SBA and Commercial Finance and Investment News

Welcome!

Centennial Lending, whom I represent as senior Business Development Officer, is a credit union service organization owned by 13 credit unions in Colorado and Wyoming.  We lend in Colorado, Wyoming and Nebraska and finance” small” projects from as little as $100,000 up to $5 MM.  We like small retail centers, freestanding retail, office, industrial and retail condominiums, neighborhood centers, office buildings, industrial buildings and of course apartments from 5 to 100 units.   We also finance 1-4 unit rental housing.  We offer a 5+5 fixed rate and a 10 year fixed rate permanent loan, with no prepay penalty.  And construction financing for qualified projects. We also are experts on the SBA 504 and have financing up to 90% LTV for owner-user buildings.

Please click here to download our most recent rate sheet for commercial and multifamily construction and permanent financing:

Rate and Program Summary Centennial Lending Commercial Mortgages January 2012

And here are some of our recent closings

Success Stories by Centennial Lending

Contact Tim Thomas for more information, tim.thomas@centennial-lending.com, 303-746-9169

Yes, I write TWO blogs:  this one at www.sbafinancenews.com and www.coloradoloaninfo.com.

Have you ever wondered why the prepayment penalties are so high when you take out an SBA 504 loan?  The 504, as you know, consists of two loans:  a first mortgage, funded by a credit union or a bank, typically, at about 50% LTV, and a second mortgage, typically 20 years fixed rate, that is funded by a Certified Development Company, or CDC, for the “junior” 40% of the debt.

The 504 program is great because it enables you to get 90% financing in most cases – lower in some – with a combination first and second mortgage loan on your commercial building, or commercial condo, provided you have 2 years in operation, are “for profit,” and have a net worth for the business of under $15 MM and net profit of $5MM or less per year over the last two yours.  In other words, you need to BE a “small business.”

You can refinance your current loan(s) and/or buy a new building or commercial condo.

The SECOND trust deed loan is funded with a debenture, which is a form of a bond.  Bond investors need to know their yield is in place for a period of time, so in order to sell the debentures, the SECOND loan, which is actually the SBA 504 guaranteed loan, has a hefty prepayment penalty for the first half of the loan.  We’ll talk about this in more detail in future installments.

IF YOU BORROW from a bank or a credit company, chances are you will also have a large prepay penalty on the FIRST mortgage part of the 504.  Those penalties are (name your poison):

• The most popular: 5% the first year, 4% the second, 3% the third, 2% the forth, 1% the fifth
• Or you can have 5% flat for 5 years
• 7/6/5/4/3/2/1
• 5% for 6 years then 4/3/2/1
• Here’s one, I call it the rocket prepay: 10/9/8/7/6/5/4/3/2/1
• Or for the truly desperate, 10% a year flat for TEN YEARS

These penalties exist because your lender (the bank, let us say, ) either (a) wants to SELL your loan on Wall Street for a huge premium, or (b) just likes a large prepay penalty.

Now for the good news in this story: Credit unions.   Centennial Lending originates loans for our credit union owners.  We offer great fixed rate 504 first mortgage loans WITH A ZERO prepay penalty.  ZERO, ZED. NADA.  You can pay off our loan any time without any penalty.  You can pay DOWN our loan and reduce your principal ANY TIME without penalty.  We think paying down debt is a good investment for your company, particularly with alternative investments yielding so little.  So we do not charge any prepay penalty.  Instead, our credit union partners just keep your loan in portfolio instead of selling them to an investment bank.  We recycle your money and lend it out again as you prepay.  We think it’s good business.

Contact Tim Thomas at 303-746-9169 (tim.thomas@centennial-lending.com) for all the details.

Intersted in financing?  Click on the links below for 2012 rates and programs

Rate and Program Summary Centennial Lending Commercial Mortgages January 2012 - Rates for 504 and commercial real estate loans

Success Stories by Centennial Lending - Click for somne examoples of recent closings

Starting tomorrow, January 3, 2012, I am going to be making “small balance” commercial real estate loans in the Denver-Boulder area as a commercial loan officer and business developer for Centennial Lending.  Centennial originates and services commercial and residential loan investments for its owner and partner credit unions here in Colorado and in nearby states.   Why is the credit union connection important? Because credit union loans tend to be fixed rate, or hybrids, competitively priced with Bank debt, AND, unusual as it seems, they offer fixed rates without the customary but still horrible prepay penalty you find with life company debt. So a credit union loan is well worth checking out.

