Commercial Loans Blog

Close More Commercial Loans Using a List of 2,000 Commercial Lenders

Posted by George Blackburne on Sun, Apr 27, 2014

BanksAt the end of this article, I am going to make you the most favorable offer of your life.  It's like Jennifer Anniston asking you if it would okay if she kissed you.  Is this a trick question?

Placing a commercial loan is like finding a wife for your best friend.  You can introduce your buddy to a lovely lady, who is a solid 8 to your buddy's 6.  She's one year younger, two inches shorter, slender, and the same religion as your buddy.  They go out on a date, she digs him, and ... he's just not feeling it.  Go figure.


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Placing a commercial loan can be very similar.  You take a small commercial loan to a small commercial bank, located just two miles from the subject property.  Your borrower has excellent credit and a net worth 1.35 times the size of the commercial loan amount.  (The Net-Worth-to-Loan-Size Ratio says the borrower's net worth must be at least as large as the loan amount.) But the bank's just not feeling it.

The solution?  Don't be dependent on just five or six banks.  If you want to close more commercial loans, develop a large databank of banks.  Then, when you are trying to place a commercial loan, you can quickly offer it to two-dozen different banks at the same time.  The first bank to step up wins the commercial loan.

I own Blackburne & Sons (est. 1980), a hard money commercial mortgage company.  We don't try to keep track of which of our 1,200 private mortgage investors has money to invest today.  We don't try to remember which of our investors would invest in a mobile home park in Fresno, California.  Instead, we blast out the Investment Bulletin to all 1,200 of our investors.  The first 15 investors to step up and commit to participate get the commercial loan.

Banks can find all kinds of reasons not to approve a commercial loan.  They could be fully-invested.  They could be over-concentrated in mobile home parks, even though they love them.  The commercial bank could have just taken a loss on a mobile home park commercial loan, and now the bank is especially leery about lending on mobile home parks.  Your loan officer at this particular bank could be a complete wimp in front of Loan Committee.  "God has never stopped inventing new and unique ways to kill commercial loans." -- George Blackburne III (1982)

Do you know why I get to play golf four times per week, when its not snowing in frigid Indiana?  I never rely on a handful of commercial lenders or private investors to fund my commercial loans.  I always put my commercial loans out for sale to a huge list of commercial lenders and/or private investors.  "I'm sorry, Mr. First-Time-Investor, but that deal is already sold out.  I'll be happy to put you down as a backup, but the truth is that you're the 7th backup.  You probably won't get into this particular commercial loan."  Talk about the opposite of high-pressure sales tactics ...

Okay, let's talk about your needs.  You need to have a huge databank of commercial lenders to whom to offer your commercial loans.

I'll trade you just one commercial banker making commercial loans for a list of 2,000 commercial lenders.  In 17 more seconds, Jennfier Anniston is walking away and kissing the next guy she sees.  (She is trying to make her boyfriend jealous, and if she accidentally meets a good kisser in the process ... after all she's not married.)

I'm not asking you to introduce me to your best banker.  Your 5th best banker will work just fine.  Sixteen - 15 - 14.

"But George, if I tell you about a banker, every broker on the internet will be able to find him."

Of course C-Loans, Inc. will solict this banker to join the C-Loans System as a lender, but did you know that only one out of every twenty bankers that we solict ever joins C-Loans?  And the process usually takes at least two years.  The chances that you are ever going to lose a commercial loan because you introduced us to your fifth best banker is something like one in several million.

Here's the real reason why we are willing to trade 2,000 commercial lenders for your one lousy little banker (your fifth best banker), who is only making commercial loans in the three counties surrounding the eighth largest city in Oklahoma:  We solicit these bankers for their turndowns.  "I'm sorry, Mr. Jones, but your commercial loan is too large - too small - too far away for us.  Have you tried entering your commercial loan into"

Jennifer Anniston is getting ready to walk away.  5-4-3 ...

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Topics: Two thousand commercial lenders

Much-Lower-Rate Commercial Loans From Blackburne & Sons

Posted by George Blackburne on Tue, Apr 22, 2014

bridge loans goldBlackburne & Sons is announcing a new commercial loan today - a bridge loan with a much lower interest rate.  To understand how earth-shattering (earth-shattering?) this is, you need to understand a little bit about economic history.

You will recall that a permanent loan is a first mortgage commercial loan with a term of at least 5 years and with at least some amortization.  Conventional commercial loans are usually amortized over 25 years, but they balloon after just five, seven, or ten years.  If the property is older than 40-years-old, many banks and other commercial lenders will amortize such permanent commercial loans over just 20 years.

Historically, Blackburne & Sons has only made permanent commercial loans.  There was an important reason for this.  We knew that a deflationary depression was coming, and we were anxious to book long-term loan servicing rights.

"Okay, George, but what's so special about loan servicing rights?  You're always harping on the fact that the real money in the commercial loan business is in loan servicing fees.  What's so special about loan servicing income?  It sounds like a lot of work to me." 

