Credit Unions or Banks – Which is Better for Real Estate Financing?

Aviva (00:00)
This week's listener of the week is Ryan Snow. Ryan, thank you so much for leaving us a five -star review. And for those of you listening, if you leave us a five -star review below, you might be next week's listener of the week, week, week. This week on Commercial Real Estate Secrets, we have Mark Ritter. Mark is the CEO.

of MBFS as well as the host of the Credit Union Conversations podcast. Mark, thank you so much for being on the show today.

Mark Ritter (00:35)
Thank you for having me, looking forward to the conversation.

Aviva (00:39)
Mark, so I am too, and that's why I'm jumping in. Do me a favor. Will you tell the listeners who you are, what you do and how you got here today?

Mark Ritter (00:50)
Absolutely. Mark Ritter, for the past 12 years, I've been the CEO of Member Business Financial Services, which is a mouthful, so we just call it MBFS. And the short story is we are owned by 13 credit unions and work with over 100 credit unions across the country. And really with one purpose, and that's to help people access credit unions.

for their real estate investment financing. So we help on the loan originations with the borrowers and investors. And we also support the credit unions on their back end and act as their commercial financing arm with all the infrastructure and support on things that you need to do to deliver these products to people.

Aviva (01:45)
Let me ask you, when you are lending in the commercial real estate space, do you find that you're lending more to users or investors?

Mark Ritter (01:55)
More, well, it's probably about 60 % investors. And maybe the rest would be operators, small businesses, people who are providing a service doing something. The one nice thing about credit unions in our space is, you know, there's 130 million members of credit unions in this country.

And many of them have jobs and careers and invest in real estate for that long -term income, passive income. So we help many of these people bridge that gap because they like their local credit union, but they might not consider them as an option.

Aviva (02:46)
So, for the simple folks like me, can you explain the difference between a bank and a credit union?

Mark Ritter (02:54)
My family couldn't explain the difference between a bank and a credit union, so many real estate investors can't. So the easy way to think about a credit union, and I realize when you drive past the local branch, they probably look the same and they offer the same lot of products. But what a credit union is, is a not -for -profit cooperative. It's owned by the members. It's run by a board of directors.

elected by the membership. And, you know, back in the old days when my father was a member at his local factory credit union, you know, if you worked in that factory, if you were a teacher in a school district, you had your local credit union. But credit unions have really evolved into not just serving the local consumer, but also the local real estate investors and business owners.

So many people do not realize that. So that's why I like to hit up shows like yours and kind of tell our story because it's really kind of replaced that community bank of I'll say 25, 30 years ago. Credit unions, they have money to lend and they're that local institution. And who doesn't like to be able to call up and have a relationship more than just a transaction?

Aviva (04:20)
Sure. So tell me about accessing credit unions for financing as a commercial real estate investor or a real estate investor in general.

Mark Ritter (04:32)
Sure. Just about everybody listening on this show, unless you're on some remote village in Alaska, has a credit union in your area, in your state, in your region, who is lending to real estate investors. Many people drive past a credit union and think, I can't join that. Yes, you can. If you see it,

In your neighborhood, there's probably about a 95 plus percent chance that you can. And what we do, credit unions are cooperatives. And many times they're small mid -size institutions. And real estate investors can get intimidated to think, they can't handle me. Yes, they can. What we actually do is bring credit unions together.

to finance transactions. We funded warehouse and commercial real estate transactions up to $40 million. But we're also handling maybe that first time investor who's dipping their toe in this and everything in between.

Aviva (05:45)
So are the terms that you could access at a big bank similar to the terms that you could access at a credit union?

Mark Ritter (05:55)
Yeah, what I'll say, you know, we're federally regulated institutions. So, you know, we don't have a stack of money and give it to everybody who walks in and asks, you know, we have to apply and qualify you. And I'll say that part is very similar. We need the fine. If you want $10 million from me, I'm going to need your financials and do some due diligence. We're nice people, but not that nice. But.

When it comes to the terms, I think people will find that credit unions can offer fabulous terms. And the best example that I give is that no federal credit union charges a prepayment penalty on a loan. So when rates were 3%, nobody cared about a prepayment penalty. In today's world,

Aviva (06:41)
Wow.

Mark Ritter (06:50)
Maybe you're getting in the sevens or close to eight in some transactions. Well, we think we've peaked at rates, fingers crossed. And when rates go down with a credit union, you'll have the flexibility to renegotiate or refinance.

Aviva (07:09)
Wow, that's interesting. Talk to me about the current environment for lending as a credit union. And if it's different from the current environment for lending as a bank, or the woes and wins of the lending environment in general in 2024.

Mark Ritter (07:30)
Oh boy. So it's a lot different than it was three years ago. The cost of my money is more than it was three years ago, so it's more expensive. And for the first time in a long time, you have to know who your lender is and what their financial conditions are. Because the dirty little secret that I'll tell you is nobody ever says,

We're not lending money because we're out of cash or we're up against concentration limits and we can't lend. But you have to kind of dig into that and say, who are you lending to? What are your limits? What are your restrictions? Because sometimes when you call your local banker, you get that wince of a loan, that wince where they're like, I don't know if I can do this today. What's nice about a credit union?

is credit unions aren't leveraging Wall Street money or borrowing this money to get you out. So if you have a credit union account and put in a dollar of deposits, usually about 85 cents to 90 cents goes out in loans. So they're lending local money in your area that they have control over. And what

Aviva (08:48)
Hmm.

