Small commercial loans could be big business in 2006.

Position:Commercial Real Estate Finance (CREF

This year could shape up to be the year of the small commercial loan, as lenders of various shapes, sizes and market niches seek to shoehorn their way into the small-balance lending arena.

The buzz at the Mortgage Bankers Association's (MBA's) annual Commercial Real Estate Finance (CREF)/Multifamily Housing Convention & Expo in Orlando in February was the new opportunity or intrusion--depending upon whom Mortgage Banking asked--of new lenders into the market for small-balance commercial property loans. Such loans are generally less than $5 million.

The small-balance commercial loan segment is a disconnected and fragmented market where even the largest players account for a single-digit percentage of the market. This fragmentation translates into unrealized potential and to opportunity for lenders, according to Randy Fuchs, principal of Boxwood Means Inc., Stamford, Connecticut.

"It's clear that this market--what we call 'the last origination frontier'--is ripe for change," said Fuchs. "New players are entering this space, some from commercial and some from the residential side. It will make an impact in the next 12 months."

The general lending environment remains very good even as the number of players entering the market increases, said Bruce Spencer, vice president of sales, commercial lending division of Miami-based Bayview Financial LP.

"It's a much more competitive environment," said Spencer. "You're seeing some traditional lenders, your banks, your conduits, your insurance companies, reach back and doing deals that maybe they had [once] passed on because they have to make their numbers."

As its former name implied, the one-time Impac Multifamily Capital Corporation (IMCC), Newport Beach, California--a mortgage real estate investment trust (REIT)--had focused primarily on multifamily loans.

However, the newly rechristened Impac Commercial Capital Corporation (ICCC) announced at the CREF Convention that it will now offer an expanded menu of commercial lending products to cover mobile-home parks and multi-tenant offices, as well as retail and mixed-use projects.

"We think the multifamily market will continue to be a healthy market, but we were looking for an opportunity to expand," said Richard E. Davenport Jr., ICCC...

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