Commercial Loans Blog

Lots of Little Commercial Loan Lessons

Posted by George Blackburne on Thu, Feb 26, 2015

In-line_RetailQuestion:  What is in-line retail space?

Answer:  Think of a neighborhood shopping center, without the grocery store anchor tenant.  In-line retail space is just two to six (or more) retail spaces, arranged in a line.

"But George, what's the difference between in-line retail space and a garden variety strip center or a mini-mall (the term used in Southern California)."

In-line retail space does not have to be on a busy commercial strip (thoroughfare).  In-line retail space can be set back from, or even perpendicular to, the nearest busy strip.  In-line retail is often shadow-anchored by some big-box retailer, like a Wal-Mart or a large grocery store.  Shadow-anchored means that a major retailer is located nearby, which draws the customers, but the small retail space in question is not located on the same parcel as the major retailer.

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Question:  What is senior stretch financing?

Answer:  Instead of a first mortgage and a mezzanine loan "behind it", the lender makes just one loan, priced similarly to the blended rate of the first mortgage and the mezzanine loan.  (My thanks to Michael Hoffenberg, Founder & Managing Principal, of Trevian Capital for this good explanation.)

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Here's a good marketing tip:  Lender turndowns are a great source of referrals.  "I'm sorry, sir, but Bank of Montana can't do this deal; but you might try Bob Smith over at Rocky Mountain Funding.  His number is..."

To be even more effective - and this is the point of this mini-lesson, you should market to the companies that are spending a lot of dough on marketing.  After all, they're the ones who are getting all of the leads, due to their marketing.

So if you see that a bank, credit union, or hard money lender nearby that is advertising for commercial loans, be sure to call them or visit them and solicit them for their turndowns.  Because of their heavy marketing, they will have lots and lots of turndowns for you.

Then be sure to follow up.  If I were a one-man commercial mortgage shop in Billings, Montana, I would make it a point to send by snail mail a funny joke or cartoon to the banker at Bank of Montana every week, along with two of my business cards.  "But George, I sent him two cards last week," you say with a slight weenie-whine in your voice.  "Well, then send him two more... and then two more."  The banker opens your envelope.  Inside he finds a hilarious political cartoon or a cute, clean joke printed out on plain copier paper, along with two of your business cards.  He knows what you want.

And it goes without saying that the expression, "Commercial Mortgages", shows up on your business card, right?  Right?  Helloooo?  You better fix that fix that right away. 

 

Dude_No_Thanks

 

Suppose your client has a balloon payment coming due, and the banker swears that he is going to start foreclosure on March 10th if the loan isn't paid off by then.  In real life, if you show him a Loan Approval Letter from Blackburne & Sons, 99% of the time he will back off long enough for us to close the loan.

We charge nothing to prepare a Loan Approval Letter because we are happy to serve as a backstop to the bank that has been dragging you out for months.  Why?  Because we know that at least 40% of the time the bank will leave you standing at the altar looking stupid.

 

Apply For a Commercial Loan to Blackburne & Sons

 

Question:  Who out there remembers what a mezzanine loan is?

Answer:  A mezzanine loan is a loan secured by 100% of the membership interests (think of them like stock certificates) in the LLC (think of a LLC like it was a corporation) that owns the property.  If you own 100% of the membership interests (100% of the stock) of the LLC (corporation), then you own the building.

Why would a commercial lender bother to make a mezzanine loan rather than a second mortgage?  Because membership interests (think stock certificates) are personal property, not real estate.  You can attach (foreclose on) personal property in a matter of days.  If you are 10-days late making your car payment, you could walk into McDonalds and find your car has been towed away just five minutes later.

By the way, my first job was as a credit manager for a finance company, and I got to ride along with the repo man when we popped cars.  What a rush of excitement because it was dangerous!

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Question:  How large are mezzanine loans?

Answer:  Mezzanine loans are usually larger than $5 million, and they are usually behind either conduit first mortgages or life company first mortgages of at least $10 million.  Mezzanine loans are the province of the Big Boys doing very, very large deals.  

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Question:  Do mezzanine lenders ever make construction loans?

Answer:  Mezzanine lenders do not actually make construction loans, but they will make mezzanine loans behind big commercial construction loans.  In fact, whenever you see some skyscaper being built these days, you can bet that some mezzanine lender probably made a mezzanine loan behind that construction loan. 

The reason why is because commercial construcion lenders really got clobbered in 2008.  While commercial construction lenders - almost always banks or syndicates of banks - will, in theory, lend up to 80% loan-to-cost, bankers today are still traumatized by the losses they suffered in construction lending during the Great Recession.  On the really large construction projects, the ones larger than $40 million, the bank will normally not exceed 70% of cost.

Very few developers have the cash to contribute $12 million (30% of the cost) of a $40 million project.  Therefore, the developer goes to a construction mezzanine lender and has him contribute 20% of the total cost ($8 million).  The construction lender contributes 70% of the cost ($28 million), the developer  contributes 10% of the cost ($4 million), and now you have the required 100% of the cost ($40 million).

 

Like_Daddy

 

Learn anything today?  If so, I am very grateful for each re-Tweet, each Facebook share, and each LinkedIn and Google+ atta-boy.

If you are new to this blog, and you like the idea of getting three or four training lessons in commercial real estate finance every week, please fill in your email address, below my rump-ugly picture, on the right.

Please don't forget that C-Loans also places business loans not secured by real estate.  This includes unsecured business loans, equipment loans, leases, accounts receivable financing, factoring, inventory financing, and asset-backed lines of credit.  The reason why you want to start brokering business loans is because they close in less than 12 days.

 

Business Loans Not Secured By   Real Estate - Unsecured or Secured 

 

Surely you have met at least one banker who makes commercial real estate loans.  I'm offering to trade you over 2,000 bankers for the contact information on just one more.  2,000 for 1?  Hellooooo?

