Commercial Loans Blog

What is a Subordination, Non-Disturbance and Attornment Agreement?

Posted by George Blackburne on Thu, May 24, 2018

Rent-a-car facilitySuppose ABC Rent-a-Car wants to build a commercial building on a specific, high-traffic-count lot in the City.  ABC Rent-a-Car offers to buy the land from the property owner, but the commercial property owner wants to leave this valuable commercial lot to his grandchildren and great-grandchildren. He refuses to sell.

The commercial property owner, however, is willing to lease the land to ABC Rent-a-Car on a long term basis.  ABC Rent-a-Car tries to negotiate a lease of the land for 99 years, the longest term allowed by law.


When private investors invest in 7% to 12% first mortgages originated by Blackburne & Sons (est. 1980), they do NOT invest in a hard money mortgage fund.  Hard money mortgage funds have a lot in common with Ponzi schemes.  They rely on the fee income from new loan originations to keep the office open.  Did you know that over 90% of all hard money mortgage funds failed during the Great Recession?  Instead, a private investor with Blackburne & Sons can invest as little as $10,000 in a first mortgage personally chosen by him.  He gets to be the underwriter.  Remember, folks, we have been "crowd-funding" commercial first mortgages for almost 40 years.


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Interesting note:  Had the commercial property owner unwisely leased the land to the car rental company for 100 years, the courts would have ruled that this lease was in fact an installment sale! Title to the property would pass to the car rental company.  The maximum term of a land lease is 99 years.

The old man, however, refuses to lease the bare commercial land for longer than 75 years, which the car rental company decides is sufficient.  The parties execute a land lease for 75 years at an amount that pays the old man a return of about 8% annually on the value of the land, with a cost of living escalator every five years.  This would be a very typical deal.


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The rental car company, however, insists on a land lease clause requiring any future lender to sign a Subordination, Non-Disturbance and Attornment Agreement.  After all, it's only fair. The rental car company is going to spend $2,000,000 constructing a building on the property at the rental car company's own expense.

What a deal!  The property owner gets $100,000 a year triple-net rent on his land lease AND when the lease expires, both the land and the building revert back to his heirs. (I recently ran across a wealthy family trust that has the land lease on an entire city block on Michigan Avenue - the hottest shopping strip - in Chicago.  The land lessees built skyscrapers all along that block, and these skyscapers are poised to revert back to the grandchildren of the trust settlor after 99 years.  Holy Smackeral!  We're talking about a billion dollars worth of buildings!)


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Okay, let's scroll forward about ten years.  Suddenly the old man is in need of some dough.  Maybe he just got a young, new wife.  He takes his land lease to the bank and pledges it to the bank for a $900,000 loan.  When the bank pulls a title commitment (preliminary report), they find out that ABC Rent-a-Car has recorded their land lease against the title.  The bank contacts the attorney for the rental car company and says, "Hey, we want to record our mortgage against the property, and we have to be in first position.  We please need for you to subordinate your land lease to our mortgage."

Counsel for the car rental company then responds, "Okay, we'll agree to subordinate, as long as you sign our Subordination, Non-Disturbance and Attornment Agreement."  The attorneys exchange documents and cut a deal.  The new first mortgage is recorded, and the car rental company subordinates it's land lease.


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The old man's young, new wife - Lola La Boom-Boom - ends up being a spendthrift and drives him into bankruptcy.  The bank forecloses on the property, which is now improved with a gleaming, modern automotive center.  The REO property manager for the bank contacts ABC Rent-a-Car and tells them, "Hey, our foreclosure just cut off your lease. You were paying only $100,000 per year for this beautiful facility, but the fair market rent for the property is now at least $200,000 per year. You'll have to start paying us $200,000 per year if you want to continue to rent the property."

"Not so fast, Bucko," replies the attorney for the car rental company.  Please check the Subordination, Non-Disturbance and Attornment Agreement that your bank executed.  Under the terms of that agreement, your bank promised not to disturb our existing lease if you foreclosed. Now that you have completed the foreclosure, we certainly agree to attorn.  Attornment is a word from feudal times that means acknowledging a new lord.  In this case, the rental car company acknowledges that all future rent is owned to the new landlord, in this case the bank.


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Topics: Attornment agreements

Commercial Loans and Holding Title as a Limited Liability Company

Posted by George Blackburne on Sun, May 20, 2018

roof holeA majority of all commercial properties today are owned by limited liability companies (LLC's).  The reason why goes back to a bizarre personal injury action in the 1970's.

About 40 years ago, a thief was climbing on the roof of a commercial building in New York City.  He was trying to break into the store to steal stuff, and he had no business being on the roof.  The roof was near the end of its useful life, and the thief fell through the roof and severely injured himself.


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A lot of you guys are accredited investors, and you have been on our mailing list for over a decade (or three).  Pay attention here.  You can invest in our 7% to 12% first trust deeds with as little as $10,000.  We were crowd-funding first mortgages long before the term was ever invented.  Our private investors survived (admittedly a little banged up) three different commercial real estate crashes of 45%.  In our 38 years in business, Blackburne & Sons has seen over 2,000 (4,000?) commercial banks and S&L's go bust.  You are NOT earning 9% on the bond portion of your retirement.  Why not?

At least - it costs you nothing - get on our first mortgage investments email list.  No one will EVER call you to sell you a first mortgage.  When you finally decide to invest, you will be frustrated by how quickly our deals sell out.  The typical deal sells out in two hours.  Wake up.  You are missing a pretty attractive class of investment.


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The thief must have had unbelievable audacity because he actually sued the owner of the commercial building for negligence for failing to maintain the roof.  To the shock of commercial property owners everywhere, this miserable thief won his lawsuit and was awarded over a million dollars in damages by the brain-dead jury.

The property owner held title to the building personally, and he was personally wiped out when the judgment debtor took virtually everything the store owner owned.


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From that moment on, commercial property owners across the country desperately sought a way to insulate themselves from liability.  They could not hold title as a regular "C-corp" because they would be taxed twice - once as a corporation and another time when the owners drew out their profits as dividends.  Limited liability companies had not yet been invented.