Loan servicing income is dreamy.  When Blackburne & Sons books a permanent commercial loan, we might charge the borrower 12.9%.  We then sell off this commercial loan at just 11.0% to a syndicate of private investors that we assemble.  We then keep that 1.9% spread as our loan servicing fee.

Its a lot more work for us, but we actually assemble a new syndicate of private investors for each new commercial loan that we make.  Don't worry about speed.  After 33 years in the commercial loan business, we can syndicate a new commercial loan in 24 hours without making a single outgoing phone call.  That's how ravenous our 1,500 private commercial loan investors are for our deals.


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Although we manage two large mortgage funds, but I am not a big fan of mortgage funds.  Large commercial loan mortgage funds always fail during real estate depressions.  We seem to have one of these commercial real estate depressions about once every eight to twelve years, and typically commercial real estate values fall by 45% during such depressions.

Having a diversified portfolio of commercial loans doesn't help when the value of the collateral falls by 45% as to every single loan.  It's like a life insurance company having a diversified portfolio of 2,000 different life policies, but every insured is a passenger on the Titantic.

By the way, did you know that Blackburne & Sons was the only commercial hard money lender that was actively making commercial loans every single day of the Great Recession?  Almost every other commercial hard money lender had been funding their deals using a commercial loan fund, and their funds were now facing large losses and massive redemptions.  In contrast, we were not relying a commercial loan fund.  We just kept syndicating individual commercial loans - albeit at higher rates because of the fear in the marketplace.

Okay, so the year is 2000.  I am a serious student of economic history.  I know in my gut that the mother of all deflationary real estate depressions is coming.  Therefore I refuse to make bridge loans.  Instead I make permanent commercial loans that give me long-term loan servicing rights.  By the time the Great Recession hits, we have almost $45 million in long-term commercial loans in our portfolio.  A 1.9% annual loan servicing income on $45 million produces over $70,000 per month in passive loan servicing income - money that comes in every month whether we arrange a new loan or not.

It was on this residual income that our company survived the Great Recession.  It is for this reason I think that commercial loan servicing income is the greatest thing since sliced bread.

It's time to circle the wagons and to get the point of this economic history lesson.  The Great Recession is over.  I, George "The Sky is Falling" Blackburne III, have swung from being the biggest bear in the industry to the most confident bull in the industry.  The future is wonderfully bright.  The best economic years of our careers are immediately ahead of us.

Therefore Blackburne & Sons is now happy to make bridge loans, and our low rates will rock your world.

If you have a handsome California property, we will now make the following bridge loan:

Interest Rate:  7.9% to 8.9%

Loan Fee:  Two points

Term:  One year

Prepayment Penalty:  None

We love the primary markets in Texas (Austin, San Antonio, Houston, Dallas).  Properties in other states may be at a slightly higher rate.

You will also find us more aggressive in terms of loan-to-value.  We might consider 75% loan-to-value on a purchase money deal to a good-credit borrower if he was putting down cash-to-loan.  Bottom line:  Blackburne & Sons is hungry for bridge loans.

Got a potential deal?  Please call:

Tom Blackburne (my son)

Alicia Gandy (called the Loan Goddess because she's our biggest producer)

Desmond Stoll (called Loan Atlas because he'll move mountains for you)

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Topics: bridge loans

How to Get a Commercial Loan on a Low-Cap-Rate Commercial Property

Posted by George Blackburne on Sun, Apr 6, 2014

ChinatownPlacing a commercial loan on a very desirable commercial property is often problematic.  When lots of commercial investors compete to own a well-located property (think of a well-maintained but small apartment building within walking distance of Chinatown), the prospective buyers bid up of the price.  This drives down the cap rate, and the purchase money commercial loan simply does not cash flow.

For example, most small, average-quality, apartment buildings in average locations sell at cap rates of around 5.5% to 7.0%.  You may recall that a cap rate is just the return on your money (think of it like an interest rate) you would earn if you bought an investment property for all cash.

But what if the small apartment building is within walking distance of Chinatown in any major U.S. city?  The Chinese are admirable savers, and many Chinese immigrants do not drive.  Therefore being within walking distance of Chinatown is a very desireable feature for an apartment building.  Thrifty Chinese real estate investors would bid on that property like hungry sharks.


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If the apartment building was generating $50,000 per year in Net Operating Income (NOI), the first buyer might offer $800,000 - which works out to a 6.25% cap rate, a fair price for an average quality apartment building in an average area.  But then some other hungry investor might offer $875,000.  "I'll pay $975,000!" shouts another investor.  "No, I'll pay $1,250,00!" shouts another.  Up and up the bidding goes, until some investor closes out the bidding at $1,428,000 - which works out to a cap rate of just 3.5%.

Then the winning investor goes to the bank and applies for a commercial loan.  The loan officer at the bank, trying to underwrite the commercial loan, takes the $50,000 NOI and divides it by a 1.25% debt service coverage ratio.  This produces a Net Income Available for Debt Service of just $40,000.  Plugging $40,000 per year into his financial calculator, at a 5.0% interest rate and with a 25-year amortization, produces a maximum allowable commercial loan of just $564,000.

