Commercial Loans Blog

Commercial Loans Are Moot If North Korea Wins the War

Posted by George Blackburne on Mon, Aug 14, 2017

EMP.jpgAccording to one expert, the U.S. could easily lose a war with North Korea.  If the war broke out, you and your family would most likely be fatalities, even if you lived 100 miles from the nearest big city.  This is not sensationalism. I am deadly serious.  Sometime in the next two weeks the U.S. stock market may wake up to this danger and fall off a cliff.  Here is how - according to an expert so respected that he was recently asked to testify before a Congressional hearing - the U.S. could lose a war against North Korea:

Unbeknownst to most Americans, North Korea already possesses at least two satellites that orbit directly over North America. Conceivably, those satellites could already be carrying nuclear warheads and re-entry shielding, allowing North Korea to “drop” nukes into the atmosphere over North America. By detonating those nukes at altitude (perhaps 150 – 500 miles high), an electromagnetic pulse (EMP) attack would be initiated that could take down the entire national power grid.  A grid down scenario could kill 90% of the American people in the aftermath of a broken society.  (I recently wondered why North Korea was so busy launching satellites.)


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On May 8th, the House Homeland Security Subcommittee on Infrastructure conducted a hearing entitled, “Electromagnetic Pulse (EMP): Threat to Critical Infrastructure.”  Testifying at the hearing was Dr. Peter Pry, a member of the Congressional EMP Commission and executive director of the Task Force on National and Homeland Security, told the Subcommittee that the issue is urgent because an EMP event could wipe out nine-tenths of the nation’s population through starvation, disease, and societal collapse.

In an op-ed to The Hill, Dr. Pry recently wrote:

North Korea has nuclear-armed missiles and satellites potentially capable of electromagnetic pulse (EMP) attack. EMP is considered by many the most politically acceptable use of a nuclear weapon, because the high-altitude detonation (above 30 kilometers) produces no blast, thermal, or radioactive fallout effects harmful to people.




EMP itself is harmless to people, destroying only electronics. But by destroying electric grids and other life-sustaining critical infrastructures, the indirect effects of EMP can kill far more people in the long-run than nuclear blasting a city.

In this scenario, North Korea makes an EMP attack on Japan and South Korea to achieve its three most important foreign policy goals: reunification with South Korea, revenge upon Japan for World War II, and recognition of North Korea as a world power.


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Revenge against Tokyo is a convenient rationale for someday attacking Japan. War against Japan will be necessary for the North to conquer South Korea, as Japan is an indispensable staging area for U.S. and allied forces defending South Korea.

North Korea's dictator, Kim Jong Un, is the scion of three generations of totalitarian rule, a megalomaniac and ruthless murderer described by state media as a demigod having supernatural powers.


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Kim’s strategy is to sever U.S. security guarantees to South Korea and Japan by raising the stakes too high—raising the specter of nuclear war—and through "nuclear diplomacy" to cow the U.S. and its allies into submission. 

In this scenario, North Korea detonates a nuclear weapon at 96 kilometers HOB (height of burst) over Tokyo. The EMP field extends from the Japanese capital to a radius of 1,080 kilometers, covering all of Japan's major home islands. 

Virtually all of Japan's major military bases and seaports are covered by the EMP field, rendering them inoperable. Traffic control towers and systems are damaged and blacked-out stopping air and rail traffic. Highways are jammed with stalled vehicles. Communications systems are damaged or destroyed or in blackout.




Worse, Japan's population of 126 million people is at risk because suddenly there is no running water or food coming into the cities. EMP induced industrial accidents are happening everywhere. Gas pipelines are exploding and turning into firestorms in towns and cities. Refineries and chemical plants are exploding, releasing toxic clouds and poisonous spills. Tokyo knows from the experience of Fukushima that as the nationwide blackout becomes protracted, within days Japan's nuclear reactors will exhaust their emergency power supplies and begin exploding, contaminating the home islands with radioactivity. 

As a consequence of the EMP attack, Japan's critical infrastructures are paralyzed and incapable of transporting U.S. forces to aid South Korea. Indeed, with Japan's survival at risk, Tokyo would probably oppose any effort to help South Korea by U.S. forces staging from Japan, fearing another North Korean EMP attack. 