The solution was the subchapter-S corporation.  A subchapter-S corporation can only be used for new business ventures, and there is a limit of 35 shareholders.  You can therefore never take a subchapter-S corporation public.


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The big advantage of the subchapter-S corporation, however, was that it was not taxed twice.  The net income of a subchapter-S corporation passes directly through to the owners of the corporation without taxation.  The shareholders only pay taxes once on the profits, as they are added to their personal income on their 1040's.

As a result, for about 15 years, title to a great many commercial properties was held by a subchapter-S corporation.


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The first state to enact a law authorizing limited liability companies was Wyoming in 1977.  The form did not become immediately popular, in part because of uncertainties in tax treatment by the Internal Revenue Service.  After an IRS ruling in 1988 that Wyoming LLCs could be taxed as partnerships, other states began enacting LLC statues.  By 1996, all 50 states had LLC statutes.

Modernly, subchapter-S corporations have been almost entirely replaced by limited liability companies (LLC's).  LLC's are taxed just like subchapter-S corporations; i.e., only once.  Unlike subchapter-S corporations, LLC's do not have to be new ventures, and ownership is not limited to 35 shareholders.


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Although LLCs and corporations both possess a lot of the same features, the basic terminology commonly associated with each type of legal entity is slightly different.  When an LLC is formed, it is said to be "organized", not "incorporated".  Its founding document is therefore known as its "Articles of Organization", instead of its "Articles of Incorporation". 

Internal operations of an LLC are further governed by its "Operating Agreement", rather than its "Bylaws".  The owner of beneficial rights in an LLC is known as a "Member," rather than a "Shareholder".  Additionally, ownership in an LLC is represented by a "Membership Interest", rather than represented by "shares of stock".  Similarly, when issued in physical rather than electronic form, a document evidencing ownership rights in an LLC is called a "Membership Certificate", rather than a "stock certificate".


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Most American courts have held that LLC members are subject to the same common law alter ego piercing theories as corporate shareholders.  In other words, there are times when the acts of of the LLC are so horrific (intentionally polluting a stream with a cancer-causing pollutant) that an injured party can go after the personal assets of the members.

However, it is more difficult to pierce the LLC veil, compared to the corporate veil, because LLCs do not have many formalities (annual meetings, corporate resolutions, etc.) to maintain.  In our example of the thief above, he would probably have been unable to go after the personal assets of the retail building owner - unless perhaps the building owner set up a spring gun to impale trespassers.  As long as the LLC and the members do not commingle funds, it is difficult to pierce the LLC veil.


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Membership interests in LLCs and partnership interests are also afforded a significant level of protection through the charging order mechanism.  The charging order (an order of the court instructing the LLC to pay a judgment creditor of a Member) limits the creditor of a debtor-partner or a debtor-member to the debtor's share of distributions, without conferring on the creditor any voting or management rights.

Its no wonder why most commercial property owners choose to hold title to the property as a limited liability company, as opposed to personally, corporately, or as a subchapter-S corporation.


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Topics: Limited liability companies

The SBA 7a Program Versus the USDA Business and Industry Loan Program

Posted by George Blackburne on Sat, May 19, 2018

Rural BuildingThe USDA Business and Industry Loan Program is quite similar to the SBA 7a Loan Program.  When would a borrower apply for a USDA B&I loan, rather than an SBA 7a loan?  What's the difference?

Some of the lowest wage rates and the highest unemployment rates in America can be found in rural areas.  USDA Business and Industry Loan program was therefore developed to help foster employment in rural areas, defined as communities of less than 50,000 people.   The Federal government is therefore trying to encourage companies to build factories in these underdeveloped small towns and rural areas.


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"Okay, but the SBA 7a loan program should work as well as the USDA Business and Industry loan program in rural areas.  Why a different program?"

There are, in fact, some material differences.  For example, a company does NOT have to be a small business in order to qualify for a USDA B&I loan. The company could have 10,000 employees and still qualify.


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Secondly, the property does not have to 51% owner-occupied in order to to qualify for a USDA loan. Suppose a company wanted to move into a large, vacant industrial building; but they only intended to occupy 25% of the space.  They would still qualify for a USDA B&I loan.

In fact, investors can even qualify for a USDA B&I loan, even if they intend to lease out 100% of the space to others!


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Charlie Charger, a former football star for the Smalltown Seminoles, has just developed a coating that increases the efficiency of solar panels.  Still madly in love with his wife (a former Seminole cheerleader) and the proud father of three children, Charlie wants to develop a chemical plant right in Smalltown.  He wants to give good jobs to his friends and neighbors.

Charlie goes to Isaac Investor, the richest man in town, seeking financial help.  Isaac declines to provide venture capital, but he agrees to build an industrial plant for Charger Coatings, LLC, and then lease it to the new chemical venture at a less-than-market rate for the first three years.  Isaac could qualify for a $10 million USDA Business and Industry loan to build the plant, even though he is just an investor and even though Isaac intends to initially lease 75% of the space to outside tenants.


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Disco Turtle


Non-profit organizations do not qualify for an SBA loan.  In contrast, the USDA will guarantee commercial loans to non-profit organizations.

While an SBA 7a commercial loan can be used to refinance existing debt, there must be a 20% reduction in the debt service.  In plain English, this means that the new SBA 7a loan has to reduce the borrower's loan payments by 20%.  In contrast, USDA Business and Industry Loans can also be used to refinance existing debt, but there is no requirement of a 20% reduction in debt service.


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Lastly, the USDA will regularly guarantee commercial loans up to $10 million, as opposed to just $5 million for the SBA 7a loan program.  On a case-by-case basis, the USDA will guarantee commercial loans as large as $25 million.


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There is something very important to appreciate when seeking either an SBA loan or a USDA loan.  Neither the Small Business Administration nor the U.S. Department of Agriculture actually makes commercial loans.  Instead, they merely guarantee a portion of the loans.  Please note the emphasis on the word, "portion".  

This means that there is a portion of these commercial loans that is not guaranteed.  Some bank has its tail flapping in the breeze, ready to get shot it off, if the loan goes bad.  Therefore some banks may be willing to take the risk, but others will not.  This is a HUGE point.