 

Free Directory of Two Thousand Commercial Real Estate Lenders

 

When I go to trade shows, it is rare when several practicing commercial mortgage brokers don't walk up to me and thank me for my 9-hour video training course, How to Broker Commercial Mortgage Loans.  This course covers marketing, underwriting (lots of ratios), packaging, placement, and fee collection - all for a lousy $549.  It also now includes my 7-hour audio course, Intermediate Commercial Mortgage Finance.

 

Commercial mortgage training

 

Something has happened recently.  Years ago I couldn't get the hoity-toity loan officers working at the lenders who made the really large commercial loans to join C-Loans.  Now, after 1,000+ closings, they are becoming believers.  C-Loans is no longer just a portal for small (less than $5 million) commercial loans.  It can now truly handle commercial loan requests of $20 million to $200 million.

One more thing thing:  Every time you use C-Loans, you will be be shown a different set of suitable lenders.  Some loan officers will be aggressive and competent.  Others will be lazy and worthless.  You will be able to tell them apart by their lender score. Pay attention to their lender scores!!!

 

Submit Your Loan to 750 CommercialLender

 

If you have a real estate web site, and if you don't have a link to C-Loans on it, wake up.  No.  Don't wake up.  Go to sleep.  We once paid a referral fee of $21,250 to Alan Dunn of Spydercube, and he was asleep when the borrower clicked on his link.  Imagine making a $21,250 referral fee in your sleep.

 

Earn a $21,250 Referral Fee  In Your Sleep

 

About 18 months ago I wrote an excellent online course about marketing for commercial mortgage loans.  Just $199.

 

Click me

 

Nobody listens to me.  For the 212th time, "The real money in the commercial mortgage business is in loan servicing fees."  We have so many private investors clamoring for our mortgage investments that we recently increased our loan servicing fee from 1.9% annually to 2.9% annually.  In other words, we earn $29,000 per year for collecting 12 monthly payments on a single loan of $1 million.  You could close four loans per year and play golf the rest of the time.

 

Become a Hard Money Lender

 

How about if I pay you money?  I'll give you the free training course of your choice and pay you $250 every time your banker closes a loan for C-Loans.

 

Get Paid To Bring  Us Bankers  

Topics: Mini-Lessons

More Fancy Commercial Loan Business Terms

Posted by George Blackburne on Sat, Feb 21, 2015

Structured_FinanceEven though I have been in the commercial mortgage business for 35 years now, I still learn new commercial real estate finance (CREF) terms every month.  Here are some CREF terms that I've learned recently:

Dequity - Typically the maximum loan-to-value for commercial mortgage loans is 75% (80% LTV for multifamily).  Typically the maximum loan-to-cost ratio for commercial construction loans is 80%.  If the sponsor / borrower / developer needs more capital than that, he has to raise equity.  Equity is typically very expensive - in the range of 12% to 24% annually.  Dequity is slightly cheaper equity that is structured as debt.  I'll explain this in more detail below.

Equity is the the cash downpayment, prepaid costs (for example, architectural and engineering fees), cash contribution, and/or the equity in the land that the sponsor contributes to satisfy the lender that there is enough of a cushion in the deal to protect the lender from loss.  The equity investor is the first guy to lose money if the deal goes South.  The equity owner is therefore known as the first-loss piece.    

Carried Interest or Promote:  In the hedge fund* world, the sponsor is the guy who raises the dough and manages the fund.  He typically earns a management fee of 1% to 2% annually, plus a piece (often around 20%) of the investors' profit.  This piece of the the profit is known as the carried interest or promote.  

*Hedge Fund - A hedge fund is an investment fund that is exempt from many of the legal requirements and heavy costs of registration with the SEC because ALL of the investors are accredited investors (filthy rich guys).  I put an asterik (*) in front of the word, "hedge fund", because the experienced commercial mortgage broker will be very leery about working with any commercial mortgage company that calls itself a hedge fund.  A big percentage of the time, they will either be rookie-blowhards or flat-out advance fee scammers.  Guys claiming to be merchant bankers are equally suspect.  Ignore my warnings at your own peril.

 

Restraint

 

Above I described dequity as equity that is structured as debt.  Let me give you an example.  Suppose a developer wants to build a speculative or "spec" office building.  A construction project is considered speculative or spec if there is no pre-leasing.

The total cost of the project is $10 milllion, and construction lender - almost always a bank - will only go 80% loan-to-cost.  The bank will make an $8 million construction loan.

The developer therefore will have to contribute $2 million in equity.  He paid $400,000 cash for the land, but he got it rezoned from agricultural to office use (an amazing feat of politics).  Everyone agrees that with this zoning change - a real value-added accomplishment - the land is now worth $850,000.  The developer paid $50,000 to the structural engineer and $100,000 to the architect (prepaid expenses), so he has $1 million in total equity in the project ($850,000 + $50,000 + $100,000).

But he needs another $1 million in equity, so he approaches a broker-dealer that specializes in raising equity dollars for developers.  The broker-dealer agrees to raise the $1 million for him, but the broker-dealer warns the developer that the money will be very costly - around 22% annually.

For legal reasons (less reporting requirements), the broker-dealer structures the deal as a mezzanine loan.  You will recall that a mezzanine loan is similar to a second mortgage, except that the security for the loan is not a mortgage on the property, but rather a security interest (think of a security interest like a lien or mortgage on personal property - aka - chattel mortgage) on the membership interests of the LLC that owns the property.

Phew!  Lost?  Don't give up.  A mezzanine loan is simply like a loan against the stock of a corporation that owns a property.  If you own the 100% of the stock of the corporation, then you own the building.

Why go through the agony of all these fancy terms and exotic instruments?  Because it can take 18 months to foreclose a mortgage on a property in many states.  On the other hand, the finance company can repossess your car in a week, if you miss a payment.  Why?  Because the car is personal property, not real estate.  Miss a payment - bam!  You pull into a McDonald's.  When you come back six minutes later with your burger, your car is gone-girl.

