One of the biggest stories in commercial real estate lending in recent years has been the rise of non-bank lending, particularly for short-term loans. While traditional lenders such as banks have been in and out of the short-term real estate loan business for years, non-bank lenders have recently seized the opportunity to step in to a market that has historically been underserved.
Even banks that have been active in commercial real estate lending have often balked at the difficulties of underwriting short-term loans, which can have repayment schedules as short as 12 to 18 months. These types of bridge loans can be difficult for traditional bank lenders to evaluate and underwrite, since they often involve loans to finance renovations or other transformations of properties that can result in negative temporary cashflow.
As a result, non-bank lenders such as Wilshire have responded to the demand for short-term financing, with lending volume expected to only increase in 2017. A wave of 10-year commercial mortgage backed securities issued in 2007 comes due this year; many of those borrowers will be looking to refinance their loans, generating even greater demand.
For borrowers, working with a non-bank lender can result in faster approval for financing with less red tape. Many banks have also become much more restrictive of the amount of risk they are willing to expose themselves to following the financial crisis. This has further limited the amount of short-term lending banks can supply the market, providing even more opportunities for non-bank lenders.
With both greater appetite for short-term financing, and more speed and flexibility compared to bank lender, non-bank financing is expected to grow in importance for real estate investors.