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Apply To 93 Different USDA Lenders Six At a Time Until One Says Yes  



This means that seven SBA lenders could turn your deal down, only to have the eighth SBA lender (or USDA lender) approve your deal. is therefore perfect for applying for either an SBA or USDA loan.  You enter the deal once into C-Loans (about four minutes worth of work), and then you submit it to SBA lender (or USDA lender) after SBA lender until you find a lender willing to do the deal.


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Topics: USDA loans versus SBA loans

How To Sell Commercial Loans in the Midwest

Posted by George Blackburne on Thu, May 17, 2018

IndyFew commercial banks, based on the East coast or the West coast, realize the strength of the economy in the Midwest.  "Cookin' with gas" is an understatement.  This article will give you some ammunition when trying to convince some nationwide commercial lender to approve your Midwest commercial loan.

Even though Blackburne & Sons Realty Capital Corporation is a Sacramento-based private money commercial lender, my wife and I personally live in Indianapolis, in order to be close to our son, Tom, and our granddaughter.  If you drive around Indianapolis - or almost anywhere in the Midwest - you will be stunned by the number of Help Wanted signs.  A full forty percent of businesses here are displaying such signs.


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Every week I play golf in a league with a bunch of business owners and top level executives.  They all tell the same story.  They can't hire enough workers.  Most have a  cash incentive program to encourage their existing workers to recruit their buddies.  Some are even accepting ex-cons and workers with known drug problems.  The problem is so acute that the President of Zentis, a German  fruit canner, was flying out last week "to solve the problem."  Good luck with that, Herr Zentis.

During the Great Recession, President Obama visited Elkhart, Indiana, the home of the nations RV industry.  Berkshire Hathaway owns Forest River in Elkhart, the second largest RV manufacturer in the country.  At its nadir (low point), unemployment in Elkhart was something like 23%, just about the highest rate in the country.  Today Elkhart County has over 20,000 unfilled jobs.


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A recent (four months ago) government report revealed that if everyone in the Midwest who wanted a job, had a job, employers would still be short a whopping 40,000 workers!!!  Wow.

Last month a read a fascinating story in the Washington Post about how a resort town in the Poconos sent recruiters to hard-hit Puerto Rico, after the hurricane, to try to recruit workers to help operate their playhouses, museums, and restaurants.  Local grocery stores were asked to stock plantains and coconut milk.  Nightclubs were asked to play Latin dance music, like the merengue, in order to make the Puerto Rican workers feel welcome and happy.


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We used to call the Great Lakes industrial cities the Rust Belt.  Today the U.S. employs more industrial workers than at any time in history.  The most recent survey of Purchasing Managers for Industrial Companies stands today at highest level of optimism in history.  In history, folks!

Blackburne & Sons most preferred commercial loan product - our sweet spot - is:

Small Commercial Loans in the Heartland.  


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We love-love-love multifamily loans, commercial loans, and industrial building loans of less than $1 million in small town America.  We are doing a TON of commercial loans in Michigan, Ohio, Indiana, and Illinois.

And remember, Blackburne & Sons makes permanent loans, not just bridge loans.  You will recall that a permanent loan is a first mortgage on a standing property, with a term of at least five years and at least some amortization.  Most banks use a 25-year amortization and a five or ten year term.  Blackburne & Sons uses a 30-year amortization, and our permanent loans have a term of 15 years.


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Our loans have no prepayment penalty, so they work well as bridge loans too.  On an annual percentage rate (APR) basis, our loans are far cheaper than any other private money competitor.


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Commercial Loans, Trades, and a Bazillion Bankers

Posted by George Blackburne on Mon, May 7, 2018

Screen Shot 2018-05-05 at 8.52.48 PMC-Loans, Inc. has quietly been adding 20 to 30 new banks to every week. Every week, folks!  That's over 100 new commercial real estate lenders every month.  How have we been finding these banks?  We trade for them.

For example, let's suppose a borrower tells his mortgage broker that his existing private money lender will subordinate to a new loan, and the trusting mortgage broker spends 20 hours finding a  lender willing to make the commercial loan.  When it comes time to close, the poor mortgage broker finds out that the existing private lender absolutely refuses to subordinate, and the thoughtless borrower hadn't even asked him for his willingness.  The borrower just says to the mortgage broker, "Too bad, so sad.  You'll have to make it up on the next guy."


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When the mortgage broker goes to sue the scum-bucket borrower, he finds out that his attorney wants a $25,000 retainer, and he estimates that his legal fees through trial will be another $20,000.  The poor mortgage broker's loan fee was only $12,000.  He can't afford to sue this horrible borrower.

Now if the mortgage broker had used my battle-tested fee agreement, he could sue the borrower in arbitration, in the mortgage broker's home town, and not even employ an attorney.  In arbitration, you simply meet in some attorney's conference room, sit around a conference table, and tell your story -  much like Small Claims Court.  You do NOT need to hire an attorney if you are the plaintiff in arbitration.  A total rookie can easily handle his own case.  And from the time you file your Demand For Arbitration, you will be able to drag this low-life borrower before an arbitrator in less than 60 days.


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Now when you buy my nine-hour video training course, "How to Broker Commercial Loans," for $549, you get this fee agreement and 90-minutes of video training on fee collection as part of the course.

Or you can buy this Fee Collection Course and Fee Agreement separately for just $199.  In your entire career as a commercial mortgage broker, you will never make a better investment.

But what if you are a starving mortgage broker?  Well, then go out and find a banker that is in the market making commercial loans and trade me that one banker for my Fee Agreement.


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I have probably successfully litigated more commercial mortgage broker fee collection cases than any attorney in America, probably several times over.  When you call me asking for help some day on a huge fee collection case (I don't take cases, but I'll coach you a little), I predict I won't be able to help you because some "expert" (your attorney) had you make this one little change to my agreement.  Argghhh!  Invariably that little language change totally screws the poor mortgage broker out of victory.  Do not change even one word.  Don't say I didn't warn you.