This is why the Big Boys making loans at the top of the capital stack make mezzanine loans.  Late on a payment?  Bam!  Gone, girl.

 

PortaPotty

 

Remember, we are melting your brain with all of these fancy terms, just to define dequity.  Now normally mezzanine loans on standing properties (much less risky deals) only cost around 8% to 10% interest.  Here the broker-dealer is charging us on the order of 22% interest.  Now the coupon rate (note rate) might only be 8%, but the lender is also charging an 8 point exit fee, plus a profit participation (share of the profits) of 20%.  Put them all together, and the lender earns his required 22% internal rate of return (IRR).  Ouch.

By the way, an exit fee is merely a "prepayment penalty" that is owed, whether the loan is paid off early, exactly on time, or late.  There is no escaping it.

Okay, okay, don't melt.  We're finally there.  You cursed child.  I'm melting. 

Dequity is equity money that is structured as incredibly-expensive debt.

If you enjoyed this article, I really do appreciate the re-Tweets, Facebook shares, and LinkedIn and Google+ atta-boys.

Hey, guys, please don't forget that C-Loans also offers business loans - unsecured loans, equipment loans, inventory loans, accounts receivable financing, factoring, leasing, and asset-backed lines of credit.

 

Business Loans Not Secured By   Real Estate - Unsecured or Secured 

 

Our private money commercial mortgage company is tearing it up; but no matter how many loans we offer to our private investors, they keep insisting on more.  We need commercial real estate loans!

 

Apply For a Commercial Loan to Blackburne & Sons

 

When I was at the MBA CREF Conference in San Diego, lenders signed up for C-Loans in droves.  Get your deals into C-Loans.com.

 

Submit Your Loan to 750 CommercialLender

 

You think that when I talk about "getting shafted out of $10,000 commission by a client" that I am talking about a deal closing without you getting paid.  That seldom happens.  What I am talking about is when a borrower runs you ragged for months chasing a commercial loan for him, and then he backs out without any justification.  You don't have to take that nonsense.

 

Fee Agreement and Fee Collection Course. Just $199.

 

The most satisfying business deal you will EVER make.

 

Free Directory of Two Thousand Commercial Real Estate Lenders

 

My nine-hour course in How to Broker Commercial Loans includes marketing, underwriting, packaging, placement, and fee collection.  And now it also includes my 7-hour audio course on Intermediate Commercial Mortgage Finance.

 

Commercial mortgage training

 

You have no idea how glorious it is to receive tens of thousands of dollars every month in loan servicing fees, whether you close a new loan or not.  You guys think loan servicing is so hard and scary.    It's not hard, and its not scary.  Right now you start out every month unemployed.

 

Become a Hard Money Lender

 

Wish you could afford one of the above training courses?  If you convince a banker to sign up with C-Loans.com, you can choose any of our training courses as a gift, AND we'll pay you $250 every time he closes a deal for C-Loans.  I would just forward this blog article to your banker buddies and let the article sell itself.

 

Get Paid To Bring  Us Bankers  

Topics: Dequity

Get Paid To Bring Bank Commercial Loan Officers to C-Loans.com

Posted by George Blackburne on Thu, Feb 19, 2015

BankersYou've seen my commercial real estate finance training courses, and they intrigue you.  That Commercial Mortgage Marketing course would really help right now, and my nine-hour course on How to Broker Commercial Loans would fill in a lot of holes in your knowledge of the business.  Unfortunately, you just don't have the money right now.

The good news is that you don't need money to get one of these courses.  You probably know six or seven bankers who actually want to make commercial real estate loans.  If you convince one of your bankers to sign up as a lender on C-Loans.com, we will immediately give you a free training course of your choice and pay you $250 every time he closes a commercial real estate loan for a C-Loans user.

Choose any one of the following training courses as your prize:

  1. How To Broker Commercial Mortgage Loans - 9 hour video course
  2. How To Find Your Own Private Mortgage Investors - 4 hour video
  3. Intermediate Commercial Mortgage Finance - 7 hour audio program
  4. Marketing for Commercial Loans - 90 minute online course
  5. Practice of Commercial Mortgage Brokerage - 5 hour audio course.

All you have to do is to convince some bank or credit union (their deposits must be Federally insured) to read this form:

How Bankers Can Receive Pre-Screened Commercial Loan App's

And then complete this form:

Commercial Lending Preferences

In addition to receiving the free training course, don't forget that you will also be paid $250 for every commercial loan your banker closes for C-Loans - potentially for the next 25 years. This could amount to some real money. We have one commercial lender on C-Loans who has already closed over FIFTY loans for us, and he has only been listed on C-Loans for eight years.  He probably won't retire for another 15 years.  If you had introduced us to him, you could easily have ended up earning $250 on over 125 closings. That's over $30,000 for investing just 15 minutes to convince your banker to join C-Loans.

 

Superglue

 

"But, George, is it hard to convince a commercial real estate lender to join C-Loans?"

Joining C-Loans is a no-brainer.  There is no sign-up fee to join C-Loans. There is no monthly fee.  There are no contracts to sign.  If the bank never closes a single loan, joining C-Loans costs the bank nothing. If they do close a loan, however, banks and credit unions pay C-Loans a software licensing fee of just 37.5 bps. (just 25 bps. for deals of greater than $5 million). Nonprime, bridge, and hard money lenders pay 50 bps. Most bankers just build our software licensing fee right into their own loan fee (they charge 1.375 points rather than just 1), so in reality belonging to C-Loans costs the bank nothing.

And if they do join, they will only receive carefully-screened commercial mortgage leads.  The loan will be the right loan amount, in the right counties of the right states, and secured by the exact kind of property that the bank prefers. We will only send them permanent loan requests, unless they specifically request SBA loans, bridge loans, construction loans, USDA B&I loans, and/or mezzanine loans. One easy click sends the bad loans away, and if they want the deal, we provide all of the contact information they need to call or email the borrower to make the sale.