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The EMP field also covers the eastern half of South Korea, including the vital seaport of Busan (the key to South Korea's survival and U.S. victory in the last Korean War). All the eastern coastal seaports, and all military bases and airfields in the eastern half of South Korea (nearest Japan) are under the EMP field. 

The EMP field does not extend to North Korea.

Left uncovered by the EMP field are the western half of South Korea, including Seoul, the capital, and the major highway systems radiating around and from Seoul southward—the best invasion routes. Stalled traffic from the EMP will not be blocking Seoul or the highways.




U.S. and South Korean forces covering the Demilitarized Zone (DMZ) will not be covered by the EMP field. The EMP field, in their immediate rear area, will cause cascading failures of the electric grid throughout the DMZ and the entirety of South Korea. 

Thus, even those U.S. and South Korean forces not covered by the EMP field will be in a paralyzing protracted blackout that will cripple or deny allied forces communications, transportation, food and water, supplies and reinforcements from South Korean bases or from overseas.


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The EMP attack creates conditions for North Korea's conquest of South Korea that are ideal.

North Korean armor and infantry pours across the DMZ, thrusting through and around Seoul and down the coastal highways, flanking U.S. and allied forces paralyzed by EMP and unable to maneuver.

U.S. nuclear missiles and bombers start blasting North Korea’s nuclear forces and underground bunkers where the Dear Leader may be hiding. Now Kim Jong Un knows he has miscalculated. The U.S. is no paper tiger.


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In a final act of vengeance, Kim detonates the super-EMP warhead in his KMS-4 satellite, blacking out the United States. 

Airliners crash. Communications and transportation stop. Natural gas pipelines explode, causing firestorms in cities. In seven days, 100 U.S. nuclear reactors go Fukushima. In a year, most Americans are dead from starvation.

The United States, Japan, South Korea, and North Korea are in ruins.

Russia and China are the winners.

Dr. Pry ends with this admonition:  "Mr. President, harden the U.S. electrical grid to defend against an EMP attack, and shoot down those North Korean satellites!"


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Commercial Loan Resets

Posted by George Blackburne on Mon, Aug 7, 2017

Rates.jpgWhen you get an adjustable rate home loan, the Promissory Note is always very, very precise about any interest rate readjustments.  For example, "Every six months the Rate will readjust to 3.57% over the weekly average yield on 12-month constant maturity Treasuries."

When most banks write a 10-year, fixed rate commercial loan, there is almost always a provision that calls for one rate readjustment or "reset" at the end of five years.  The rate is then fixed for the next five years.  This is as close as you're likely to ever get to a 10-year, fixed rate commercial loan on an office building or industrial building.




What has always amazed me is that the language surrounding the rate readjustment is often very loosey-goosey.  Instead of saying that the rate will adjust to so many basis points over some index, the language will effectively look like this:  "At the end of five years, the loan will readjust to whatever rate the bank is charging on similar loans at that time."

Really?  That loosey-goosey?  Yup.  Often these fixed rate commercial loans from banks are larger than $2 million, but no one seems to care that the borrower is completely at the mercy of the bank.    Legally the bank could raise the rate from 5.5% to 7.5%, even though other banks are quoting just 6.0% at the time.  Later I will explain why this is not really an issue.


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A rate reset is more than just a rate readjustment.  The amortization of the loan is also accelerated.  For example, the typical bank permanent loan on an office building is a fixed rate, ten-year loan with a rate reset at the end of year five.  Most bank permanent loans start out with a 25-year amortization, but when the monthly payments are re-computed at the rate reset, we are five years into the loan.  Therefore the remaining loan balance is reamortized over just 20 years (although it is still all due and payable at the end the the next five-year period) at that time.




So why don't commercial borrowers freak out over the loosey-goosey language of the rate reset?  For some reason commercial bankers don't believe in capitalism.  They don't believe in charging whatever interest rate the market will bear.  Bankers think it is a sin to charge a higher interest rate than the bank down the street.  

As a result, banks across the country almost always charge about the same interest rate for commercial real estate loans.  Remember, a banker would consider himself a sinner if he charged a higher interest rate than his competitor, as if he was some sort of filthy capitalist.


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Now you might find a 0.25% to 0.50% difference between banks on commercial real estate loans, but you will almost never see one bank quoting 5.5% and another bank 7.5%.