I offer trades like this based on The Honor System.  You could easily slip me nonsense information and still get your free fee agreement.  Therefore please be sure that you are giving me a bona fide commercial banker.  Go to the guy's web site and make sure it says, "So-and-So Bank" and contains the FDIC-insured deposits symbol.  You should never find yourself entering your own name.  Thanks.


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Now the point of this lesson is to tell you guys that is exploding in size.  Our list of hungry commercial lenders just keeps growing and growing.  When someone trades me a banker, I immediately add them to  And we are doing tons of trades.

You can trade us one banker for a regional list of over 750 bankers (and other commercial lenders), and if you trade us three bankers, you can obtain the entire Blackburne List of Commercial Lenders.


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You can also trade one banker for the PowerPoint presentation to my wonderful course, How To Market for Commercial Loans.  You also just can buy this online course for $199.


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I wouldn't fall off my chair in surprise if 5% of all of the practicing commercial mortgage brokers in the country got their start by watching my popular nine-hour video course, How To Broker Commercial Loans.  It is a very popular course.  The course includes marketing, underwriting, packaging, placement, and fee collection.  


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But not everyone can afford the $549 cost.  If you are a starving mortgage broker, you can get your hands on this wonderful course by just providing me with a list of ten bankers making commercial loans.


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There has never been an easier time to become a hard money mortgage broker.  The reason why you want to become a hard money lender is that you get to service your own loans.  Folks, if you are not working daily to develop your own loan servicing rights, get out of the business.  Let me say this again.  Never want to service loans?  Get out of the commercial loan business.  You'll never survive the next recession.  The real money in the mortgage business is in loan servicing fees.

And geez, guys, loan servicing is no big deal.  You can hire a sub-servicing company to service your loans for just $30 per loan per month.  Charge your investors $1,000 per month and pay them $30.  My own loan servicing fees are over $1 million per year, whether I close a new loan that entire year or not.  Careful, now.  I still have to pay salaries out of that, but its easier to survive recessions when you know you're going to get $80,000 on the first of each month.  I sell a four-hour video course, How To Find Your Own Private Mortgage Investors, that helps you to get started.


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But not everyone can afford the $549 cost.  Trade me just ten bankers, and I'll send you the course.    Most guys, when they start building up a list of ten bankers to trade me, find that its easy to keep going and give me 20 bankers.  This way they get both courses.

Now on to my final point.  You should be calling bankers every day anyway.  The typical commercial banker turns down a half-dozen commercial loan applications every week.  You want those turndowns!!  If I was surviving on a shoestring, I would send a funny joke by snail mail to each banker on my list every ten days, and I would include three business cards.


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Topics: Bazzillion Bankers

Commercial Loans and Effective Gross Income

Posted by George Blackburne on Fri, Apr 13, 2018

AccountingYou will spot the line item, Effective Gross Income, in the top third of any Pro Forma Operating Statement.  By the way, a line item is a separate line in a financial statement or budget.  For example, "Real Estate Taxes", "Utilities Expense", and "Fire Insurance" are all examples of line items in a Pro Forma Operating Statement.

A Pro Forma Operating Statement is essentially a budget for a commercial property for the next twelve months, with provisions made for likely losses due to vacancy and collection issues and with a little money set aside annually to replace the roof and HVAC units and to resurface the parking lot.  Basically its the budget that a commercial loan officer, working for a bank, will prepare in order to determine how large of a commercial loan that he will make you.


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Gross Scheduled Rents
Less 5% Reserve for Vacancy and Collection Loss

Effective Gross Income:

As you can see, the Effective Gross Income is simply the Gross Scheduled Rents or the Gross Potential Rents, less some reserve for vacancy and collection loss.

When preparing a Pro Forma Operating Statement, I recommend that you always use exactly 5% for Vacancy and Collection Loss, even if the vacancy rate in the area is a whopping 15%.  I will try to blog later in the week on this exact topic.


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Now the Effective Gross Income is a fairly important number because you will use it to make a number of different calculations further down in your Pro Forma Operating Statement.

For example, your commercial lender will require that you include in your Pro Forma Operating Statement some Reserve for Replacements.  If you fail to include a reasonable Reserve for Replacement in your Pro Forma, the lender will insert one himself - and he will punish you by making it much larger than necessary.


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So what is the smallest Reserve for Replacement that you can get away with?  Generally it is either 3% or 4% of Effective Gross Income.  Please notice that we are using that Effective Gross Income figure that is the subject of today's training article.

As your Reserve for Replacement, you should use 4% of Effective Gross Income, unless the property is brand new, in which instance you can probably get away with 3% of Effective Gross Income.  If the property is a brand new industrial building - which is often just an empty concrete box - you can sometimes get away with just 2% of Effective Gross Income.


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Even though your borrower intends to manage the property, he cannot get away with leaving out a professional Property Management Fee.  Passive investors - filthy rich guys who just want a return on their money and zero hassle - will certainly not try to manage the property themselves.

The bank is also using the Pro Forma to determine the likely value of the property.  He will apply some capitalization rate to the Net Operating Income, and that NOI must be net of a professional Property Management Fee.  For example, if the Net Operating Income is $500,000 - the banker will divide this NOI by 0.065 (a 6.5% cap rate) to roughly value the property at $7.7 million.


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Okay, we're stuck.  We have to use a Property Management Fee line item, and we dare not let the banker compute the Property Management Fee himself.  He will use some wildly large management number and knock down our loan amount by $100,000.  What is the smallest professional Property Management Fee that we can get away with?

The smallest Property Management Fee that you can probably get away with is 4% to 6% of Effective Gross Income.  If the property is apartments, you're stuck with 6%, and the lender may even require an Onsite Property Management Fee (a free apartment plus a few hundred dollars per month as well) as well.  And don't forget about payroll taxes as well.  Does the madness ever end?  Ha-ha!


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If the property is commercial or industrial with just a few units, you can probably get away with 4% of Effective Gross Income.  If the property is a shopping center with six or more units, a lender may force you to use 5% or 6% of Effective Gross Income.