I recommend that you simply forward this blog article to your banker and let him decide.  The hungry bankers will look at our track record of 1,000 commercial real estate loan closings and decide to join.  To you bankers out there, here is some information to help you sell your boss:

  1. Your bank, like almost every other bank in America, has plenty of cash right now.  A good bank customer is no longer a large depositor.  A good bank customer is now a reliable borrower that can be trusted to borrow millions every year.  C-Loans.com is in a unique position to introduce your bank to scores of these experienced, high-net-worth borrowers every year.

  2. C-Loans.com is a part of Blackburne & Sons, a $40 million, private money commercial lender that has been in the market to make commercial real estate loans every day of every year for 35 years.  This is the same company that I founded in June of 1980 - a company that has survived at least four bad real estate recessions.  Talk about building important relationships!

  3. C-Loans, Inc. owns CommercialMortgage.com.  We paid more than the cost of a house for it.

  4. The owner of C-Loans, Inc. is an attorney licensed in California and Indiana.

  5. C-Loans.com has closed over 1,000 commercial real estate loans totaling over $1 billion - and we did it without one penny of venture capital, and we did it without ever paying one cent for advertising.  Our site contains hundreds of page of good content, and the search engines love us.

  6. C-Loans, Inc. also owns CommercialLoans.com, CommercialRealEstateLoans.com, CommercialLenders.com, IncomePropertyLoans.com, CommercialConstructionLoans.com, MezzanineLoans.com, and over 200 other CREF sites.

  7. The founder's sons have joined him in the business, so if the bank develops a relationship with C-Loans, Inc., that relationship could conceivably continue for another 40 years.

Does C-Loans.com really work?  Oh, my goodness!  In 2006 C-Loans closed 225 commercial loans totaling over $206 million. Since inception, we have closed well over 1,000 different commercial real estate loans totaling well over $1 BILLION.  Probably only three companies - Bank of America; Wells Fargo Bank; and Holliday, Fenoglio Fowler - have closed more commercial real estate loans than C-Loans over the same period. So yeah, its fair to say that C-Loans works.

 

Gorilla

 

Once your banker completes his Commercial Lending Preferences, please make sure that you notify Mick Carlson, the General Manager of C-Loans, and let him know that the banker came from you. Mick's phone number is 574-855-6292. His email address is mcarlson@blackburne.com. 

It is up to you, however, to make the sale. Merely sending us the banker's contact information, and then relying on us to make the sale, earns you nothing.

Important note:  You get paid when your loan officer closes a deal for C-Loans. You don't "own" the bank, but you do - as far we we are concerned - "own" the loan officer.  Keep in mind that we allow multiple loan officers from the same bank to join C-Loans. 

It's all about the loan officers. Some are stars. Some are sleepy. A borrower or broker could submit the same loan to two different loan officers at the bank. The sleepy loan officer might blow it off. The hungry loan officer may cleverly massage it and push it through his Loan Committee.  Your job, and our job, is to find those loan officers who are the stars. 

If you do know some stars, you'll want to get them added to C-Loans before some other broker introduces them to C-Loans first. If you have a good banker in mind, I recommend that you simply show him this page and encourage him to complete his Commercial Lending Preferences. Then call Mick Carlson at 574-855-6292 and choose your prize.

And please - no mortgage brokers masquerading as bankers. This offer is only for bankers and credit union loan officers - commercial loan officers working for insitutions whose deposits are Federally-insured.

Topics: Adding Bankers

Commercial Loans and the Importance of Relationships

Posted by George Blackburne on Mon, Feb 16, 2015

Brokers_Shaking_HandsBack in August of 2012, I wrote my most important blog article ever of the subject of commercial loans and commercial loan brokerage.  If you read only one commercial real estate finance training article in your lifetime, make sure you read my 2012 blog article entitled, The Most Important Lesson in All of Commercial Real Estate Finance.  This lesson is an advanced version of that article.

In real life, the typical commercial real estate loan officer working for a bank, a conduit, or a life company closes 80% of his commercial loans for just 5 or 6 mortgage brokers.  I am going to call these five or six mortgage bankers and mortgage brokers the loan officer's "best brokers".

By the way, do you know the difference between a mortgage banker and a mortgage broker?  A mortgage banker retains the loan servicing rights and typically earns between 8 and 32 basis points per year for collecting the loan payments on behalf of the lender.

I know that 10 basis points doesn't sound like much, but 10 basis points on a $20 million loan is $20,000 per year, just for collecting 12 payments and forwarding them on to the investor.  Remember this:  The real money is commercial real estate finance is in the loan servicing rights.

"Yeah, George, but servicing loans is hard."

Naw.  My beautiful bride serviced our first 30 commercial real estate loans out of a bedroom in our home, when George IV and Tommy were still both in diapers.  She did it with no loan servicing software, just using some payment books given to us by the title company.  The borrower would send in his payment book, along with his monthly check.  She would write in the payment book the total amount of his payment, the amount that went to interest, the amount that went to interest, and his remaining principal balance.  Then she would mail the payment book back to the borrower.  Voila!

Today, my hard money commercial mortgage company, Blackburne & Sons, services about 180 private money commercial loans, totaling around $40 million, for an average annual loan servicing fee of 200 basis points (2.0%).  You really-really owe it to yourself to do the math.  What is 2% of $40 million?  Now you can see why I say the real money in commercial real estate finance is in loan servicing fees.

 

Albert

 

Okay, now back to how most commercial loan officers close 80% of their loans for just 5 or 6 "best brokers".  The 2,000 other brokers who bring this loan officer deals account for a mere 20% of his total production.  And folks, this reality is probably true for almost every commercial real estate loan officer in the country.

