WASHINGTON, DC-Conduit lenders are showing an increasing appetite for smaller-sized loans, at least on assets in the Washington, DC-area. One broker, Phil Mudd with Cassidy Turley, dates this shift in interest to the beginning of fall. “For the last couple of months I have noticed that lenders, especially conduit lenders, have been much more interested in these kinds of transactions,” Mudd tells GlobeSt.com.

Cassidy Turley, he reports, is in the process of marketing seven smaller-sized loans with an aggregate value of $35 million. According to Mudd, “There is a significant level of interest in these from both the conduits and regional banks.”

This appetite for smaller-sized deals is less so for life companies, although exceptions can be made. Mudd, along with colleagues Christian Miles and Brad Geiger, recently closed on a small loan from a life company for Empire Apartments, a 151-unit, eight-story building located at 2000 F St., NW, on behalf of an investment entity controlled by Calvin Cafritz.

“That particular deal was a prime deal, though,” Mudd says. “It had a great sponsor, is a great asset and, being next to George Washington University, is in a great location.”

Financing for smaller-sized deals was easier to secure—as was all kinds of lending—a few years ago. Before the crash, a flurry of small-loan CMBS went to market and made a moderate success. The recession, though, and the simple math behind small deal financing, put the kibosh on such transactions. Namely, it costs just as much to manage funds that invest in large-sized deals as it does for smaller-sized deals. That dynamic, however may be shifting once more, making small deals attractive to lenders again.

“The bad news about investing in this space is it is less efficient,” Stephen Cumbie, one of the principals in a newly-launched local fund NVCommercial, tells GlobeSt.com. “It takes the same effort to manage $2 million as it does $200 million.” The good news, he continues, is that returns for smaller-sized projects have become good enough to justify the offset of this inefficiency. The even better news is that there is less competition in this space, giving NVCommercial the pick of the deals.

NVCommercial launched in November, under the management of Cumbie and his partners Peter Lunt, Russell Marks and Matt Weber. The initial closing totaled $24 million. The fund’s focus is on equity and debt commitments in the $2 million to $10 million range. Investors should be able to expect a 15% IRR on the fund, Cumbie says. “That is a target--it is not guaranteed and between the cost of the fund and the split for us, we have to be well above a 15% IRR on the project level in order to be able to distribute a 15% on the investor level. So what we are doing is looking for projects that have an opportunity to pay in the 20% IRR range.”