Mark Ritter (08:57)
kind of determines the terms that you get as a real estate investor is who's lending your bank money and what terms are they getting it from? Well, a credit union is lending out their local deposits to the local real estate community. They're not borrowing it from. Now, what has really caused...

The liquidity crunch, which is easing in 2024, is flat out inflation and loan demand. When banks and credit unions do mortgages, those mortgages are a lot more. When they finance a car, cars are a lot more and it is chewing up that deposit base. I don't know if you know this, but bacon and eggs cost a lot more.

So when you put that on your credit card, it chews up the lending basis.

Aviva (09:58)
What do you think the next three to five years of the lending environment holds?

Mark Ritter (10:08)
So I think for every prognosticator about the office environment that says how bad it's going to be, I think it's going to be worse. The bigger deals that you have in the bigger markets with some of the highest quality credits that were in those buildings, bigger loans, bigger tenants, bigger credits is going to be bigger problems.

We are very excited about the warehouse space. People are buying things. The economy's moving. We are very excited about the multifamily space. People need a place to live. We are very excited about the small, balanced commercial real estate space. Businesses are stable. You know,

So there are segments out there that we're lending really strong in. And as I mentioned, bigger loans, bigger tenants, bigger cities, you got some bigger problems.

Aviva (11:22)
Our company is called the warehouse hotline and I think my lucky stars were not the office hotline because it's a cold line right now and they'll figure it out.

Mark Ritter (11:33)
Somebody calls us with a cold storage warehouse. We love it and would love to talk with you.

Aviva (11:39)
What?

What are considerations for you all to lend on, say, a 10 ,000 square foot warehouse building in today's environment?

Mark Ritter (11:53)
Yeah, we're really going to look at the lease structure and, you know, ultimately we will follow the cash. We want to follow the cash on where this is getting repaid from. And we also in this marketplace, we don't want, we want to understand you. We want to understand the transaction. That's the norm, but we're also going to ask a few more questions.

to make sure we understand you globally. If you have Class A office space in lower Manhattan, we want to understand the potential risk behind that and we want to understand your global picture. So people are gonna ask a few more questions and the reason that is is because we want to get people the best deal that we can and make sure, in the credit union space, it's not so much about this one loan.

anybody can finance a loan. We want to help that relationship and work with people on a relationship basis because we're community institutions. That's what we are.

Aviva (13:04)
I mean, not having understood the structure of a credit union prior to 17 minutes ago, it actually makes a lot of sense that you would want to stimulate your local economy, you know, put into it, take out from, you know, as opposed to walk up to your JP Morgan and throw your money into the ether. So.

Mark Ritter (13:33)
If I went to a big bank, I'd probably get fired in about a week because I like to have conversations with people and say, does this make sense? Can we help you? Can you help us? And it's the good cycle of money.

Aviva (13:37)
Ha ha ha ha.

Yeah. So let me ask you, what advice do you have for real estate investors in this environment?

Mark Ritter (13:55)
And don't be afraid to ask hard questions of your lender. Many of, you know, that has always been, it's always just been assumed, I'm going to go talk to my bank. They have money and I need money. That first part of it is, do they have money and are they in the market to lend is not an assumed yes anymore like it once was. So you really have to dig into that.

Aviva (14:20)
Yeah.

Mark Ritter (14:25)
And the other piece I would say is if you get that no where you used to get a yes, shop around. Shop around and ask those questions and find those people who are a good fit for you and who's in a stable base and lending in your segment. Sometimes, many people have lent so much the last few years.

There's concentration limits where they have regulators and auditors knocking at their door that they didn't have before.

Aviva (14:56)
Wow.

Whoa, that's just a side of lending I never even thought about. It's fascinating. So Mark, what in your day to day working with credit unions and lending makes you happy?

Mark Ritter (15:16)
I have chosen my path in life. I am a small town guy and did not want to go in the big banks because I like working to help make dreams come true. People aren't investing in commercial real estate just because they have this passion for it. They're doing it because they have financial goals and dreams down the road.

They start their small business because it's their passion and they have hopes and dreams for their business and their family down the road. And that's, I like to focus on the why we do what we do and not just what we do what we do.

Aviva (16:03)
I love that. Mark, for the folks listening, where can they find you, follow you and get in touch with you?

Mark Ritter (16:13)
Sure, absolutely. So our website is mbfs .org. You can also connect with me on markritter .com, just like it sounds, if you could put that in the show notes. Or we love that we're very active on LinkedIn. And if you're in the market and you think a credit union is a good place that you wanna check out, connect with us. And if we don't have somebody right in that marketplace,

We are friends with many other people like us and credit unions across the country that we're friendly with and can connect you with somebody in your local area.

Aviva (16:52)
Mark, thank you so much for sharing your wealth of knowledge about credit unions and for everybody listening. We'll see you next week.