Commercial Loans Blog

The Spanish-American War ... and Why You Should Care

Posted by George Blackburne on Sun, May 22, 2016

rough-riders.jpgBlackburne & Sons gets its dough to make small, sub-prime commercial loans nationwide by assembling small syndicates of accredited, California investors.  Every month I enclosed an Investor Letter with their interest checks.  Although today's Investor Letter has nothing to do with commercial real estate finance, I hope you will still enjoy it:

“Those who cannot remember the past are condemned to repeat it.” -- George Santayana

George Santayana (1863 in Madrid, Spain – 1952 in Rome, Italy) was a philosopher, essayist, poet and novelist.

To those of you who are fellow history buffs, I have a great recommendation. You can now download inexpensive but fascinating podcasts about history right onto your iPhone. I listen to them when I am working out or driving. These podcasts are produced by a gentleman named Dan Carlin (dancarlin.com), under the label of Hardcore History.

Today I listened to Dan’s two-hour story about the Spanish American War. The war took place in 1898, and it was a very one-sided affair. Just five days after the Declaration of War by the U.S., an American fleet under Admiral George Dewey sailed into Manila Harbor in the Philippines – then a Spanish possession - and sank the entire Spanish fleet. The Spanish suffered over 500 dead and wounded. The U.S. did not lose a man. Okay, one American died of a heart attack, and seven others were wounded. (Interesting note: The American gunners were so inaccurate that less than 3% of our shells hit a Spanish ship; but obviously the Spanish were even more inaccurate.)

 

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If you were awake during history class, you probably remember that Lt. Colonel (and later President) Teddy Roosevelt lead a regiment of dismounted cavalry called the Rough Riders up San Juan Hill. To his credit, Teddy showed great courage during that difficult, but successful, uphill infantry attack. It was the one big battle of the war.

The American fleet bottled up a second Spanish fleet in Havana, Cuba. When they attempted a breakout, despite the amazing courage of the Spanish, it was another one-sided rout. When the Spanish admiral finally surrendered, the American sailors cheered and saluted to show their admiration of the courage shown by the Spanish.

 

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But the actual conduct of the war is not my point today. The issue is the cause. Dan Carlin, the historian, spent the entire first hour of his program on the cause of the war. Now ostensibly the cause of the war was the sinking of the Maine, an American cruiser docked in Havana Harbor. At 10:30 at night, while the rest of Havana was enjoying the extensive nightlife in the city, the cruiser suddenly suffered an ear-shattering explosion. The ammunition magazine had exploded, sending an enormous fireball into the sky. Observers reported that the sky was blackened with falling steel and body parts.   The ship quickly sank, with very few survivors.

To this day there is no consensus as to what really happened, but America chose to believe that the Spanish had detonated a mine under the Maine. “Remember the Maine!” In truth that theory makes little sense. The Spanish were already battling a fierce insurgency in Cuba, and they were losing. Why start a war with a rising regional power (the U.S.)?

Another theory was that this brand new cruiser suffered from a design flaw. The coal bin was built right next to the ammunition magazine, and spontaneous flash fires in coal heaps were common. Okay, so the war had started. Another one of these fancy new coal-powered, armored cruisers was stationed off of Hawaii, and it was ordered to the Caribbean. As it was sailing around the Cape of Magellan, it too suffered a spontaneous flash fire in its coal bin that took several days to subdue. Yikes.

Another reason for the war was yellow journalism, the name for sensational, scandal-filled, and often-inaccurate newspaper articles that stoked the passions of the American people (and sold newspapers). William Randolph Hearst later bragged that his newspaper, the New York Journal, forced the U.S. to go to war. The Spanish were fighting a counterinsurgency in Cuba. The Journal had reported that the Spanish had rounded up the population and forced them into concentration camps, so they could not give food, shelter, and aid to the insurgents. The problem was that the Spanish were not providing enough food, and 400,000 confined Cubans had died of starvation. Okay, that’s a much better reason to go to war – to free the Cuban people.

 

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But the trouble is that we really went to the war because America was looking to pick a fight with someone. Jingos – a fiercely nationalistic and militarist segment of 1898 society – were promoting the idea that Americans needed a war to hone their military skills and to prevent the population from going soft. Remember, the Civil War had ended in 1865, and much of the bloody horrors of the war – the deaths, maiming’s, and misery - were starting to be forgotten.   “Those who cannot remember the past are condemned to repeat it.”

Now we are finally getting to the point of this month’s Investor Letter. Fascism didn’t just arise in Germany. The movement started first in Italy under Mussolini, then it arose in Germany under Hitler, and next it arose in Spain under Franco.

Folks, don’t get me wrong. I will probably vote for Donald Trump, if only because he has the Teflon coating needed to declare that the king is actually naked. There is a lot of anger, however, among his core supporters, and that anger is now also being found in Europe.