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Okay, let's review what you've learned today:

1.  Rate readjustments are called resets in commercial mortgage-ese.

2.  Most commercial loans have a 25-year amortization.

3.  Ten years is usually the longest term available on a fixed rate, commercial loan.


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4.  The rate will reset at the end of year five to whatever rate the bank is then charging.

5.  The interest rate reset language is usually surprisingly loosey goosey.

6.  Banks around the country charge almost same the same rate on commercial loans.


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7.  Banks do not charge whatever the market will bear.  Capitalism is bad.

8.  It is a sin for a banker to charge a higher interest rate than a bank down the street.

9.  Therefore borrowers rarely get hit with an above-market rate increase at the reset.


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Are you an accredited investor?  Please focus on this for a moment.  You have money set aside for your retirement.  You have more dough set aside for your kids' college educations.  The stock market is booming right now, and I personally think that it will continue to boom; but its danegerous to have all of your eggs in just one investment basket.

You really need to consider investing in first mortgages.  Private money (hard money) first mortgages from Blackburne & Sons are yielding 8% to 12% today - although I urge you in the strongest terms to stick with our less-risky, lower-yielding ones.  Make no mistake:  You can easily lose most or all of your investment in first mortgages.  Investing in first mortgages involves substantial risk, and this blog article is not intended to be a solicitation to invest in our securities.  Such an solictation will always be accompanied by a Private Placement Memorandum.  We're just talking about the concept - the idea - of hard money first mortgage investments today.




I am about to surprise you.  Blackburne & Sons has been in the hard money business for thirty-seven years now.  Are we the oldest surviving hard money shop?  Not quite.  I am an attorney, licensed in both California and Indiana.  To some this may sound corny, but my two sons and I are cadet graduates of Culver Military Academy (Honor System), and all three of us are Eagle Scouts.  Okay, maybe a little corny.  Ha-ha!

If you click on the maroon button below, no one is ever going to call you and try to sell you first mortgages.  We sell exclusively by email, and once you start nibbling on our offerings, you will probably miss out on your first few deals because you waited too long.  We have well over 1,000 (1,500?) private investors in our various loans.  My point is not that we are wonderful.  My point is that no one is ever going to call you to hard-sell an investment.  Please feel free to camp out on our investor email list for five years before you make your first investment move.  We're like Christmas tree farmers, planting a half-decade ahead.

You can invest with incredibly small amounts - $5,000 - but you absolutely, positively must be an accredited investor - a $1 million net worth exclusive of your personal residence.  First mortgage investing is HUGE in California, but the new JOBS Act makes it possible for accredited investors residing outside of the State of California to now invest with us.  Do this - and then just watch our investments for a few years.


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Topics: Commercial Loan Resets

Commercial Loans and Core Assets

Posted by George Blackburne on Wed, Aug 2, 2017

4 Food Groups.jpgInvestopedia defines a core asset as follows:  A core asset is an essential, important or valuable property of a business without which a company cannot carry on with its profit-making activities. A business would dissolve without its core assets, and companies that sell off core assets are usually liquidating and on the verge of bankruptcy.

In the context of super-wealthy real estate investors, I would argue that the term has a slightly different meaning.  When the wealthy speak of their core real estate assets, they are usually speaking about their multifamily, office, retail and industrial properties.  These four major commercial property types are known in commercial real estate finance as the four basic food groups.


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A wealthy investor's core assets are typically under-leveraged; often less than 45% loan-to-value.  Have you ever been frustrated when a life company refused to loan higher than 55% loan-to-value?  Have you ever asked yourself, "Who on Earth could be satisfied with a loan of only 55%?"  Well, its these supper-wealthy investors who intentionally keep their core assets under-leveraged.


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Lastly, core assets are usually very attractive properties in their class.  For example, if the the core asset is an office building, it will be one of the most attractive and best-located office buildings in town.  The thing about a core asset is that the property is usually so desirable that it will remain leased, even in a bad recession.




I was in New York City twenty years ago, trying to place a $25 million commercial construction loan, when I found myself walking in front of Jackie Onassis' (JFK's widow) apartment building, directly across from Central Park.  It was a stunningly beautiful and desirable location.