So why do commercial loan officers close most of their deals with just a half-dozen of their "best brokers"?  Expediency.  A commercial loan officer cannot possibly train every mortgage broker who calls him in what exactly to look for in a deal.  There is simply not enough time in the day.

So most commercial loan officers end up training a mere half-dozen brokers in the finer details of his bank's particular commercial loan appetite.  As a result, since the lender has carefully trained these 5 to 6 brokers, he knows that if one of his best brokers does call that this best broker probably has a carefully-screened and do-able deal for him.  The lender takes his call.  For every other broker who calls, the commercial loan officer's staff often just takes a message.  Maybe the non-preferred mortgage broker get a call-back later, but often he doesn't.  Best brokers get priority.

There is a huge advantage to being a banker's best broker.  If a commercial lender likes you and/or considers you one of his best brokers, he will often overlook a black hair.  A black hair is a flaw in the deal.

Underwriting commercial real estate loans is not about finding a black hair in a deal and then turning it down.  The truth is that every commercial real estate loan ever made has had at least one or two black hairs.  The secret to underwriting commercial loans is to know how to properly weigh the strengths of the deal against the weaknesses.  If you are a banker's best broker (one of six or so), he won't get fixated on just one or two black hairs.

Okay, so obviously we all want to be some banker's best broker.  So how do you become a best broker?

A lot of it is luck.  If you happen to stumble upon a commercial loan that is perfect for some new lender, and he happens to close it for you, you both leave the relationship with a good feeling about each other.  The next time you call this lender, with one closing together already under your belt, he will be much more inclined to look favorably on your deal.

The lesson to be learned here is this:  Suppose you close a nice apartment deal with Bill Smith at Union Bank.  Suddenly, another sweet apartment deal falls in your lap.  Do you take the loan to Bill Smith again at Union Bank, or do you take it to Todd Stranger at JP Morgan Chase?  Maybe, under this fact pattern, you should take the deal back to Bill Smith and really cement that budding best broker relationship.

 

Bio_Exam

 

So how else can you become the best broker of a number of commercial loan officers?  Here are some thoughts:  (1) Deliver your commercial loan packages in person and schmooze the loan officer.  (2) Charm the receptionist or loan department secretary, so she will mention your name positively around the office.  Flowers.  Candies.  Compliments.  (3)  Take your loan officer to lunch.  (4)  Play golf with your banker.  (5)  Invite him to your home to watch football or to BBQ.  (6)  Perform a kindness or favor, like visiting him in the hospital or finding him a new book by his favorite author.  My darling wife taught me this.  If you want friends, be a friend.

This brings me to my last point.  I once shared that even though there are 750 different commercial lenders on C-Loans, fully 40% of our online loans are closed by the 30 or so "Proven Brokers" listed on C-Loans.  Why?  Because these Proven Brokers are the best brokers for three, four, or five different banks.  As a result, when they submit a loan to one of their banks, with whom they have a special relationship, the banker properly weighs the pro's and the con's of the deal, and the black hairs are often overlooked.

I know you guys prefer to deal directly with the bank, but there is a time to leverage the special relationship our Proven Brokers have with their banks.  Commercial loan brokerage is not so much about what you know, but rather with whom do you have a best broker relationship?

If you are new to this blog - perhaps because someone kindly re-Tweeted the article - and you felt like you learned something today, please be sure to come to the home page of our blog and subscribe to it by filling in your email address.  And to our regular, loyal readers, thank you so much for you recent re-Tweets, Facebook shares, and LinkedIn and Google Plus atta-boys.

I once paid a $21,250 referral fee to a guy who merely put a Commercial Loans link on his real estate website.  How would you like to get that phone call?

 

Earn a $21,250 Referral Fee  In Your Sleep

 

I like residual income - money that comes in every month whether I close any new loans or not.  Residual income, like loan servicing income, allows me to sleep at night.  A huge network of referring sources is not technically a form of residual income, but enjoying a steady flow of incoming leads every month sure chases away my mental storm clouds.

 

Click me

 

We have added my seven-hour audio course, Intermediate Commercial Mortgage Finance, to our famous (2,000+ graduates?) 9-hour basic training course, How to Broker Commercial Loans, all for just $549.

 

Commercial mortgage training

 

You can add my four-hour video course, How To Find Your Own Private Mortgage Investors, to the above training collection, and get all three training courses for just $849.  The real money in commercial real estate finance is in loan servicing fees.  The easiest way to get loan servicing rights is to become a hard money lender.  Its never been easier to raise money from private investors.  The banks are paying less than 0.50%.

 

Become a Hard Money Lender

 

My hard money commercial mortgage company is approving commercial loans like crazy these days.  Yield-desperate private investors are beating down our doors.  We need commercial loans!  And we issue Loan Approval Letters for no charge.  You can show our LAL to your banker and say, "A private money lender has already approved this loan.  You can beat these rates, right?"  It's a lot easier to meet lovely ladies when you already have a pretty girl on your arm.  And if the bank leaves you standing at the altar looking stupid, your borrower can always fall back on our loan.

 

Apply For a Commercial Loan to Blackburne & Sons

 

C-Loans now arranges business loans NOT secured by real estate, like unsecured loans, equipment loans, inventory loans, accounts receivable loans, factoring, leasing, and asset-backed lines of credit.

 

Business Loans Not Secured By   Real Estate - Unsecured or Secured 

 

Great commercial lenders are flocking to C-Loans again.  We recently signed up, in addition to a dozen other lenders, one of the largest investment banks in th world.

 

Submit Your Loan to 750 CommercialLender

 

Sooner or later I am going to come to my senses and take this offer away.  "George, you stupid-stupid man, why are you giving away a list of 2,000 commercial real estate lenders - a list that cost you at least $10,000 to build - all for the contents of one lousy business card?"

