Small-Balance Originations Jump

Tucker, Michael

January 22, 2016

Commercial loan originations under $5 million grew by 5 percent in third-quarter 2015 and a sizable 8.7 percent year over year, reported Boxwood Means, Stamford, Conn.

Boxwood Means Principal Randy Fuchs said the quarter's $46.2 billion in small-balance originations represented the highest total in eight quarters. "The strong year-to-date volume, sustained by rock-solid space market fundamentals and ample, low-cost debt, is on pace to challenge the record total of $176 billion posted in 2013," he said.

But Fuchs said recent activity indicates that originations may slow. "Boxwood's clients shifted modestly from property valuations supporting new loans to other appraisal purposes during the last three months of 2015," he said, noting that originations accounted for 30 percent of all valuations requested during the fourth quarter, down nearly four percentage points from the third quarter. Loan renewals rose to 32.7 percent of all valuation uses. "Though representing a small overall percentage, portfolio monitoring also increased as concerns over market risk and property values heightened," Fuchs said.

Though sub-$5 million originations grew during the third quarter, very small-balance CRE originations--under $1 million--actually fell to $13.1 billion, down 4.5 percent year over year, Fuchs said. These loans now represent 28 percent of small-balance volume.

Purchase loans under $1 million accounted for nearly 40 percent of all originations in this loan size bracket, a substantially higher concentration of purchase loans compared with the larger set of small-balance loan originations. "That underscores the vigorous asset acquisition activity among small private investors and small business real estate owners in this smaller market segment," Fuchs said.

The smaller-loan bracket is also heavily fractured, with the top 15 lenders accounting for less than 20 percent of total originations during third quarter, Fuchs said. Market share among the top 15 lenders was slightly higher for all small balance originations at 20.8 percent, but this figure fell noticeably as private capital sources and nonbank lenders continue to make inroads on traditional commercial bank turf, he noted.

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