Credit Unions: An Overlooked Source for Commercial Real Estate Loans
Credit unions may not be top of mind for commercial real estate investors seeking financing. In fact, many people do not realize that these lending institutions offer commercial financing alongside a variety of consumer and residential loans. These not-for-profit organizations fundamentally operate to serve their members, typically by providing attractive yields on depository accounts and by offering lower interest rates on vehicle loans, mortgages, and yes, commercial loans. As a not-for-profit organization, a credit union essentially returns profits to its membership as opposed to shareholders.
Credit unions can widely vary in their ideas about what type of services and offerings best benefit their members, notes Larry Silberman, manager of commercial loan originations with Chicago-based Alliant Credit Union.
Some credit unions may focus on serving a local geographic region, while others offer loans nationwide. Some may target niche markets and employers, while others look for a diverse membership base in a local community.
Alliant offers nationwide commercial real estate financing from $7.5 million to $35 million with terms up to 15 years. As a credit union with a national membership base, Alliant’s commercial lending platform has no geographical limitations.
Silberman notes that for Alliant, the enhanced returns that the national commercial real estate financing platform brings into the credit union directly benefits its members by helping Alliant to provide lower rates on loans and higher rates on deposits.
Alliant’s current commercial real estate portfolio exceeds $500 million, and the company originated more than $250 million in 2017.
Benefits of Credit Unions: Flexibility and Prepayment Structures
Generally speaking, traditional banks do tend to offer the highest receptivity and flexibility to commercial real estate borrowers. However, Silberman advises it may be more prudent to “keep some of their powder dry” for when they truly need maximum structuring flexibility.
In other words, relying upon a well-regarded, existing relationship with a commercial bank for unique or complex loans is ideal, and a savvy commercial real estate borrower will look beyond the obvious for straight-forward lending to make sure they are getting the best terms. Partnering with a portfolio lender for financing may offer the flexible options a real estate investor needs. Silberman notes that credit unions and life companies typically hold their mortgage loans for the long term, but credit unions can usually offer more prepayment flexibility.
As a portfolio lender, Alliant Credit Union not only services its own loans but can also be receptive to conversations involving additional capital requirements or unique challenges the sponsor may be facing.
Alliant transacts loans on properties within the multifamily, office, industrial, retail, self-storage, manufactured housing, hospitality and parking lot sectors. Additionally, Alliant may consider properties that other lenders may initially shy away from based upon age or location.
Life companies, which may have tighter lending policies and terms, tend to have a strong focus on best-in-class properties in highly desirable markets. Since their expectations are to hold these loans to maturity, a life company may not be able to match a credit union’s flexibility when it comes to prepayment and renegotiations. By contrast, CMBS lending often requires complex documentation and generally will offer no flexibility for additional funding or renegotiations.
Alliant looks to evaluate each lending proposal as an opportunity to enhance the membership experience for its depositors and borrowers by delivering the best possible returns through a conservative and prudent approach to financing commercial real estate, explains Silberman.
A strong example of this approach is Alliant’s step-down prepayment structure. Because the cost is known upfront and there is no market-based impact to future cost, borrowers can plan accordingly. Similar planning can be difficult with lenders that require defeasance or prepayment penalties that can be influenced by the market and escalate costs quickly.
Credit unions do require borrowers to be members of the credit union, and membership requirements can vary widely. Some simply require escrow and reserve deposits. But a little research will let you know if a credit union is a viable lending source for you or your clients.
— By Amy Bigley Works, staff writer. This article was written in conjunction with Alliant Credit Union, a content partner of REBusinessOnline.