You may use the line item, Effective Gross Income, on other occasions as well. For example, if your borrower has built a new apartment building or if he bought a vacant apartment building and fixed it up, you will not have a historical figure to use for Repairs and Maintenance Expense.  A good figure to use here is 5.6% of Effective Gross Income.  Where did this number come from?  There is a National Apartment Owners Association that gathers up historical data from its members and publishes the results annually.  This number for Repairs and Maintenance Expense - 5.6% of Effective Gross Income - is for suburban apartment buildings and is a very fair and reliable number.


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Topics: Effective Gross Income

Commercial Loans and Effective Rents

Posted by George Blackburne on Wed, Apr 11, 2018

Sports ClipsYou own a four-unit strip commercial center that was 100% vacant just three years ago.  You hired a superb leasing agent, who convinced you to offer one year's free rent upon the execution of a five-year lease.  Your strip center quickly leased up, and it is now 100% leased to a liquor store, a karate studio, a nail salon, and a Sports Clips (barber shop for men).  Each unit now pays you $3,000 per month.  Life is grand.

Driving around town, you see another strip center in a decent area that is also 100% vacant.  You huddle with your superstar leasing agent.  Could we recreate the miracle?  Could we buy this vacant strip center on the cheap and lease it up?  Your leasing agent says yes.


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Because the new strip center is 100% vacant, you know that the bank will require a whopping 50% downpayment.  You propose to the bank to use your existing strip center as collateral for a $1.34 million new loan.

At first the bank commercial real estate loan officer is all positive about the deal.  Your center is 100% leased at $12,000 per month triple-net.  After a 5% Reserve for Vacancy and Collection Loss, and after a 3% Reserve for Replacements and a 6% Property Management Fee, the property's Net Operating Income (NOI) is a handsome $124,488.  Capped at 6.5%, the property should appraise $1,915,000.  Therefore your $1.34 million loan request would be 70% loan-to-value, which should be acceptable to the bank.


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But the commercial loan officer at the bank has found a problem.  Yeah, the Actual Rent on your existing strip center is currently $12,000 per month, but you had to give away a whole year's rent to convince your tenants to move into your center!  The Effective Rent for your strip center is materially less than $12,000 per month.

The Effective Rent of a commercial property is the remaining rent, after deducting any rental concessions, such as free rent periods or larger than usual tenant improvement allowances.


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So let's compute the Effective Rent for our existing strip center.  We do this by averaging the annual rent over the five year term.  In year one, the landlord received zero dollars.  In years two through five, the landlord earns $144,000 per year.  ($3,000 per month per unit times four units times twelve months in a year.)  Zero plus $144,000 plus $144,000 plus $1444,000 plus $144,000 equals $576,000.  That is the total rent over the five-year term of the lease.  Dividing $576,000 by five gives us an Effective Rent of only $1,152,000 per year!


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Therefore our strip center really isn't worth $1,915,000.  If we take off 5% for Vacancy and Collection Loss, and if we take off 3% of Effective Gross Income for Reserves for Replacement and 6% of Effective Gross Income for Property Management, we get a Net Operating Income (NOI) of just $995,904.  Capped at 6.5%, our strip center is only worth $1,532,000 - not the $1,915,000 computed above.


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Now here is an interesting question.  You're a commercial loan broker, commercial broker, or property owner preparing a Pro Forma Operating Statement for submission to the bank.  Do you use Actual Rents or Effective Rents?  A good argument can be made that you should use the Actual Rents (which are higher than the Effective Rents).  The bank and the appraiser will eventually be given copies of the leases.  Let the bank or the appraiser catch and compute the Effective Rent.  Your position could be that rents have increased since you first negotiated the leases with the free rent period and that the Actual Rents now reflect the current market.


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Commercial Loan Brokers: You Should Be Desperate To Buy Our Leads

Posted by George Blackburne on Mon, Mar 12, 2018

If you are not a commercial loan broker, you can ignore today's training article.  Simply enjoy the funny pics and think one more time about investing the bond portion of your diversified retirement portfolio into our first trust deeds yielding 7% to 12%.  With rates going up, your bond portfolio is probably getting killed.


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If you are a commercial loan broker, today's article shows you a new way to buy commercial leads from C-Loans, even if your credit score is less than 700 and/or your net worth is less than $700,000.  Here is a way for you to buy dirt-cheap commercial loan leads - even if we have turned you down in the past!


The Reward:

If you are a commercial loan broker, you should indeed be desperate to buy our commercial mortgage leads.  Why?  We just sent out a tombstone this week celebrating the 40th commercial loan closing for C-Loans by Glenn Gioseffi of Asset Backed Capital.  Forty commercial loan closings!  That's a ton of deals for the commercial loan business.


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Glenn's story shows you the path to great wealth.  Glenn started out as a lead buyer.  He bought our leads for the token fee of $1 to $9 up-front, plus 37.5 bps. to C-Loans upon closing one of our leads. 

After Glenn had closed five deals, he was added to C-Loans as a Proven Broker.  Remember the number five.  Five is the magic number.  If you buy our leads and close five deals, C-Loans will list your little commercial mortgage company on our Suggested Lender List, alongside some of the biggest banks in the country.


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But wait!  Its gets even better.  Because Glenn had already closed five loans for us, his lender score was augmented by 50 lifetime lender bonus points - 10 points for every closing.  In other words, as long as Glenn responded to every one of his leads and maintained a base lender score of 100%, he would enjoy a total lender score of 150%.  Such a score would often place him in one of the top six slots on our Suggested Lender List.  

From then on, Glenn received numerous custom-selected commercial loan leads in his email box every single day, and he didn't have to pay a dime for them up-front.  Of course, he still owed a software licensing fee of 37.5 bps. when he closed a deal.  


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Not being an idiot, Glenn dove in our leads with a passion and closed more deals.  Every time he closed an additional deal, he earned 10 more lifetime lender bonus points.  This moved him up the Suggested Lender List, so he saw even more leads.  And so on.  It was a true case of the rich getting richer.

But Glenn is a rare exception, right?  No.  Glenn merely joined this week the Over 40 Closings Club, along side Paul Elis and Jason Bengert.   Still leading the pack is Les Agisim, who last month founded the Over 50 Closings Club for C-Loans.  I'll bet Les has made over $500,000 in loan fees using our leads.  Over $1 million?  Could be.