 

Free Directory of Two Thousand Commercial Real Estate Lenders

 

Been cheated out of a $10,000 commercial loan fee yet?  If not, your impalement is coming.  It happens to all of us.  It happened to me so many times that I went to law school at night, graduated with honors, passed the Bar on my first attempt, and then never accepted a single law client, outside of my own company.  I would fall off my chair in shock if any other company had completed and won more loan fee collection suits than my own.  And no, I will NOT represent you.  But I will teach you my secrets.  Armed with these secrets, you won't need me.

 

Fee Agreement and Fee Collection Course. Just $199.   

Topics: Relationships

More Lessons From the Big Commercial Loan Conference

Posted by George Blackburne on Thu, Feb 12, 2015

RenderingLast week I wrote a training article entitled, News From the Big Commercial Loan Conference.  This article continues those comments.

Before I get into additional commercial loan lessons, however, please allow me to remind you of another teaching point I shared with you several months ago.  If some borrower or developer comes to you, in your role as a commercial mortgage banker or broker, and he asks you to help him place a large commercial construction loan, the first question out of your mouth should be, "Can you please show me an architect's rendering?"  If he doesn't already have one, the developer is a rookie, and he is wasting your time.

Large commercial construction loans ($10MM+) seldom get funded without an architect's rendering, like the one shown here.  On the other hand, if the developer does have a nice architect's rendering, get excited.  The developer almost certainly has some real skin in the game, and he has some experience.  The reason why I mention this today is that C-Loans.com received a very interesting $45 million commercial construction loan request last night, and the loan application included a handsome color rendering.  My juices get flowing whenever we receive a commercial construction loan request with a rendering.  We successfully closed that $18.5 million construction loan on the mixed use project in Wisconsin shown above, and we earned a very nice fee.  

While we're on the subject of experience, who out there remembers how a developer demonstrates his construction and development experience?  It's a one or two-page document, very similar to a resume, called a curriculum vitae or C.V.  In addition to his educational and employment background, a C.V. lists and describes all of the construction projects that a developer has completed.  Every commercial construction loan package should have a C.V. prominently displayed.

 

Richter

 

Okay, now let's finally talk more about the big commercial loan conference.  You'll recall that I wrote that three enormous waves of huge commercial loans are coming due in 2015, 2016, and 2017.  These are the 10-year conduit loans written in the Wild West days of 2005, 2006, and 2007.

Surprisingly, many conduit loan borrowers are paying their huge defeasance prepayment penalties and are refinancing early.  They want to take advantage of today's low, fixed, commercial mortgage rates, which are often below 4% on very large CMBS loans (same thing as conduit loans).  They want to lock in rates of, say, 3.875% for the next 10 years.  Obviously, the borrowers doing this are the ones whose commercial loans mature in less than 18 months.  Since the interest rates on short term U.S. Treasuries are so low as to be virtually non-existent, their defeasance prepayment penalties are roughly equal to the 12 to 18 months worth of monthly payments that they had coming due over the next year to a year-and-half.

One of the exhibitors at the MBA CREF show was a defeasance company, a company that assembles the strip of U.S. Treasury securities that replaces the monthly principal and interest payments, plus the balloon payment, for which a CMBS borrower is responsible if he wants to prepay his loan.  Anyway, this defeasance company mentioned that they were busier than a one-armed paper hanger.

I spoke with a commercial loan officer for one of the largest CMBS loan originators in the country - one of the largest investment banks in the country.  (They joined C-Loans.com at the conference.)  He mentioned a type of loan of which I had never heard.

This conduit lender will make full-term interest-only loans!  Really?

In 2005, 2006, and 2007, the competition for CMBS loans was so fierce that conduit lenders starting making loans with the first six-months being interest-only.  Then the next CMBS lender stretched his interest-only period to a year.  Then the greater fool stretched the interest-only portion of his 10-year loan term out to two years.  Finally, the greatest fools started making CMBS loans with the first three years being interest-only!

You can see the problem, right?  Commercial loans are supposed to be amortized over 25 years, and if the property is older than 25-years-old, many experienced commercial lenders insist of a 20-year amortization. The idea is to get some principal paydown over the 10-year term of the loan.  As we have seen recently, commercial real estate does not always increase in value.  If it remains stagnant in value or even depreciates as it gets older, a commercial lender wants to see his principal balance get paid down.  A commercial loan that starts out at 75% loan-to-value should be headed towards 69% loan-to-value after 10 years, assuming the property's value stays stagnant.

So if you allow the borrower to make interest-only payments for the first two or three years, the amount of principal reduction he will have achieved after 10 years will be negligible.  

Suppose the property is worth $10 million originally, and the borrower takes out a $7.5 million conduit loan.  If the $10 million building - because it is wearing out - depreciates in value to $9 million, and the loan is only paid down to $7.2 million over 10 years (because of the interest-only period), the borrower will need an 80.0% LTV new loan to refinance his balloon!  This is essentially impossible.  No CMBS lender is going to make a new loan of 80.0% LTV on an office building.  The borrower won't be able to refinance his balloon payment!  This sort of risk is called refinance risk.

This is why financial authors have been burning up their keyboards writing about the coming crisis in commercial real estate.  Many of the loans written in 2005, 2006, and 2007 had initial interest-only periods of two to three years.  Since then commercial real estate values fell by 45%.  Oh, my goodness!

Fortunately, commercial real estate values have recovered sharply.  They are almost back to where they were at their peak in 2008.  But many of the loans coming due in 2015, 2016, and 2017 had long interest-only periods.  Uh-oh.  There's going to be Big Trouble in River City, and everyone knows it.

So you can imagine my shock when this big conduit lender told me that they were making full-term interest-only loans.  It must have shown on my face because the loan officer explained, "A lot of investors exchange out of one property with a huge amount of equity, and for tax reasons they have put it all down on the new building.  Therefore, if the borrower needs a new loan of just 60% loan-to-value or less, we'll happily make him a ten-year interest-only loan."