Now think about this for a moment.  The purchase price is $1,428,000, and the maximum allowable new commercial loan is just $564,000.  This means that the new buyer would have to put down a whopping $864,000.  That works out to 60% down!  This is because the property will only carry a new commercial loan of 40% LTV.

Small apartment buildings in Chinatown are not the only type of commercial property that will only carry a very small commercial loan.  Here are some more commercial properties that typically sell at a very low cap rates:  office condo's, industrial condo's, small commercial-investment properties that are affordable to a great many new commercial real estate investors, commercially-zoned homes on busy strips used as office buildings, small office buildings located close to a courthouse (attorneys love them), apartment buildings located near public transportation, and extremely well-located commercial properties, such as the grand buildings located near Central Park in New York City.

So how do you get a decent-sized commercial loan on such a property?  One way is to get a preferred equity "loan" from Blackburne & Sons.  Even though our preferred equity "loan" will not cash flow, we will happily add our preferred equity "loan" on top of a new bank commercial loan, in order to bring the capital stack up to 75% loan-to-value.  This means the buyer only has to put 25% down.

Let's return to our example above.  The bank will only make a new commercial loan $564,000 (40% LTV).  Blackburne & Sons will place a $507,000 preferred equity "loan" behind the bank's new commercial loan, bringing the entire capital stack up to 75% loan-to-value.  This means the buyer only has to put 25% down.

If you have a commercial loan request on your desk that seems to fit, you can apply for a preferred equity "loan" immediately by clicking on this link.

You may have noticed that I have always placed the word "loan" in quotation marks whenever I referred to a preferred equity "loan".  That is because preferred equity is actually equity capital, rather than a loan.  For a terrific whitepaper on preferred equity, written in simple layman's English, please click the gray button below.

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Topics: low cap rate properties

Commercial Loans on Politically Incorrect Properties

Posted by George Blackburne on Wed, Apr 2, 2014

Adult BooksCommercial loans on politically-charged properties are difficult to place.  Examples of politically-charged properties include X-rated bookstores, marijuana cultivation facilities, abortion clinics, gambling casinos, gentlemen's clubs, and gay nightclubs or resorts.

Most commercial banks would never make a commercial loan on such a property.  Banks are very sensitive about their image, and they just can't risk an adverse public reaction or some bad press in their local market, just to earn a little extra interest on such a commercial loan.

The issue of commercial loans on politically-charged properties reminds me a lot of the boycott on krugerrands and South African stocks during the 1970's and 1980's over the issue of apartheid.  Many large American mutual funds sold their South African stocks in protest, causing the South African stock market to remain depressed for two decades.

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The krugerrand - the one-ounce gold coin minted by South Africa - sold for a $10 to $25 discount to the American Double Eagle or the Canadian Maple Leaf, even though it contained the exact same amount of gold.  Twenty years after the repeal of apartheid, the krugerrand still sells at a small discount to the other gold coins.

Nevertheless, in the 1970's and 1980's many mutual funds chose to ignore the public stigma of South African stocks.  If a South African stock was fundamentally sound and a good value, they would still buy the stock.  A social agenda was not allowed to interfere with a sound investment decision.

At Blackburne & Sons, we do not have the luxury of advancing some social agenda.  Our first loyalty has to be to the safety of our investor's money.  When your rates are 4% to 5% higher than most commercial banks, good commercial loans are hard enough to find as it is.  We simply have to jump all over any good commercial loan that will accept our higher interest rates.

My own private money commercial mortgage company will therefore happily make commercial loans on politically-charged properties, such as gentlemen's clubs and adult bookstores.  In fact, we have financed about 15 gentlemen's clubs over the years, and these commercial loans have paid well.  My view is that an investor can always count on the sun rising and on heterosexual males enjoying the shapely figure of an attractive woman.  We just closed a commercial loan this month on a restaurant with topless waitresses.  I was shocked - shocked I tell you - to observe that this business had been making good money for over 30 years.

Legalized marijuana is a new phenomenon.  Therefore we have yet to make a commercial loan on a marijuana cultivation facility, but we would definitely consider such a commercial loan.  Commercial loans on gay bars, nightclubs, or resorts?  Well, is it making good money?  If so, we would definitely consider making a commercial loan on such a property.

Bottom line:

  1. Certain commercial properties are politically-charged, and it is difficult to place a commercial loan on such properties.
  2. Examples of politically-charged properties include X-rated bookstores, marijuana cultivation facilities, gentlemen's clubs, abortion clinics, gambling casinos, gay bars, gay nightclubs and gay resorts.
  3. Conduits do not make commercial loans on politically-charged properties.
  4. Commercial banks don't not make commercial loans on politically-charged properties.
  5. Would a credit union make such a commercial loan?  I dunno.  It's worth a few calls.
  6. Hard money commercial lenders, like Blackburne & Sons, finance most politically-charged properties.
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Topics: politically-charged properties