Big Bank or Local Bank: Which lender should you use for your multifamily investment

Each type of lender has a different role to play in the market. Capital is currently readily available from both large banks as well as smaller local and regional banks. So – which type of bank should you use? It depends on the deal and your investor profile.

Big Banks

Big banks and agency debt currently offer very attractive rates and terms. The downside, though, is that the criteria that the building and borrower need to satisfy is far more cumbersome. Large banks and agency lenders generally rule the market for larger deals. The higher the unit count, and the higher the loan balance, the better rate they’re going to extend on both acquisitions and refinances.  Moreover, large banks and agency lenders are back looking to deploy capital for large development and rehab projects.

Regional Bank

Smaller local and regional banks are more nimble and have the ability to be a bit more subjective in their deal qualification. The trade-off here is that their rates tend to be a bit higher because their cost of funds are higher.  So in order for them to be competitive with larger lending institutions on rates, they’ll have to offer a shorter loan term on average. The smaller local lender is a great option for newer investors or those looking to invest in smaller projects.

Key Take Away

At the end of the day, buyers are should be shopping around for the best offer. In today’s lending environment the large banks and smaller banks are having to compete with one another deals.  

Debt is currently and will continue to be, the critical component to making a deal work.  Looking back 12 months, we saw cap rates tick up slightly as interest rates rose. Now that interest rates have fallen a bit, there is some additional spread that investors can capitalize on going forward. Pair that yield with the aggressive terms in the market, and investors should be able to continue to see healthy cash-on-cash returns in the near term.