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As rich as Jackie O was - she inherited the Onassis shipping fortune - did you know that she did NOT own the building or even the $50 million apartment in which she resided?  She was forced to just lease it for a very long time (thirty years?) from the SUPER-wealthy family that owned the building.  When people talk about old money, the family that owned this incredibly valuable building were probably really-really old money.  

I would not fall off my chair in surprise if this primest-of-prime buildings was owned by the descendants of the famous Rothchild banking family.  The Rothschild family is a wealthy family descending from Mayer Amschel Rothschild, a court Jew in the Free City of Frankfurt, who established his banking business in the 1760s.  Unlike most previous court Jews, Rothschild managed to bequeath his wealth and established an international banking family through his five sons, who established themselves in London, Paris, Frankfurt, Vienna, and Naples.




Guys, each one of these five Rothchild sons went on to grow their banks to be one of the very largest in each country.  They made the equivalent of tens of billions of dollars by financing wars between each other; e.g., one brother in Paris might loan Napoleon enough dough to wage war against England, which borrowed money from N.M. Rothchild & Sons in London.  What a racket!  Ha-ha.  Jeff Bezos, Bill Gates, and Warren Buffet are poor peasants compared to the very secretive Rothchild family.  And yes, the Rothchild family, if they actually owned it, would surely have considered Jackie's building a core asset


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So I was walking in front of Jackie's building when a epiphany hit me:  There are some pieces of commercial real estate that are so desirable that they will stay leased, even in the most severe of recessions.  The rich always have money, and they simply want this quality space.  In my own mind - and I teach this concept to my sons and staff - I consider properties like this to be top 40% properties.  The wise investor will strive to invest in top 40% properties.




One final thought about core assets:  The wealthy do not churn core assets.  Core assets are keepers.  Think of the Rothchild family and Jackie O's apartment building.  If the Rothchild's actually  do own that building, they might have bought that building when it was built 60 years ago.  Even if Jackie O tried to buy it at 20% over its appraised value, I could easily see the trustee of the Rothchild Trust saying, "Thank you, Madam, for your very generous offer, but this building is one of our core assets."


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Stay close to the Blackburne family.  Blackburne & Sons Realty Capital Corporation (est. 1980) stayed in the market making commercial real estate loans every day of the Great Recession.


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Cisca, my  lovely bride of 34 years, and I recently moved from Northern Indiana to Indianapolis.  Our daughter, Jordi, just graduated from Culver Girls Academy, so we were free to leave our home near the campus of the prestigious Culver Military Academy to be closer to my son, Tom, and our granddaughter.  If you get a chance, be sure to click on that Culver link above.  You'll quickly see why Cisca and I lived in the cornfields of Indiana for 18 years to send our kids to this very special academy.  Jordi recently rode in President Trump's Innaugural Parade.  George IV and Tom rode in George W. Bush's Innaugural Parade, and I rode in Nixon's Parade in 1971.




It's wonderful to work alongside my son, Tom, here in Indy.  Anyway, I write this blog to teach my two sons the business of commercial real estate finance (CREF).  It's my legacy to them, so I try to teach them "good stuff" at least twice a week.  By subscribing to this blog, you get to enjoy that same training for free.


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Topics: core assets

Commercial Loan Freebies From C-Loans

Posted by George Blackburne on Mon, Jul 24, 2017

Wow.pngEverybody gets some wonderful free commercial loan goodies today.  Nobody spends a penny.  The first freebie is our wonderful commercial loan calculator developed by my son, George IV.  Guys, a commercial loan calculator is NOT about computing the monthly payments on a commercial loan.  That's kid's play.  There must be 10,000 commercial loan payment calculators available on the internet.

But sizing a commercial loan is different.  The term of art, sizing a commercial loan, is the process of computing several different financial ratios and then determining the maximum loan size that a lender will permit.  The lender will almost always choose the lowest loan size produced by the debt service coverage ratio, the debt yield ratio, and, in the event of a construction loan, the loan-to-cost ratio.

Our commercial loan calculator instantly computes these ratios for you and tips you off where you are likely to have a fight with your commercial lender.  Forewarned is forearmed.


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Sliding around in your pencil drawer is the business card of a banker who makes commercial real estate loans.  We'll trade you the contents of that one business card for a free regional copy of The Blackburne List, a list of 750 commercial real estate lenders.  Seven-hundred-and fifty for one - not a bad trade.  If you give us three bankers, you can get all three regions, 2,500 for 3.