 

Prius

 

Here's another commercial financese term I learned, cap ex.  Cap ex means a capital expenditure.  An apartment building renovator might say,"My cap ex is $12,000 per door."

Apartment investors and multifamily lenders often refer to apartment units as doors.  Hospitality (hotels and motels) investors and lenders will often refer to hotel rooms as keys.  Ths makes sense since many hotel rooms are now suites, with multiple rooms.  The term, keys, eliminates this confusion.

The hottest properties, from the perspective of lenders, are now office buildings and industrial buildings.  This used to be multi-family, but new multi-family construction has allowed supply to catch up with demand.

The willingness of conduits to lend in the oil patch states has declined sharply.  Due to the glut of oil, B-piece buyers (a subject for another day) will no longer allow them in their pools.

B-piece buyers in conduit loan pools are looking to yield around 15%; although after anticipated losses, they expect to net only around 9%.

Banks, in general, are getting hungrier for commercial real estate loans because their business loan volumes are pretty flat.  Business owners are still too shocked and frightened by the Great Recession to take on a lot of additional business debt (inventory loans, equipment loans, accounts receivable loans, etc.).

The last thing I see in my notes from the conference is the term financial engineering.  It is possible to structure a large commercial real estate deal in such a way as to take a marginal deal and make it a really solid one by bringing in the right lenders.  For example, Bank of America recently financed the construction of a large hotel in Aruba, and they felt comfortable in taking the safest $50 million of this $90 million loan deal because the right mezzanine lender took a $20 million senior mezzanine loan piece behind them and the right mezzanine lender took the $20 million junior mezzanine loan piece.

By "right" I mean that the mezzanine lender(s) really-really knew off-shore resort properties.  The mezzanine lenders added value to the deal because by being willing to invest $40 million behind Bank of America, they showed that the investment was a good bet.  They would keep the borrower on the right path, and in a worst case scenario, they had the expertise and the staff to take over the resort and successfully run it, allowing Bank of America to sit back, almost worry-free, and just collect its interest payments.  Bringing in just the right mezzanine and preferred equity lenders / investors is a form of financial engineering.

If you are new to my blog, and you would like to continue to get free training in commercial real estate finance, please go to my blog and enter your email address in the Subscription box.

When you guys re-Tweet my articles, share them on Facebook, and give me Linked-In and Google Plus atta-boys, you fire me up to share even more of my 35 years worth of knowledge and battle-scars.  I do sincerely appreciate your social media "Likes".  :-)

Please don't forget that C-Loans now offers business loans, not just commercial real estate loans.

Business Loans Not Secured By   Real Estate - Unsecured or Secured 

It is very easy for a commercial mortgage broker to slip into the mindset that this business is all about finding the absolute lowest rate.  Please don't forget that the borrower is coming to you for a commercial loan because he needs money.

The smart broker will therefore submit every one of his small commercial real estate loans (less than $2.5 million) to Blackburne & Sons.  We will issue - at no charge - a Loan Approval Letter.  You can then take this LAL to a bank and say, "Look at what this private money lender is offering my client.  You can beat this, right?"

Think back to your dating days.  When you had a pretty girl on your arm, every girl in the bar was checking you out; but when you were alone, the word, "Desperate" was written in invisible ink across your forehead, and every girl in the bar had a black light.  You never had a chance.  You laugh, but there is a lot of truth in what I just wrote.  If you take a free Blackburne & Sons Loan Approval Letter to a bank, suddenly the banker will be "checking out" your borrower.

So get a Loan Approval Letter from Blackburne & Sons first.  Then, if the borrower gets tired of waiting or if the bank leaves you standing at the alter looking stupid, you can always fall back on our loan.  Remember, the borrower needs money, not a rate quote.  

Apply For a Commercial Loan to Blackburne & Sons

The following is a test.  Would I trade the business card of a banker, making commercial real estate loans only in the three counties surrounding the fifth largest city in Arkansas, for a free directory of 2,000 commercial real estate lenders?  Hmmmm.  Cue the theme song to Jeopardy.

Free Directory of Two Thousand Commercial Real Estate Lenders

The next three years promise to be the most profitable period for commercial mortgage brokers in the last 50 years ... IF you're properly trained.

Commercial mortgage training

This happened about 10 years ago, but a guy named Alan Dunn was sitting in his office one day, when the phone rang.  Alan, do you remember creating a Commercial Loans link on your website and pointing it to C-Loans.com?  Well, guess what?  We just closed a $19 million loan that came from your site, and we're sending you a check for $21,250.

Put a Link on Your Site To Earn Huge Referral Fees

Tons and tons of new commercial lenders joined C-Loans at this big conference, including one of the biggest investment banks in the world.

Submit Your Loan to 750 CommercialLender  

Topics: Commercial Loan Conference

News From the Big Commercial Loan Conference

Posted by George Blackburne on Sat, Feb 7, 2015

CREFI just returned from the Mortgage Bankers Association's 23rd Annual Commercial Real Estate Finance Conference, known as the MBA CREF Conference.  This is the Big Kahuna - the biggest trade show of the year for commercial mortgage lenders, commercial mortgage bankers, and their suppliers.  And boy-oh-boy, do I ever have news for you.

First of all, this is a terrific time to be in the commercial mortgage business.  An enormous wave of ten-year commercial real estate loans - commercial loans originated in 2005, 2006, and 2007 - are coming due in 2015, 2016, and 2017.  The years between 2005 and 2007 were the all-time high water marks for CMBS originations, so this growing wave of maturing loans will be a a veritable tsunami.  The next three years will probably be the most profitable 3 years of our 30-year careers in commercial real estate finance.  As my golf buddies would say, "Yeah, baby!"