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The Problem:

But there’s a problem.  We here at C-Loans will only allow mortgage brokers with a credit score of at least 700 and a net worth of over $700,000 to buy our leads.

Why are we such meanies?  We have been cheated sooooo often by starving mortgage brokers that we had to cut them off.  These guys don’t start out with the intention to cheat C-Loans.  You’ll recall that Lead Buyers owe us 37.5 bps. when they close one of our leads.  Sadly, when a starving mortgage broker closes a C-Loans deal, the temptation to put off paying us "until the next deal closes" is often irresistible.  And, of course, they never come back and pay us.  So we cut them off.  “No soup for you!”


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The Earth-Shattering Announcement:

Is your credit only so-so?  Is your net worth less than $700,000?  Both?  Have you applied to C-Loans to buy leads, only to be turned down?  There is, effective today, a new way to be granted the privilege of buying dirt-cheat commercial leads from

If you enter commercial loans that you find outside of the C-Loans System into, and you close two loans with C-Loans lenders, we will let you start buying our dirt cheap ($1 to $9) commercial leads.  You now have a path to the Over 100 Closings Club.



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One of your favorite real estate agents sends you a commercial loan request.  You immediately enter the commercial loan into  You immediately earn a free commercial mortgage underwriting manual.

Huh?  Free what?  A free commercial mortgage underwriting manual?  You mean I am finally going to learn all of those mysterious underwriting ratios that commercial loan underwriters use, like the debt service coverage ratio, the operating expense ratio, management factors, reserves for replacement, loan constants, and cap rates?  For free - just for entering my first commercial loan into C-Loans?  Yup.


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Hey Brain Surgeons:

You have to actually enter a real-life commercial loan into  This does NOT mean that you went onto our home page, clicked on a gray button, and filled out a little lead form, in order to get some goodie, like a Free Commercial Loan Placement Kit.  No-no-no!

This means that you have to start with Step 1 of 6 and actually submit a real deal to six C-Loans lenders.  What we're trying to do here is to show you how the submission process works.  Once you have registered on, and you have submitted your first deal, the next deal should only take you only four or five minutes to submit.

Watch, despite my admonitions, five or six brain surgeons will call or email my son, Tom, the General Manager off C-Loans, Inc., and say, "Where's my free $199 Commercial Mortgage Underwriting Manual?  I clicked on the button that said, Free List of 200 Commercial Lenders, and filled out the form."  Bona fide brain surgeons.  Ha-ha!


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Back to Our Example:

Bill Ambitious is a young residential mortgage broker.  He wants to move up the food chain to commercial real estate finance.  He lacks a four-year degree in finance or accounting, but he has completed a couple of years of junior college, his English skills are superb, he is quite presentable, if not handsome, and he is likable.

He accidentally came across the web site and discovered that it is a veritable encyclopedia of commercial real estate finance.  Not only did he read every page on C-Loans, but he also went back and read every blog article ever written by Old Man Blackburne.  (If you go to my blog, in the right-hand column, you will see a list of months and years.)  He now had almost complete command of the ratios and the lingo of commercial real estate finance, but he just lacked leads.

He applied to buy commercial leads from C-Loans, but because he was rather new to the business, his credit score was only 670 (student loans), and his net worth was negligible, the big 'ole meanies at C-Loans turned him down to buy leads.  How maddening!  Where else could he find commercial loan leads for only $1 to $9 apiece.  Unfortunately the answer was nowhere.  Hmmm.


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Then Bill Ambitious read Big George's latest blog post, and he realized that there was finally a way for him to buy leads and work his way onto C-Loans.  If only he could close two deals on and win the right to start buying dirt-cheap commercial leads!

Now Bill Ambitious was still doing a little marketing on his own.  He had the words, "Commercial Loans", prominently displayed on his business cards, his rate sheets, and his fliers.  He had also built himself a small mailing list of bankers located near his office who were making commercial loans.  He traded a list of ten of his bankers to George for George's famous, nine-hour video training course, "How To Broker Commercial Loans" ($549 retail).


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Every week Bill Ambitious printed up a cute, clean joke (he stole the jokes from George) on plain, 'ole copy machine paper.  He snail-mailed the joke to all 67 of his bankers, along with three of his business cards.  The technique worked well, and he was soon receiving four or five bank commercial turndowns every week.

But it was a lead from one of his realtors that provided his first opportunity to post a loan on  The loan was just a $100,000 loan request on a little house being used as a real estate office.  Now normally Bill Ambitious would not have bothered with a commercial loan this small; but he was electrified by the possibility of closing two loans for C-Loans.


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He entered the deal into, using the six-step process, and within minutes he got an offer from a Wall Street nonprime lender listed on C-Loans.  The deal closed.  Hooray!  He promptly notified Tom Blackburne, the old man's son who runs C-Loans, so there would be a record of the closing.  "Hmmm," said Tom.  "This lender never paid us on this closing.  Here's $50, Bill, for keeping them honest."

Four months later, Bill Ambitious, closed his second loan for C-Loans - a $1.6 million multifamily loan that he closed with a hungry Agency lender found on C-Loans.  Eureka!  Within two days of notifying Tom Blackburne of his second closing, Bill Ambitious was finally granted access to the Lender Vault on

Like a starving man finally let loose on a cruise ship buffet (my seventh grade English teacher would have loved that metaphor), Bill Ambitious pounced on the leads.  Within seven more months, Bill had his five closings (commercial loans take some time to close).  Tom Blackburne was thrilled for him, and he had Ambitious Commercial Mortgage, LLC added as a Proven Broker to the list of lenders on within an hour.  Bill received two commercial loan applications before he even went home that first night.


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Bloody Circus:

Now Les Agisim and Glenn Gioseffi are competitive men by nature.  Whenever a tombstone, announcing another closings for Ambitious Commercial Mortgage, appeared in their email box, they were happy for Bill.  At first.  But after Bill had closed 37 commercial loans for C-Loans in less than two years, they started to look back over their shoulders.  Like the chariot drivers of old, racing in the Circus in Rome, they urged their horses onward.  Who would be the first Proven Broker to found the Over 100 Closings Club?  Snap!  Crack!  Race on, my lovelies!

