The analysis of lease terms and tenant security is at the heart of evaluating a commercial real estate investment (CREI) loan. The stability of rental income generated by tenants is crucial to the success of CREI loans. In collaboration with Cooperative Business Services (CBS), credit unions can focus on assessing these income streams and structuring and matching terms of loans to maturities of the leases to help mitigate risks.
At CBS, we guide credit unions through a comprehensive analysis to understand the historical and projected performance of the tenants. This involves reviewing tenant credit grades, conducting in-depth financial analyses of net income and cap rates, and evaluating the strengths of the sponsors and guarantors associated with the ownership of the property. By focusing on tenants with solid credit standings, credit unions can create more secure and stable loan portfolios and make informed decisions that support their members' long-term success and financial health.
Flexibility in Managing Risk
One advantage credit unions can offer is a flexible approach to the terms of a CREI loan, such as longer terms that mirror lease maturities or rights to renew. CREI loans and longer terms provide credit unions with options for participation in investments into a different asset class. While traditional banks offer many types of loans, they may be more selective in providing investment real estate loans. CBS understands the risks in lending and works with credit unions to structure loans with higher rates, as well as additional guarantor support or co-borrowers to mitigate exposure. This adaptability helps credit unions serve borrowers with unique profiles, offering tailored solutions where appropriate while maintaining the stability of their portfolios.
The Value of Relationship-Driven Lending
Credit unions stand out for their member-centric approach, which emphasizes building and maintaining solid relationships with their members. At CBS, we help credit unions extend competitive terms to long-standing members, considering the individual’s history and loyalty to the institution. With our participation platform, we offer ways to reduce exposure or concentrations with borrowers and industries, thereby providing a competitive edge, all while serving their members.
This relationship-driven model allows credit unions to create lending solutions prioritizing their members' needs and financial well-being. By focusing on long-term relationships, credit unions can offer a service tailored to their borrowers' needs.
Tailored Solutions for Experienced Borrowers
Credit unions and banks assess borrower experience and financial performance when structuring CREI loans, but with CBS's support, credit unions can take a more customized approach. Credit unions may offer more competitive rates and terms, especially to members who have maintained a deposit relationship. By taking advantage of CBS’s participation network, the credit unions can decide on their exposure and return on the investment when making commercial loans.
For first-time investors, credit unions can craft loan terms that reflect the borrower’s experience and the property’s tenant risk profile. This tailored approach allows credit unions to offer fair and responsive solutions to each borrower's unique needs, further strengthening their relationships with members.
Conclusion: Which is Better for CREI Lending—Credit Unions or Banks?
When choosing between credit unions and banks for commercial real estate lending, the decision ultimately depends on the borrower’s needs and risk profile. When credit unions and CBS work together, the results provide greater flexibility in structuring loans for low-risk and higher-risk projects through CBS’s participation network and over two decades of commercial lending experience. Credit unions offer competitive terms and streamlined processes for low-risk transactions, such as those with established tenants and secure income streams. For higher-risk projects, including construction and proforma properties, CBS works closely with credit unions to tailor loan structures that manage risk effectively while providing viable financing options. This member-focused, personalized approach makes credit unions an ideal partner for borrowers seeking customized solutions and long-term relationships. In contrast, banks may offer more standardized, one-size-fits-all options.
At CBS, we are dedicated to empowering credit unions with the tools and expertise necessary to thrive in the commercial real estate lending market. From evaluating tenant risk to customizing loan structures based on risk profiles, CBS ensures that your credit union makes well-informed and profitable lending decisions. Ready to discover how we can help your institution succeed in commercial investment real estate lending? Contact us today to learn more about building secure, profitable lending portfolios that align with your credit union’s mission.
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