CRE Lenders: 4 Main Types and What You Should Know About Each

There are many different ways you can choose to finance your next commercial real estate project.

Which lenders are financing those huge shopping malls, high rise multifamily projects, and office buildings? There are actually several different types of entities that make loans against commercial real estate assets.

Let’s break down 4 common types of commercial real estate lenders:


1. Banks & Credit Unions

PNC, Wells Fargo, small local banks, and credit unions will fall into this category.

Banks have large, low-cost pools of capital from their deposit base, and can lend on a wide array of projects. Often referred to as balance sheet lenders, banks keep these loans on their balance sheet instead of selling them on the secondary market.

Typically banks offer recourse loans and tend to be very relationship driven. The benefit of working with banks is that they can be flexible in terms, however, each bank will be conservative in their own unique way.

Many local or regional banks will only be a strong option within their own geographic area. National brand banks may consider a loan in any state or region, as long as the borrower fits their other criteria for lending.


2. Life Insurance Companies

Companies like Prudential and MetLife have millions of consumers buying life insurance policies which create long-term piles of cash. These life insurance companies invest those policy premiums into commercial real estate deals.

As you can imagine, life insurance companies are extremely risk-adverse. They most likely won’t be the best lender for your next value-add, 70% occupied deal in Tulsa, Oklahoma.

Insurance companies historically lend on low-risk, conservative deals like Class-A office buildings, major retail centers, high rise apartments , and luxury hotels in major metros. These companies are extremely conservative with their underwriting, offer low leverage, and often only lend to the highest quality of borrowers with the least risky projects.


3. CMBS

Commercial mortgage-backed securities are bonds tied to pieces of commercial real estate loans. They come from CMBS lenders who lend against commercial properties, and then cut them up into pieces to be sold to investors in the public market.

Since these bonds are sold to the public, the CMBS market is rated and monitored by independent ratings agencies, which gives bond-buyers verifiable information about their investments.

CMBS loans are intended for long-term, stable borrowing scenarios. Often times, CMBS loans come with hefty prepayment ‘lockout period’ which prevent the borrower from paying off the loan during that time.


4. Government-Sponsored Entities

GSEs are entities that were created and are controlled by the U.S. Federal Government with the purpose to help stimulate residential housing and creating affordable housing in America.

GSE lenders can offer extremely favorable financing terms that you will not see from the other lenders mentioned above. However, these loans are packaged up and sold on the secondary market so GSE loans tend to be extremely regulated to protect investors.

The two most important GSE organizations to know are Fannie Mae and Freddie Mac. GSEs are not direct lenders, but instead enable certain direct lending institutions to originate low-cost loans on properties that hit specific financial criteria, and then assume the loans upon origination.