing times than other types of loans
- More stringent underwriting requirements
- Higher prepayment penalties
What are the advantages of using a conduit lender for small business financing?
The advantages of using a conduit lender for small business financing include quick loan approvals and funding, easy eligibility requirements, and higher leverage. Conduit loans are typically available with 10-year fixed-rate terms, non-recourse, and a maximum Loan-to-Value (LTV) of 75%. Prepayment options often include defeasance, though yield maintenance can be an option in some cases.
Source: Small Business Loans Guide: Before You Start, The Pros and Cons of CMBS Loans: A Guide, What is Conduit Financing?
So far, this is a slight difference from 2017, in which Goldman Sachs was by far the largest conduit lender, with a staggering $11.7 billion of CMBS loans issued in that year alone. However, the top three lenders remain the same, indicating that not too much has changed in CMBS lending over the last year or so.