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Our main commercial mortgage portal,, is a fabulous free tool.  It takes just four minutes for an investor or a broker to enter his commercial loan request.  Then the site filters out hundreds of unsuitable commercial lenders - based on the loan amount, the loan type, the property location, the property type, etc. - and produces a list of 30 or so commercial lenders who are perfect for your particular commercial loan.

But we here at C-Loans, Inc. have a problem.  We can't get investors and brokers to register on the site.  If we could get them pre-registered on, investors and brokers could come back later and enter a new commercial loan request in moments.  Geez, guys, we're just talking about filling out your name, address, phone, and email so our lenders can contact you.  We're not asking you to clean out the Augean Stables.  Okay, then we'll BRIBE you to pre-register on


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When you come back to ("CMDC"), you are going to note some huge changes.  When your custom-created Commercial Lender List is now created, you will find it divided into three sections.  The top section contains our Recommended Lenders.  These are the commercial banks so hungry to close your commercial deal that they are willing to pay for advertising.

Next you will find the Hungry Lenders section, which are those commercial lenders who have recently taken advantage of our free listing on CMDC for direct lenders servicing (collecting montly payments, folks) on at least $20 million in commercial loans.  Lastly you will find our Other Lenders section; but the point is moot. Our Recommended Lenders and our Hungry Lenders will devour your deal long before you get to the bottom of the list.


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"George, I'm confused.  What's the difference between and" is a portal, where you invest four minutes in creating an online commercial loan application, something that looks good and includes some nice pics, and then shop that single mini-app to scores of different commercial lenders. is NOT a portal.  It's just a commercial lender search engine.  It just gives you the contact information of suitable commercial lenders.  You can't submit your deal online through CMDC.  


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Want to learn commercial real estate finance (CREF) for free?  I write at least two CREF training articles every week.


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Topics: Commercial loan freebies

Commercial Loan Hypothecations

Posted by George Blackburne on Thu, Jul 20, 2017

Scary Things Can Happen When You Make a Loan Against a Commercial Loan

My mentor - the man who taught me commercial real estate finance years ago - is the wise, old veteran, Bill Owens, of Owens Financial Group. "So, Bill," I asked today, "please tell me some horror stories about hypothecation loans."

You will recall from my earlier blog article that a hypothecation loan is a loan secured by a mortgage loan. The easiest way to understand what we're talking about here is to imagine a cranky old investor who owns a 36-unit apartment building free and clear. The cranky old investor sells his apartment building for $1 million, and he carries back an $800,000 first mortgage at 7% interest for seven years. It's a good deal for the investor because he couldn't earn 7% on his $800,000 in sales proceeds if he deposited the cash in the bank.


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Now let's scroll forward three years. The 72-year-old old investor meets 37-year-old Blondie the Bimbo in a bar. Blondie wants a new car, a diamond necklace, and a vacation to the Bahamas. The investor needs cash. So he trots down to Blackburne and Brown and pledges his $800,000 first mortgage receivable to us as collateral for a $600,000 loan. Blackburne & Brown is comfortable with the loan because if the old man doesn't make his payments, we'll simply execute (think of it as a fast foreclosure) on his $800,000 note and mortgage. Our $600,000 investment would then be secured by a $1 million dollar apartment building.

Blackburne and Brown made several hypothecation loans last year, and we are hungry to make more. But I was nervous. I didn't know the pitfalls of hypothecations, so I asked Bill Owens, "Bill, please tell me some horror stories about hypothecation loans."

"Okay, George, try this one. A guy owns an $80,000 first mortgage note against a $100,000 house. You make a $60,000 hypothecation loan against it, evidenced by a promissory note and hypothecation (pledge) agreement against the mortgage. Then the borrower goes bankrupt, and the bankruptcy court rules that because you only had a collateral assignment of the mortgage, rather than a mortgage against the actual real estate, you are an unsecured creditor. Such a ruling, in real life, means that you will be probably completely wiped out by the bankruptcy!"

"So what should I have done, Bill?" I asked.

"You should have a taken an absolute assignment of the mortgage. Now you can still give the borrower a buy-back agreement that says he can buy back the mortgage if he makes all of his loan payments, but it is critical to take an absolute assignment of the mortgage, as opposed to a collateral assignment."