We lend on gas stations (sparingly) , self storage, office, multifamily, retail and industrial properties. We also do the senior part of SBA 504 loans, which offer up to 90% combined LTV on owner-user buildings and office, retail and industrial condos.

Today let’s talk about the six county metro Office Market.  Then will look at industrial, Multifamily and retail.

The Metro Denver office market vacancy rate fell a bit from 13.8 percent in the second quarter of 2011 to 13.5 percent in the third quarter. Third quarter net absorption was positive and totaled 400,180 square feet, compared to positive net absorption of roughly 253,430 square feet in the second quarter. One building with a total of 30,070 square feet was delivered in the third quarter, and 907,060 square feet in nine buildings remained under construction.

Lones Llang Lasalle’s TJ Scnippits forecast and actual numbers:

2009                       Negative  900,000 SF

2010                       Positive 800,000 SF

2011                       YTD Positive 1,000,000 SF ESt

2012                       Positive 600,000 SF Forecast

2013                       Positive 1,50,000 SF Forecast

Are we energized yet?  2012 is going to be another year of positive absorption here driven by job growth.  And lenders like credit unions are very much back in the market!

The 504 Refinance is HERE.  What it means is you can get 90% CLTV, which is helpful since values have fallen 30-40% most places,  So you can get cash to pay off that balloon payment, keep Elmira Gulch from foreclosing on the building so you can stay in Kansas,,  I’ll write about the specifics later but now is the time to get your commercial borrowers refinanced.  Fixed rate 20 year second from your local CDC, and a 5 year adjustable (or some such) first mortgage at a reasonable rate from lenders like Horizon West (www.horizon-west.com).  The CDC to call here in Colorado is Colorado Lending Source, they also have the best website:  www.coloradolendingsource.0rg. 

So where are rates GOING?  Not as high as fast as you think.  Time to look at (don’t laugh) some good municipals with a short call.  Yields 5-8 taxable equivalent.  Higher in some areas.  And yes there are some GOOD RELIABLE bonds out there.  We like essential purpose revs — sewer, water, that kind of thing.  No matter how bad it gets you have to drink and flush. 

My friend and coleague, WSJ contributor and Fed guru Lou Barnes said this week ” Interpreting markets is hard these days.

The deafening financial-market recovery…inflation…recovery…commodities…recovery…sustained…recovery… makes it hard to concentrate. Maybe we could set the whole thing to music and hire the Super Bowl babe to sing the wrong words.

  Inbound data do not support acceleration of the US economy (retail sales half of February forecast, flat industrial production, mortgage apps falling near record lows…). Global food and commodity prices are rising, igniting inflation fear among those who have worried about inflation ever since it broke in 1981, never to return. These price rises are cost increases likely to slow the US economy, as there is no wage growth with which to pay them, or to pull into broad-gauge inflation.”

     Public policy is the deal, now — not markets, and not even the economy. In gathering force, ordinary civilians have decided: given a flat-broke Treasury, and a choice to borrow, to raise taxes, or to cut spending, we’re going to cut spending. Oh, we’ll have higher taxes, but by three or four to one, spending cuts will dominate.

The  SBA has now, officially, permanently increased 7(a) and 504 limits from $2 million to $5 million, and for manufacturers and certain energy- related projects seeking 504 loans, to $5.5 million.

Other programs – mico loans, Export and Express have been increased as well.

Under the new law,  SBA 7(a) loans are  increased from $2 million to $5 million, and SBA 504 loans can now go up to a total loan amount of $12 million between the first lien and the debenture (second).  This means a great influx of midsized businesses to the government guaranteed loan market.

And the 504 program can facilitate REFINANCES.  It’s a great program — with a 20 year fixed rate second from your local CDC and a first that adjusts typically every 5 years on a 25 year schedule.  Wow.  Get on the phone and call your customers.

The SBA fee waiver for borrowers and 90 percent guarantees under 7A have been extended through 31 December.  Yeah!  .”

Get in the GAME.  Learn about origfnating SBA and find out about the fee and growth opportunities — fees if you sell the whole loan — growth if you intelligently keep a portion of the risk.

First, the bad news:  the economy is still, to be generous, sluggish.  My compadre Lou Barnes writes,

” One of these monthly payroll reports will signal a turn in the economy to self-sustaining growth, and splatter the bond and mortgage markets all over the windshield.”

