DebtX, the online loan sales adviser, plans to auction a $57 million commercial mortgage loan portfolio next month.
It will also offer a $100 million multifamily portfolio in December, said J. Kingsley Greenland 2d, the Boston firm's founder, president, and chief executive.
The $57 million commercial package would be "one of the largest" traded on DebtX's exchange this year, Mr. Greenland said in an interview last week. He called the offering a sign that the market for commercial whole loans is "growing significantly."
A major Midwest bank is offering the seasoned portfolio, Mr. Greenland said. The package has a weighted average coupon of 6.56% and a weighted average maturity of Dec. 31, 2007.
The commercial portfolio is about evenly split between performing and nonperforming loans, Mr. Greenland said. Bids are due Nov. 16; the deal was posted for investor review on Oct. 21.
DebtX's exchange has increased liquidity in the commercial mortgage market by letting financial institutions trade smaller portfolios and thus opening up the market for smaller buyers, Mr. Greenland said.
For instance, he said that before DebtX opened a few years ago commercial portfolios traded only in sizes of several hundred million dollars, between larger institutions. Smaller outfits could not come up with enough capital to participate.
The universe of buyers and sellers has expanded from a dozen or so larger players to 3,000 of all sizes, including regional banks, Mr. Greenland said. And instead of six months, it now takes four to six weeks to complete the average sale, he said.
That prices for commercial loan portfolios have risen over the past two years - largely because more capital is now in play in the marketplace - is another indicator that the market is strong, Mr. Greenland said.
He said a major advantage to holding commercial loan portfolios versus residential ones is that commercial mortgages tend to prepay slower.
Another is that the level of ongoing information investors get on the loans is usually much more detailed than on residential loans.
For example, Mr. Greenland said, residential investors get onetime basic information on a borrower's loan application that the originator collects when making the loan. But commercial investors get to look at information like tenants' tax returns on a yearly, ongoing basis.
One barrier to entering the market is that commercial mortgages are harder to analyze than residential loans. Commercial loans' performance depends on many more factors, so buyers have to exercise "investment judgment" rather than rely solely on financial and statistical analysis.
"If you look at a portfolio of residential real estate," Mr. Greenland said, "you can change" the constant prepayment rate and the default rate, and most investors would end up making the same credit performance projections.
But "in commercial or business loans," he said, "the variables that are likely to change are far more numerous, and often there aren't statistics behind it to say, 'This has been the history.' "
DebtX helps potential bidders by underwriting each loan or portfolio traded on its exchange and by making its loan advisers available to answer any questions a bidder or seller might have.