"Please tell me another horror story, Bill."

"Okay, suppose you execute (foreclose) on a $60,000 note and mortgage, secured by a $100,000 house. Then you notify the underlying borrower - the owner of the house - to start making monthly payments to you. He replies that he doesn't owe any payments for another year because he prepaid them to the original mortgage holder, in return for a discount."

"So what should I have done, Bill?"

"You should have gotten a combination Waiver of Offset and Beneficiary Statement, signed by both the mortgage holder and the underlying borrower. (A Waiver of Offset is a statement by the underlying borrower that he doesn't have any claims against the mortgage holder - such as prepaid payments.) These would act as an estoppel against any claim by the underlying borrower that he owes less than what the mortgage holder claims."

I, George, also remember that whenever you make a hypothecation loan that you should take possession of the original note and be sure to record your absolute assignment of the mortgage note.

I spoke again with Bill and he confirmed that I make a hypothecation loan that I should notify the underlying borrower that the mortgage holder has assigned the note to me and inform him that he should make all future payments directly to me.

Topics: discounted note, hypothecation, hypothecation loan, discounted deed of trust

Commercial Loan With an Increasing Exit Fee

Posted by George Blackburne on Thu, Jul 20, 2017

Exit fee-1.jpgYou will recall that an exit fee is just like a prepayment penalty, except that the borrower owes the exit fee whether he pays the loan off early, exactly on time, or late.  

I was reading one of George Smith Partners' tombstones last night, when I ran into this description of a $7.4 million bridge loan that they had just closed:

"The loan is structured with an increasing exit fee in lieu of an upfront lender origination fee to minimize upfront costs and incentivize the Borrower to execute the business plan in a timely manner... After an initial 12 month spread maintenance period, the exit fee is 1.33% for months 13 through 24, increasing to 1.66% for months 25 through 30 and 2.00% for months 31 through 36."

Huh.  I had never heard of an increasing exit fee before.  It makes sense.  It lights a fire under the borrower's tush to hurry up and pay off the loan.




By the way, a tombstone is an annoucement of the successful closing of some financial deal, like the taking a company public or the closing some large loan or bond issue.

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Are you a mortgage broker?  Been cheated out of a big loan fee recently?  I'm not just talking about a borrower closing a deal and not paying you.  I am talking about a borrower totally lying to you about his qualifications.  For example, "Sure, the second mortgage lender will subordinate."  After you have worked 20 hours on the loan, the truth comes out.


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Do you own a real estate website?  C-Loans, Inc. once paid a $21,250 referral fee to Alan Dunn of for placing a link, "Commercial Loans", on his web site that pointed to  That's it.  Create a link on your website that says, "Commercial Mortgages" and point it to  Our software captures the fact that the lead came from you.


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Topics: Exit fee

Commercial Mortgage Referral Fees

Posted by George Blackburne on Tue, Jul 18, 2017

Is it legal to pay referral fees for commercial mortgage referrals?

Yes!  Even in states where a license is required to broker commercial loans (California, Florida, Nevada, Arizona, etc.), you can legally pay a referral fee on a commercial mortgage loan, as long as the referring source does nothing more than to call you with a name and number of a prospective borrower.


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 However, if the referral source - say, a commercial real estate broker - starts to negotiate terms (rate, points, term, etc.), at that point he is working as a commercial mortgage broker.  In those states requiring a license to broker commercial loans, the referral source is now breaking the law. 

Therefore, don't let your referral sources try to gather documents for you or to issue loan quotes.  As long as he merely gives you the name and number of someone seeking a commercial loan, it is perfectly legal to pay him a referral fee.

When is it illegal to pay a referral fee for a mortgage borrower?  Under RESPA, it is illegal to pay a referral fee (called a kickback) on a residential loan.  A residential loan is a mortgage loan on a house, condo, townhouse, duplex, triplex, or fourplex.  In the parlance of the Federal government, such loans are called loans on a one-to-four family dwellings.

Is it legal to pay a banker a referral fee for a commercial mortgage referral?

Never be the first to suggest a referral fee to a banker!  Most bankers consider referral fees - even on commercial loans - to be kickbacks.  A kickback is an illegal and immoral payment to a real estate broker to steer his trusting buyers to a particular lender. 

