Wall Street plugging gap in underserved small deals market.

Despite some borrowers' preconceptions about their borrowing options, investors seeking relatively small mortgages for multifamily and commercial real estate properties can often turn to Wall Street for the financing they need.

In the past, many conduits and investment banks shied away from smaller loans--that is, transactions in the $1.5 million to $4 million range. These loans take the same amount of work--and sometimes more--than larger loans. And simply due to their size, it is difficult for lenders to generate much revenue from these loans. But in today's competitive marketplace, with an abundance of capital in hand, many Wall Street funding sources are vying to lend money for smaller deals.

Wall Street conduits now recognize that the small loan sector is underserved. Some seized the opportunity to make larger profits on smaller deals by charging higher rates with less attractive terms. To attract this potentially lucrative small loan business, some conduits have set up small loan "specialty groups" specifically dedicated to transactions of this size.

When borrowers approach Wall Street conduits with large transactions, they tend to get similar quotes from various lenders. But when borrowers seek financing on small deals, lenders' quotes can vary widely.

With this variation in mind, how does a borrower go about gaining the best possible terms on a small transaction?

The best way for a commercial investor to get the right mortgage--without the burden of premium rates--is to work through a reputable mortgage intermediary that handles a high volume of loans. High-volume intermediaries have the leverage to provide borrowers with the broadest selection of small loan mortgage alternatives. In fact--when it comes to Wall Street conduits--the right intermediary will often deliver better terms by working with conduits quietly engaged in this scale of business, rather than some of the more obvious choices.

Investors trying to secure a small mortgage can count on a major mortgage intermediary to thoroughly research potential lenders and know the differences among them.

Intermediaries provide a level of knowledge and discernment necessary to finding the best deal. Borrowers may have difficulty distinguishing among lenders. A large percentage of loan paperwork--whether required by a conduit or a savings bank--tends to be the same. Lenders typically request similar pieces of information when working though the approval process, including tenant information, rent roll, income, expenses and other data.

In this undifferentiated environment, an intermediary can provide the added value needed to represent the borrower's best interests. Furthermore, borrowers can count on an experienced intermediary to work through the full range of issues that inevitably arise during the mortgage process.

By tapping the services of a high-volume mortgage intermediary, borrowers can ensure that they obtain the most aggressive terms and lowest rates, by leveraging the firm's volume and strength as a major market player.

Their substantial volume gives large-scale intermediaries valuable leverage with lenders to achieve the best terms and a smooth process for the borrower.

Meridian Capital Group is one such mortgage intermediary capable of delivering Wall Street financing on favorable terms. Founded in 1991, the company is today one of the nation's largest mortgage consultants serving the multifamily and commercial real estate sectors. Volume reached 2,500 transactions in 2005, and totaled more than $16 billion.

And as the country's leading broker of small commercial mortgage loans, the firm closed more than 2,100 loans under $10 million in 2005.

Arranging financing for transactions ranging from $500,000 to more than $500 million for multifamily, co-op, office, retail, hotel, healthcare, self-storage, industrial, and construction properties, Meridian draws from multiple capital sources including banks, insurance companies, and Wall Street mortgage conduits.

An illustration of the ability of a high-volume mortgage intermediary like Meridian to deliver conduit financing for relatively small loans is our deal on 239 Knickerbocker Avenue in Brooklyn. Meridian placed a loan for a 15,000 s/f, two-tenant commercial property. The mortgage was for $3.25 million and had a 5.89% rate for ten years. In Orange County, New York, Meridian worked through conduits to place a new mortgage of $3.1 million on a 26,324 s/f office building in New Windsor. The loan carried a 5.26% rate and a ten-year term.

The lesson is clear. Smart investors should not discount the possibility of securing Wall Street financing for a relatively small-scale deal.

By partnering with a high-volume intermediary, borrowers have an excellent opportunity to close such a transaction on highly favorable terms.

DAVID ROSENBERG, MANAGING DIRECTOR, CAPITAL MARKETS GROUP, MERIDIAN CAPITAL GROUP