The commercial and multifamily lending niche is projected to have a record year in 2019 and to continue its growth in 2020, according to the Mortgage Bankers Association (MBA).

Commercial and multifamily originations in 2019 will hit a record $652 billion of loans backed by income-producing properties, according to MBA’s forecast. This marks a 14% increase over 2018’s record-setting $574 billion in volume. And things continue to look up with MBA forecasting an increase to $700 billion in 2020. Jamie Woodwell, MBA’s Vice President for Commercial Real Estate Research, said:

“The low interest rate environment, coupled with continuously strong demand for commercial and multifamily assets, has pushed property values higher and increased demand for mortgages,”

Woodwell continued, “At the beginning of the year, many economists, investors, and others anticipated long-terms rates would be around 3 percent and rising – potentially putting pressure on property values and decreasing demand for debt. Instead, the 10-year Treasury yield is at approximately 1.5 percent, and many market participants are planning for rates to remain ‘lower for longer.’ The result is heightened demand and higher volumes.”

Given the low rate environment and the demand for commercial and multifamily financing, now is a great time for brokers interested in this sector to start seeking out these loans. The small-balance commercial niche in particular represents a great opportunity for brokers who’d like to earn more without neglecting their residential or large-balance commercial business.

Why small-balance?

True small-balance commercial mortgages – financing under $2 million in particular – can be difficult for borrowers to obtain. Many banks and other traditional lenders aren’t offering long-term financing options on smaller loan amounts if they’re offering smaller loan amounts at all. Hard money lenders are more likely to offer small-balance products, but those loan terms will be substantially less favorable to many borrowers. Small business owners and commercial property investors may not be aware that there are non-conforming lenders who can meet their needs, and that’s where brokers come in.

When you begin working in the non-conforming, small-balance commercial niche, you’ve got an advantage in terms of competition. Right now, rates are low, which means there’s a lot of refinance activity in the residential and large commercial markets. That means increased competition for those borrowers. The small-balance niche is under served, so you’re competing with fewer brokers for a good amount of business.

How can I get started?

Before you do anything else, take the time to learn a little bit about the small-balance niche. Read news articles, join online forums, and connect with non-conforming lenders who offer these types of mortgages. Small-balance commercial lenders like APEX rely heavily on brokers for business and are generally very happy to guide brokers new to the niche and to answer any questions they might have. These lenders often have educational resources like blogs or webinars to aid brokers in learning about the niche and how to seek out leads. Make sure you ask plenty of questions and get to know your lenders’ programs well so that you can place mortgage scenarios properly.

After that, it’s important to start advertising the fact that you can help commercial borrowers find the small-balance funding that they need. Add language about offering small-balance commercial mortgages to your website, your marketing materials, your business card, and your social media channels. Visit local small businesses and let them know you can help them should they ever need a mortgage.  

Who are my borrowers?

Every borrower in need of a small-balance commercial mortgage is different, but there are some things many of them have in common. Often, these borrowers are small business owners or commercial property investors. Many of them will have trouble verifying their income in a way that is acceptable to banks. Past credit issues or back taxes are common obstacles to traditional financing for these borrowers. Some of them may need funds more quickly than a bank is able to provide them.

Essentially, you’re looking for borrowers with a story. These are the borrowers who aren’t going to qualify for a bank loan because they don’t fit into a neat little box. You need lenders who are willing to listen to your borrowers and who understand they’re more than a credit score or their tax returns. Borrowers who need a lender willing to look at the big picture are the ones you’re going to want to reach.

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Commercial and multifamily mortgages are a great way to diversify your product and offerings and increase your income. This under served niche represents a great opportunity for brokers seeking to expand their business, and getting started is simple once you make the right connections and get to know your potential borrowers. Take advantage of the low rate environment and the strong commercial market and get started now.

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