CMBS stands for commercial mortgage-backed securities, and refers to that part of our industry that originates very large ($3MM- $5MM minimum), very standard, (usually) fixed rate permanent loans on multi-family, office, retail, industrial, and hospitality (hotels and motels) properties.  These big commercial loans get assigned to a special kind of trust that assembles between $1.5 billion and $3.5 billion worth of commercial loans.  Bonds that are backed by these commercial mortgages are then sold to big-time investors, like insurance companies, pension plans, big endowment funds (think of the Harvard or Yale University Endowment Fund), and flthy rich private investors represented by family offices.

There is some question about whether or not the CMBS industry can even process this much volume.  Last year's CMBS volume was around $94 billion.  This tsunami of maturing CMBS loans will add an extra $70 billion to $80 billion per year to last year's CMBS volume.  There are now 36 conduit loan (same as CMBS loan) originators preparing to handle the volume, and each of them is likely to be swamped. Smaller deals of less than $5 million will get passed down the food chain to commercial banks and commercial mortgage bankers, like you and me.  Everyone is going to eat well.

 

Diet

 

I was amazed at how low interest rates on the very large commercial loans were.  Large multi-family loans (apartment loans) were being quoted at less than 4%.

I learned a few new terms.  Agency loans included multi-family loans insured by FHA (fancy way of saying HUD loans) and multi-family loans made by the GSE's.  A GSE is a government sponsored entity, and usually means Fannie Mae and Freddie Mac, although there are actually one or two other GSE's.

During the Great Recession, the GSE's were in receivership, so FHA-insured multi-family loans were the only game in town.  As a result, it was taking nine months to a year to close a HUD loan.  Remember that FHA is now a part of HUD, so a FHA-insured loan and a HUD loan are the same thing.  The term "FHA-insured loan" is considered more precise and more politically correct than HUD loan; but a HUD lender is a multi-family lender making FHA-insured loan.  Just remember to hold your little finger out when sipping tea or when saying FHA-insured loan.  Ha-ha!

With Fannie Mae and Freddie Mac now profitable again and returning money to the U.S. Treasury, HUD's multi-family loan volume is declining.  Fannie Mae and Freddie Mac compete head-to-head for multi-family loans, and their loan production volumes are pretty close - around $25 billion annually each.  Both Fannie Mae and Freddie Mac now have multi-family loan production caps by the Federal government of around $30 billion and $25 billion annually.

-------------------------------------------------------

An elderly couple had just learned how to send text messages on their mobile phones. The wife was a romantic type and the husband was more of a no-nonsense guy.  One afternoon the wife went out to meet a friend for coffee.  She decided to send her husband a romantic text message and she wrote:  "If you are sleeping, send me your dreams. If you are laughing, send me your smile. If you are eating, send me a bite. If you are drinking, send me a sip. If you are crying, send me your tears.  I love you."  The husband texted back to her:  "I'm on the toilet.  Please advise."

-------------------------------------------------------

The two competing apartment programs have very similar interest rates.  So when would you take an apartment loan to Fannie Mae, and when would you take it to Freddie Mac?

Fannie Mae has a Delegated Underwriting and Servicing ("DUS") program where an approved DUS mortgage banker can, under certain circumstances, actually approve a loan on its own without taking the loan to Fannie Mae.  That's the good news.  The bad news is that if there is a loss, the DUS lender has to split the loss with Fannie Mae, at least as to the first 30%.  As a result, Fannie Mae DUS lenders distrust appraisers and greatly prefer purchase money loans.  Purchase money loans have values that have been establsihed in the open marketplace, and they have real cash downpayments.  Investors are far less likely to walk away from real cash downpayments.

As a result, you can usually get greater leverage on a purchase money multi-family loan from Fannie Mae.  Freddie Mac, on the other hand, usually offers greater loan proceeds on refinances than Fannie Mae.

 

Exhaustipated

 

I learned other new finance terms this trip.  The Big Boys at the conference used the expression "L plus 350" or "L plus 425" a lot.  I was confused until a kindly banker sitting next to me explained that "L plus 350" meant LIBOR plus 350 basis points (3.5%).

Another guy mentioned that a big loan he did was very granular.  Granular?  I finally raised my hand and asked the nice Chief Lending Officer for Blackstone Capital, "What does granular mean?"  Granular apparently means lots and lots of small income-paying tenants, as opposed to a single-tenant building.  In this case, the gentleman was talking about a $50 million blanket loan he had made on a portfolio of self storage projects.

My last point today is another Wowie-Zowie at how low rates have fallen.  The last panel of the four-day conference contained four guys who headed up High Yield Debt Funds.  The guy from Blackstone, the largest hedge fund in the world ($6 billion in loans last year), a big honcho from Bank of America ($8 billion in loans last year) was there, as well as two other pikers whose high-yield debt funds closed only $2.4 billion and $3.2 billion in commercial loans last year.

Okay, so at what rate were these High Yield Debt Funds closing deals?  Would you believe L plus 375 to L plus 425?  Guys, LIBOR is only around 0.25%!  Do the math.  Wowie-Zowie, huh?

If you feel like you've learned a few things today, I genuinely appreciate Facebook Shares, Twitter Re-Tweets, Linked-In Shares, and Google Plus One's.  Thanks so much.  :-)

 

Free Directory of Two Thousand Commercial Real Estate Lenders   

 

Although I am an attorney, the only client I have ever taken on is my own company.  Since getting my law degree 18 years ago, I have collected for my company over $1 million in fees and loan servicing fees from borrowers who tried to cancel.  And I have never sued a borrower who you wouldn't agree just unjustly breached my plain English contract.  And guess what?  I personally haven't been to court in a dozen years. I just send intelligent laymen from my company.  Arbitration is soooo cheap, fast, and easy.

 

Fee Agreement and Fee Collection Course. Just $199.

 

I've gotten a ton of compliments on this course:

 

Click me

 

 

A ton of new commercial lenders joined C-Loans.com at the show.

 

Submit Your Loan to 750 CommercialLender

 

 

 

Topics: Commercial Loan Conference