Did you know that a Circus was a chariot racing arena?  "Give them bread and circuses."  The classic Biblical movie, Ben Hur, was deadly accurate when it depicted bloody violence in these chariot races.  The teams were represented by colors - the Blues, the Greens, etc. - and bloody riots between the fans of the different colors were not uncommon.  In the famous Nika Riot, tens of thousands of people were killed!  The Crips and the Bloods have nothing on the ancient Romans.  "What has been will be again, what has been done will be done again; there is nothing new under the sun." -- Ecclesiastes 1:9.


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Bottom Line:

Great wealth potentially awaits you - if you can get approved to buy commercial loan leads from C-Loans.  Look for any excuse to enter a commercial loan request into  If you can close just two of them, the future is so bright that you gotta wear shades.


A Final Word on Proven Brokers:

In my training classes, I teach my students to never take their commercial loans to another broker.  Broker-broker deals almost never close.

I hereby make one exception to that general rule.  Your chances of closing a deal with one of our Proven Brokers are about ten times higher than with one of our garden-variety, sleepy, indifferent banks.

These Proven Brokers have a special relationship with a handful of hungry banks that allows them to get deals "on the bubble" approved.


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Whatever Happened To Our Friend, Bill Ambitious?

Old Les Agisim beat him to the finish line, but Bill Ambitious ended up making FAR more money.  You see, Bill Ambitious bought my four-hour course, How To Find Your Own Private Mortgage Investors.  In that course, Bill had noted that I taught him to collect the contact information of every wealthy borrower he met.  Bill did that religiously, whether or not the loan closed.  After four years, Bill sent an individually word-processed letter to each of the accredited investors that he had met as a borrower.

Dear Dr. Allen:

Back in May of 2019, we had the pleasure of working on a $2.3 million first mortgage for you on your shopping center in Columbus, Ohio.  Today I am writing to you about investing in our 10% first mortgage investments.

The response was overwhelming, and Bill now services $126 million in hard money loans for his 1,983 private investors.  His loan servicing income is currently $255,000 per month, whether he closes a new loan or not.  He is able to take his lovely bride of 16 years, along with their four beautiful children, on cruises and incredible vacations at least four times per year.

This is all because he closed two loans using  And folks, we have been in business since 1980.  My two sons, George IV (33) and Tom (32), will help Angela Vannucci - our heir apparent - to continue the legacy.

You really-really-REALLY want to be special friends with Blackburne & Sons / C-Loans, Inc.  Blackburne & Sons was one of the few lenders that was in the market, making new commercial loans, every day of the Great Recession.


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Commercial Loans and Franchise Financing

Posted by George Blackburne on Tue, Mar 6, 2018

Franchises.jpgOne expert recently described buying a franchise as getting a 30-yard head start in a 100-yard dash.

Investopedia defines a franchise as follows:  A franchise is a type of license that a party (franchisee) acquires to allow them to have access to a business's (the franchiser's) proprietary knowledge, processes, and trademarks in order to allow the party to sell a product or provide a service under the business's name.


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Few buyers of franchises are multi-millionaires.  They don't have hundreds of thousands of dollars to simply plop down in cash.  Therefore they need franchise financing to acquire the franchise.  Do you happen to need a franchise loan?  Are you a mortgage broker?  Does one of your clients need a loan to buy a franchise?


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There is a special Federal government program to help you purchase the franchise business of your deams.  Below are just a few of the many popular franchises that would qualify for this special Franchise Financing Program:

  • Firehouse Subs
  • Burgerim
  • Jimmy John's
  • Papa John's Pizza
  • Subways
  • Ace Hardware
  • Jiffy Lube
  • Minute Maid
  • The UPS Store
  • Sonic Drive-In Restaurants
  • Great Clips
  • Sport Clips
  • Servpro
  • Culver's
  • Supercuts
  • Anytime Fitness
  • Budget Blinds
  • Snap-On Tools
  • Valvoline Instant Oil Change
  • Smoothie King
  • and hundred and hundreds more


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These special Franchise Financing Program loans are insured by the Federal government, in a manner very similar to the Department of Agriculture's Business and Industry Loans.  These franchise loans are fully-amortized over 7 or 25 years, depending on whether or not there is real estate involved.

The interest rate on these Franchise Financing Program loans is VERY favorable, largely due to the fact that a large portion of the loan is guaranteed by the Federal government.  When you consider the fact that a franchisee buying his first business, and hence the loan is a start-up loan, the interest rate is amazing.


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The thing about this Franchise Financing Program is that the lender making the loan - usually a bank - still has to retain the uninsured portion of the loan.  In other words, the bank has to keep a significant amount of skin in the game.  Approval is not automatically guaranteed.

But if one bank turns you down for a Franchise Financing Program loan, don't give up.  The next bank might very well approve your deal.  Some banks are all about the franchise.  They like certain franchises but not other ones.


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Some banks are all about the borrower's good credit, while other banks will accept credit scores in the low 600's.  Other banks focus on the collateral, while some non-bank lenders do not even require any collateral.  So don't take a single turn-down as proof that your Franchise Financing Program deal cannot be financed.

The borrower will always need at least 20% down to buy his first franchise.  That is chiseled in stone.  But some Franchise Financing Program lenders will let a franchisee open a second store with as little as 10% down.  Others will allow a franchisee to open its second store in less than twelve months!


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If you need a loan to buy a franchise, we encourage you to click on one of the red buttons scattered throughout this article.


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Commercial Loans and the Old Syndication Industry

Posted by George Blackburne on Fri, Mar 2, 2018

alligator-2.jpgThis article should be particularly interesting to accredited investors, commercial brokers (realtors), and commercial mortgage brokers because it describes a way for you to find the Holy Grail of real estate - equity money.

It is sometimes hard to fathom a world where such financial industry giants, as Lehman Brothers, Home Savings of America (once the largest S&L in the country), EF Hutton, Paine Webber, and Countrywide Financial, have now all either gone bankrupt or have been absorbed by a larger company into non-relevance.


