Credit Unions Tout CRE Lending Chops

WASHINGTON, DC—Six years ago, George P Calomiris, president of Southeast Properties, was introduced to NASA Federal Credit Union and it was love at first sight. “I have done just about every loan with them since then, from multifamily finance to bridge financing to a home loan.” Credit unions don't require a prepayment penalty, he noted, and their fees and points are substantially less.

Calomiris makes those comparisons from experience: He is currently in a defeasance situation “and I can't do anything and am locked into that rate.” In another case, he “just closed a conduit loan and the fees on that were in excess of four points—I have never come close to that with NASA.”

Calomiris is part of a growing group of commercial real estate borrowers that have discovered the advantages of doing business with credit unions. These advantages were detailed by Calomiris and other participants in GlobeSt.com's webinar “Lending Alternatives You Can Bank On,” held Tuesday November 4.

For their part, there is a core group of credit unions that are actively reaching out to the commercial real estate community with loans aimed at solving their problems.

“Construction, pre-development, refinancing, acquisition—those types of products are prevalent among credit unions,” Devin Blum, president of Potomac Business Services, told listeners. They differentiate themselves from bank lenders with their flexibility and personal service—one contact person typically ushers a loan through the underwriting process—and low fees. Said Blum: “Credit unions, although nonprofit, do have to return their profits to their members, either through higher interests on deposits or lower rates on loans.”

Credit unions' push into the CRE lending environment is a timely one, said Sam Chandan, president and chief economist of Chandan Economics and another participant in the webinar. 

“Although conditions are improving, even now the economic recovery remains uneven,” and lending for some companies remains tight. “Look at value-add assets and small and mid-cap segments of the markets,” Chandan said. “These are less likely to be targeted by large institutional borrowers.

“There isn't the same degree of diversity for these borrowers,” he added. In short, “there is room for alternative sources of financing” and that's a need that credit unions are fulfilling.

According to Chandan, some 270 credit unions have commercial real estate loans of $10 million or more on their balance sheets. Of that number, there is a core group of 30 or 40 credit unions that account for a significant share of the activity.

These credit unions, Chandan said, “are actively helping to establish credit unions as a source of financing.”

Besides the wide range of loan types that credit unions offer commercial real estate borrowers, Chandan said, many have formed participations to increase the amount they can lend to any one borrower.

Perhaps the greatest value add credit unions bring to commercial real estate borrowers is their deep understanding of the industry and the project—they are local institutions, after all—as well as their willingness to commit, or not, quickly after an application has been made, webinar participant Andy Stafford, director of commercial real estate at the NASA Federal Credit Union told listeners.

“We are extremely well versed within market areas,” he said, “so that once a loan sponsorship is presented we are usually in good position to give a timely response as to whether we can assist the borrower with project. That is not necessarily the case with banks [which tend to have a] timeline that is more distended.”

For all of these reasons—timeliness, market knowledge, flexibility, low rates—Stafford reports his institution has been posting double-digit growth for the past few years. This year, he says, “we expect to see a 36% increase in our real estate portfolio alone.”