Therefore, if you offer a referral fee to a banker, 90% of them will be horrified.  They will look at you as a leper and probably cut you off.

Most banks also forbid their loan officers from receiving referral fees.  The reason why is because of the potential liability.  Lots of banks have been sued for referring customers to mortgage companies.  If the mortgage company is negligent and the borrower loses a large purchase deposit, such borrowers have been known to sue the bank for a negligent recommendation.

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So while it is NOT illegal to pay a banker a referral fee on a commercial mortgage referral, the loan officer can still get in trouble because it is against the policy of most banks for their loan officers to receive referral fees.

That being said, if the banker asks for a referral fee, you should gladly pay it.  There is nothing sweeter than a banker sending you one or two referrals every business day.

How large should the referral fee be?

It's whatever you negotiate, but the standard commercial mortgage referral fee is 20% of your company's gross commission.  Ten percent is also common.

My own hard money commercial mortgage company, Blackburne & Sons, will gladly pay you a referral fee of 20% of our gross loan fee for commercial mortgage referrals.  Please call Tom Blackburne at 574-210-6686 or email him at

Blackburne & Sons is looking for commercial first mortgages nationwide of $1.5 million or less on standing commercial properties.  Sorry, no construction loans, no land loans, and no land development loans.


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Topics: referral fees

Commercial Loans and Probable Maximum Loss

Posted by George Blackburne on Mon, Jul 17, 2017

Collapse.jpgAs you get into the very large commercial loans, especially in California, the issue of earthquake risk looms large.  When lending on large commercial properties constructed prior to 1980, commercial lenders will sometimes require a PML Report.

A PML Report is an earthquake damage report completed by a civil engineer. The report asks the question, “How badly damaged would this building be if there was a really big earthquake?” Is the building going to completely collapse, like those unreinforced masonry buildings in San Francisco did in 1989 during the Loma Prieta earthquake?

My old friend, Mike Thurman, was actually at Candlestick Park for game three of the World Series when the Loma Prieta earthquake hit. Fortunately the stadium was well-designed to absorb earthquake shock, and everyone was able to calmly leave the stadium to drive home.


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Unfortunately those driving home to the East Bay discovered that the central strand of the Oakland Bay Bridge had collapsed, hurtling several passengers and their cars to their death hundreds of feet below. Interesting note: When a section of the upper-deck freeway in Oakland collapsed onto a lower deck, sadly crushing and killing 60 drivers below, among the victims was a car thief attempting to make his getaway.

More specifically a PML Report seeks to quantify the Probable Maximum Loss. The Probable Maximum Loss (PML) is a tool used to evaluate the seismic risk of a building and identify assets with high seismic risk. The Probable Maximum Loss report identifies the PML value, expressed as a percentage of the building's replacement cost and estimates the potential damage during a 475-year earthquake - the lower the percentage, the lower the expected damage. The PML value can be expressed either as the Scenario Expected Loss (SEL) or the Scenario Upper Loss (SUL). They mean the same thing.




If the Maximum Probable Loss is too high – let’s say greater than 45% - a lender making a large commercial loan might require earthquake insurance. Earthquake insurance is phenomenally expensive, on the order of 2% to 3% of the value of the building annually!

To make matter worse, the earthquake insurance deductibles are huge – on the order of 15% to 20% of the value of the property.


Let’s suppose you own a $15 million commercial building in Los Angeles. The land is worth is worth $5 million, so you only insure the $10 million building. Suddenly an 8.2 earthquake hits L.A., the building collapses, and the loss is total. Even if you had the entire building insured, your insurance company might only pay you $8.5 million, rather than your entire $10 million loss.

And to make matters worse, the insurance company probably wouldn’t survive to pay the claim anyway.

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For just $79.95 you can buy a copy of The Blackburne List, a list of over 2,500 commercial lenders nationwide.  Is money tight?  For just $39.95 you can buy the Regional Blackburne List for the area in which the subject property is located.


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For forty years accredited investors residing in California have been able to earn 8% to 12% interest by investing in first trust deeds.  Unfortunately out-of-state investors could not legally participate.  A recent law change - the JOBS Act - now allows a resident of Illinois, for example, to invest in fractionalized first mortgage; i.e., he can take a $20,000 piece of a $400,000 loan on an apartment building in Chicago.  Blackburne & Sons has been doing this now for 37 years.  Sorry, but you must be very accredited to be suitable.