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When I was new to the mortgage business, Home Savings was like the Roman Empire.  Their enormous branch offices - each an architectural landmark like the Parthenon - were everywhere.  They're gone now?

Billions were spent just marketing the names of these companies.  "When EF Hutton speaks, people listen."  Every day for for decades, and during every pro football game, you would hear their commercials.  Now the name, EF Hutton, is just a distant memory.


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There was another financial empire, a veritable colossus, that you may never have heard about - the syndication industry.  Was it a big industry?  Did they make a lot of money?  Think hundreds of billions of dollars worth of investments.  Think of an that was ten times larger than the entire hard money business.  Think big mansions, fast cars, and expensive parties.  Syndicators were at the top of the financial food chain.

But what is a syndicator?  A syndicator is a broker-dealer who puts together groups of wealthy private investors, known as accredited investors, to buy and hold commercial real estate.  But what is a broker-dealer?


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A broker-dealer (think: stock broker) is a person or firm in the business of buying and selling securities, operating as both a broker and a dealer, depending on the transaction. The term broker-dealer is used in U.S. securities regulation parlance to describe stock brokerages, because most of them act as both agents and principals (investing with their own dough).  A brokerage acts as a broker (or agent) when it executes orders on behalf of clients, whereas it acts as a dealer, or principal, when it trades for its own account.

Broker-dealers are heavily regulated by the NASD, the National Association of Securities Dealers.  Hence their downfall.  By the time the Syndication Crisis was over, on the order of 70% (90%?) of all broker-dealers were out of business (and some were facing jail time).


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It all started in the late 1970's, before the Reagan Administration.  Back in the day, the top tax rate was 90%!  But this tax rate was deceiving.  There were all sorts of tax shelters, where a taxpayer could lower his tax rate by investing his dough where the government wanted.  One of these tax shelters was multifamily and commercial construction.

Under the tax code prior to 1986, a doctor would invest several hundred thousand dollars into a limited partnership, put together by a syndicator, which would buy an apartment building using leverage; i.e., some bank would finance 70% of the purchase.


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This leveraged investment would intentionally produce a paper loss every year, largely due to depreciation.  The early limited partnerships were properly structured.  The early syndicators used just the right amount of equity (dough from the doctors).  While there was a paper loss, there was no actual out-of-pocket loss, called an alligator, for the investors.

A typical doctor would then take his $50,000 paper loss and use it to reduce his taxable income from $400,000 per year to just $350,000 per year.  Since the top tax rate was 90%, the doctor saved 90% of that $50,000 reduction in taxable income.  All was good in the world because the Federal government was trying to encourage the construction of new apartment buildings.

And the syndicators got rich, rich, rich.


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But like most manias, things got out of hand.  Eventually so many apartment buildings were constructed that they became over-built in some areas.  To make matter worse, syndicators began to structure deals with super-sized losses.  Syndicators would assemble syndicates with so little equity (doctor money) and with so much debt that the deals intentionally had a negative cash flow.  Yikes. 

These 1984 and 1985-era syndicates had large negative cash flows that had to be fed by assessing the doctors every month to feed the alligator.  When the general partner of a limited partnership - or modernly the Managing Member of a limited liability company - has to ask the investors for more cash, it is called a cash call.  Back in 1984 and 1985, the doctors didn't mind monthly cash calls because the negative cash flows produced super-sized tax shelter losses.  

"Would you like me to super-size your alligator?"  Ha-ha!


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When President Reagan was elected, he led a charge to change the U.S. tax code.  Tax shelter investments were no longer going to where they would produce the best benefit for the economy, but rather they were going into real estate deals where the real estate was hardly needed.

The Tax Reform Act of 1986 radically changed the commercial property market.  No longer could wealthy investors shelter their active income from employment with passive losses from real estate.  Suddenly one of the legs propping up commercial real estate values was kicked out from the under the industry.  "If I can't use the building as a tax shelter, then dump the dang thing!  I want out."


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Commercial real estate values then plunged by 45%.  Remember that number - 45%.  When commercial real estate crashes, it falls exactly 45% and not a penny more.  I have seen commercial real estate crash exactly 45% three times in my career - the S&L Crisis (includes this tax change), the Dot Com Crisis, and the Great Recession.  Remember this during the next crisis, when the Chicken Little's of this world are shouting that the sky is falling.  The time to buy is when blood is running in the streets, when commercial real estate has fallen 45%.

But the General Partner of the limited partnerships, the broker-dealer that syndicated the deal, couldn't sell the property.  After a 45% decline in commercial real estate values, the partnership owed far more on the property than it was worth.


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And thing got worse.  Under the old limited partnerships, the general partner was personally liable for the debt.  Holy crapola!  Guess who was the general partner?  The syndicator, the broker-dealer who assembled the syndicate.  

"But wait, weren't the doctors still liable for their cash calls?"  Maybe in theory, but in real life they all told the syndicators to go pound sand.  The banks foreclosed and obtained huge deficiency judgments against the general partners.  Facing countless collection actions from banks, the broker-dealers then filed for bankruptcy, one after the other.


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When Europeans landed in the New World, they brought the small box virus.  There were 25 million Native-Americans in North America.  About 21 million of them died of smallpox or other European diseases, for which they had no immunity.  Bankruptcies swept through the broker-deal industry in the late 1980's and early 1990's, just like a smallpox epidemic.  Virtually every small broker-dealer in the country was wiped out.

The syndication industry was suddenly gone - poof!  An industry involving hundreds of billions of dollars simply disappeared.  And it never came back.

Blackburne & Sons Realty Capital Corporation is returning to the syndication business. We have already closed a dozen small deals, and we made an offer on another Sacramento purchase this week.  Unfortunately we are focusing strictly on the Sacramento area right now, so we are not quite ready to ask for deals.

The deals we are doing are 100% all-cash deals.  Our deals are capital preservation deals, where there is zero debt.  The idea is to create a "partnership" (more precisely a new LLC) that can withstand just about any financial crisis.

Participation right now is being limited to our trust deed investors and those accredited investors who have signed up for our trust deed distribution list.  The best way to start seeing these deals - assuming you are an accredited investor - is to sign up for on trust deed distribution list.


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Topics: Syndication