Fixed rates are typically not cheap for the balance-sheet lenders with 10-year fixed rates approaching the 7 to 7.5 percent range. You will still find rates in the low 6 percent range or better if you can live with a floating (adjustable) rate or short-term fixed-rate product.
If you are willing to accept a loan with recourse, some banks and credit unions still offer 10-year fixed rates under 7 percent. However, many credit unions are also filling up their lending allotments for the year and selling off loans to other institutions in order to originate more.
As many searching for financing have already discovered, the underwriting requirements have tightened and loan parameters have become more difficult. What was once the norm has become the exception with 75 to 80 percent LTVs now down typically 60 to 70 percent, with 75 percent being the exception for the strongest borrowers and projects.
Previously, debt-coverage ratios underwritten as low as 1.15 are now a 1.25 or higher. While still available, 30-year amortizations are less prevalent and usually reserved for quality locations and projects, stronger borrowers and better cash-flow properties.
Other obstacles in today’s market include the lack of available funding capacity due to lenders’ loan allocations being tapped out. Some are withdrawing from the lending market in total or pulling back from specific property types such as self-storage and other commercial property to focus more on the less volatile and risky multi-family and mobile-home park loans.
Lending giants like Citibank, once a formidable player in commercial and self-storage financing, left the market in March. Washington Mutual, another lending giant, finds self-storage to be an unacceptable property type. With the conduit departure, banks, savings and loans, credit unions and insurance companies were left to pick up the void left by lenders no longer in the self-storage financing arena. These remaining lenders’ pipelines filled up quickly with loans from all property types.
Many were actively financing commercial properties, then began restricting volume mid year by leaving the market, raising rates, lowering maximum loan amounts, raising debt-coverage ratios (DCR) or lowering LTVs.
The construction loan piece of the pie has also been negatively affected by the credit crisis. Self-storage, which had a hard time being accepted by many lenders in the first place as a viable property type, now finds itself with even fewer lenders willing to finance construction at the desired higher (80 to 85 percent) loan-to-cost levels.