Accredited Investors Earn 8% to 12% Interest


Do you need a commercial lender who will actually lend up to 75% loan-to-value on the purchase of a commercial building?



Do you need a lender who will allow the seller to carry back a second mortgage? Does your client have a balloon payment coming due on his commercial property? Has your bank offered him a discounted pay-off? Does your borrower have less-than-stellar credit? Is your client's company losing money? Is your borrower a foreign national?

Do you need a non-recourse loan? Do you need a commercial loan with no prepayment penalty? Is your client's commercial property partially vacant? Do all of your commercial leases run out in the next 18 months? Do you need a lender who will allow a negative cash flow? Do you need a lender who will also look at the borrower's global income - income from salaries, other investments, etc.? Do you need a loan against a portfolio of single family homes?


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Commercial Real Estate Poised for a Comeback?

Posted by George Blackburne on Mon, Jul 17, 2017

Commercial Real Estate Investors Are Close to Capitulation, Which is a Bullish Sign

I work as the Controller of Blackburne & Sons Realty Capital Corporation, one of the oldest private money (hard money) commercial lenders in the country.

Daily, trust deed investors call our office to inquire about the status of one of their particular investments, to question the amount of a disbursement, or to simply check-in on their overall portfolio. A couple years ago, the substance of the calls consisted of simple accounting questions or a request for a brief update.

For the past three years, given the deteriorated condition of the commercial real estate market, unfortunately many of the calls received today entail a scared or panicked investor, wondering how their investment(s) will survive.  While each investor’s concern is voiced differently, the underlying emotions associated with those concerns tend be to be similar relevant to market conditions. I’ve facilitated investor calls five days a week, eight hours a day for the past 4 ½ years; but only after a seminar with Tony Woods, author of “The Commercial Real Estate Tsunami”, was I able to identify the investor emotions exposed in those conversations.
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A chart provided in Woods’ book, courtesy of Westcore Funds of Denver, Colorado entitled “The Cycle of Market Emotions,” is a fabulous tool to understand the underlying emotional cycle. Examples of emotions are euphoria (the best feeling possible), down to fear, panic, capitulation and finally despondency.

Present day, I believe the majority of investors’ emotions seem to be in the area of panic or capitulation, based on the substance of calls and reactions to updates.  However, just recently more and more investors are becoming submissive (i.e. despondency). These particular investors still call for updates, but the information provided is no longer a shock or disappointment; rather considered par for the current market conditions.

It’s always darkest before dawn… so I remain optimistic for our loyal trust deed investors that again (hopefully sooner than later) the feeling of hope and relief in trust deed investing will be restored.

Angela Gimenez is the Vice President and Controller of Blackburne & Sons Realty Capital Corporation.  The opinions expressed are her own.  She can be reached at 916-338-3232.

Topics: commercial real estate

Multifamily Loans and Tuck Under Parking

Posted by George Blackburne on Mon, Jul 17, 2017

Fannie Mae and Freddie Mac Will Not Lend on Apartments with Tuck-Under Parking

The conduits are making are making CMBS loans again, and the most preferred product is multifamily loans.  The problem is that the agencies - Fannie Mae and Freddie Mac - have better rates and terms for apartment loans than the conduits.  The agencies will also go higher in terms of loan-to-value.

The conduits are therefore looking for scratch and dent apartment loans that don't quite qualify for the agencies.  One reason an apartment building might not qualify is that it cannot satisfy the 90/90 Rule.  Fannie and Freddie will not finance an apartment building that has not been at least 90% occupied for ninety days.

Another fatal flaw for Fannie and Freddie is tuck-under parking.  Tuck-under parking is basically carports underneath the building.  The concern is that the building could collapse in an earthquake. 

Tuck Under Parking
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Although the agencies won't finance properties with tuck-under parking, CMBS lenders will gladly make these loans.  If your apartment building is also struggling to maintain 90% occupancy, you should consider a conduit loan.

Do you need a conduit loan right now?  You can apply to several dozen conduit lenders in just four minutes using  And C-Loans is free!


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You can also write to me, George Blackburne, at  Simply insert the words, Conduit Apartment Loan Request, in the subject line of your email.

Topics: apartment loans, multifamily loans