Not today.  Economic reports weaker than expected included the New York Fed Empire State Manufacturing Index, August Industrial Production, August Capacity Utilization, the September Philadelphia Fed Business Index, and the University of Michigan Consumer Sentiment Index.  The August Consumer Price Index (CPI), a measure of inflation, was up 0.3% on expectations that it would be up 0.2%.  Year over year, though, CPI is up just 1.1%.  Excluding food and energy, core CPI is up just 0.9%.

The Dow Jones Industrial Average is currently at 10,589, up slightly over 100 points on the week.  Crude oil futures are currently trading at $73.35 per barrel, down over $3 per barrel on the week.  The Dollar weakened versus the Euro and strengthened versus the Yen on the week.

Depressed?  Don’t be.  We are all waiting for SB 5297 to add volume for the SBA world, and JOBS JOBS JOBS.  And FINALLY it looks like the House will listen and the Senate version may pass.  Here’s the latest per my colleague Jordan Blanchard at CDC Small Business Finance in Pasadena:

the following bill (HR 5297) is expected to be on the President’s desk.  It will dramatically increase 7A production and double 504 production across the country.

SBA 7A Provisions

• Increase to maximum SBA 7a loan amount to $5,000,000
• 90% guarantee through December 31, 2010
• Fee waiver for the rest of 2010 (subject to available funding)

SBA 504 Provisions

• 504 Debenture increase to $5,000,000 for most applications and $5,500,000 for

`manufacturers

•  Two year window for refinancing debt (details provided below)
• 504 Debenture increase to $5,000,000 for most applications and $5,500,000 for program from the date of the first pool issuance – first pool issuance expected to be September, 2010
• Fee waiver for the rest of 2010 (subject to available funding)

First Mortgage Pool Program Update

• The extension to the FMP program was critical as FMP program which allows us to sell the FIRST lien portion of the 504 at prices around 105.
• That program was set to end in February, 2011. The new sunset date is slated to

be September, 2012, or $3B in allocation – whichever comes first.

• Increased 504 activity by community banks due to capital, liquidity and regulatory relief.
• Community banks can now compete against larger banks by offering lower rates and longer fixed periods while achieving an above market yield.
• ncreased 504 volume by non-bank lenders who can sell 85% of each loan.
• A significant increase in wholesale liquidity for special purpose properties such as hotels, gas stations, car washes, and restaurants.
• A new industry of Pool Originators who are the first participantsin the new era of ‘skin-in-the-game’ securitizations.
•  Interest in the SBA 504 wholesale first mortgage market (post FMP) by the nation’s largest banks including Bank of America Merrill Lynch.
• Significant increase in volume for CDC’s from both bank and non-bank lenders.
• A new era for those CDC’s that choose to become a secondary market resource for their first mortgage partners.

Once more, the return of dreaded guarantee fees (up to 3.75% of the guarantee on 7A loans and 50 BP on the senior 504) has been delayed — so the rush is on yet again to get your guarantee, this time  by 31 May. The Senate  voted to extend the Recovery Act Program through May 31, 2010 and provided $80 million for 7(a) and 504 fee reductions/waivers. It has also extended the 90% guarantee on the 7A  through May 31st. It is expected that President Obama will quickly sign this legislation into law.

The first 504 pool should be ready to roll by the end of May — SBA is in last minute talks with Colson, the master servicer.  Stay tuned!

The following  is courtesy Mike O’Donnell, head of Colorado Lending Source (www.coloradolendingsource.org) , Colorado’s leading CDC and #12 in the USA. (quite an accomplishment considering Colorado’s rather diminutive population base, wouldn’t you agree?)   If ever you want the best 504 training for your teams, or 7A training, or a 504/7A processing facility, I recommend CLS,  I use them (yes and I have office space next door).  So, commercial over, here is the news:

Yesterday, March 25th, some new SBA-specific legislation was introduced and passed by the House of Representatives using their unanimous consent provisions and then, that same evening, the exact same bill was introduced and passed by the Senate the same way.

The very simple, two-paragraph bill, HR 4938, provides another extension to the Recovery Act SBA loan provisions, extending them now from March 28th through to April 30th.
This extension will allocate up to $40 million in pre-budgeted funds for 7(a) and 504 fee reductions / waivers along with (more importantly) the 90% 7(a) guarantees. 
It is expected that the President will quickly sign the legislation into law.