“The larger forces that have propelled Trump to the brink of the Republican Party’s Presidential nomination—nationalism, nativism, disillusionment with the economic results of globalization, fear of terrorism, cynicism about career politicians—are just as strong in Europe, perhaps stronger… The rise of right-wing politicians in Europe, like Norbert Hofer, a member of Austria’s Freedom Party, reflects the same forces that have fuelled the candidacy of Donald Trump… In recent weeks, Nigel Farage, the beer-swilling leader of the anti-immigrant, anti-E.U. U.K. Independence Party, has been joined in arguing for a (Brexit) by Boris Johnson, the mayor of London.” (A Europe of Donald Trumps, The New Yorker)

Trump has promised to rein in the military encroachments of Vladimir Putin and to strongly renegotiate trade deals with China. “We are going to make America great again!” Okay, Mr. Trump, I’ll bite. I’ll vote for you; but hey, please don’t go picking another war. A missile exchange with China or a land invasion by North Korea could go badly for the U.S. Nuclear weapons are not a 100%-guaranteed deterrent against war. In World War II, for example, the warring parties simply chose not to use gas warfare.

 

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Topics: Spanish American War

Commercial Loans and the Race to the Courthouse

Posted by George Blackburne on Tue, May 10, 2016

tight_skirt-1.jpgCarol Conman was a beauty.  When she would sashay into a room, in her tight skirt and her push-up bra, every man in the room would ache with desire.  Carol was also a crook.  Now she didn't rob and steal.  She was a white-collar criminal, and sadly state authorities rarely have the resources or the will to pursue white collar criminals.  (The gorgeous model in this picture is not Carol, but you guys get the picture.)

Here is how her confidence game would go down:  She would buy a home for all cash.  Then, using fake ID and a dummy financial statement, she would apply to two different private money lenders for a refinance.

Now both mortgage companies would pull a preliminary title report (known East of the Mississippi as a title commitment), and these title reports correctly showed that the property was free and clear of any mortgages and judgment liens.  Thrilled to provide financing to such a hot woman with enough money to buy real estate with all cash, both mortgage companies gladly approves her refinance.

Funny note:  I started out after college working for a personal finance company called Dial Finance. My manager once sent me into the field to collect an ill-conceived personal loan from this beautiful bombshell.  This babe had come into my boss' office, batted her beautiful eyes, and he had melted. Such bad loans were called leg loans, and they were always complete write-off's.  Looking back, I think this honey was offering me "kisses" that night at her home to go away and stop my collection actions, but I had my girlfriend at the time in my car outside.  Probably - no, absolutely certainly - it was best that I had to play dumb to the offer.  And yeah, my boss had to reimburse Dial Finance for this leg loan.

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Anyway, back to Carol Conman...

Using charm and by batting her fake eyelashes, Carol convinces both mortgage companies to schedule their sign-off on the same day.  This is the key step!  In the morning, she signs off with Patsy Capital.  In the afternoon, she signs off with Droolingboy Mortgage.  She paid $200,000 for the house.  Two different mortgage companies just gave her a $150,000 loan.  Carol Conman then walks away with her $300,000, moves to a different state, and disappears.  Patsy Capital and Droolingboy Mortgage are left to fight it out.

Okay, so what happens?  Even though Carol signed off with Patsy Capital first, let's suppose the title company runner met his girlfriend for lunch on his way to the County Recorder's office.  By the time the runner was done cuddling with his girlfriend, it was 4:00 p.m.  In the meantime, Droolingboy Mortgage had blotted up its drool (boys are sooo stupid) and recorded its mortgage at 3:17 pm.  So who has priority?

 

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The answer depends on the state. Different states have different priority rules.  There are three kinds of jurisdictions: 

  1. Race Statutes
  2. Notice Statutes
  3. Race/Notice Statutes

Under a race statute, whoever records first wins. Thus, if Oscar purports to sell a piece of land to Al for $100,000, and the next day purports to sell exactly the same piece of land to Bob for another $100,000, then whichever of the two buyers is the first to reach the recording office and have the sale recorded will be deemed the owner of the property. Thus, if Bob is the first to record the conveyance, he will be the owner - even if he knew about the prior conveyance to Al. Race statutes are extremely rare because it is generally viewed as unfair to protect a party who had actual notice of a prior conveyance. Currently, Delaware, North Carolina, and Louisiana are the only jurisdictions where a race statute is in effect.

Under a notice statute, a subsequent purchaser for value wins if, at the time of conveyance, that subsequent purchaser had no actual or constructive notice of the prior conveyance. In short, a subsequent bona fide purchaser wins. Thus, if Oscar purports to sell a piece of land to Al for $100,000, and the next day purports to sell exactly the same piece of land to Bob for another $100,000, then Bob will own the land so long as he was not aware of the prior sale to Al. However, note that if Al records his interest before Bob's purchase, this recordation will be deemed to give Bob constructive notice. If Bob purchases the land without notice, and Al then records his prior purchase before Bob records his own purchase, then Bob will still prevail in ownership of the land.

Under a race/notice statute, a subsequent purchaser for value wins if (1) at the time of conveyance, that subsequent purchaser had no actual or constructive notice of the prior conveyance, and (2) the subsequent purchaser records before the prior purchaser. In short, a subsequent purchaser in good faith wins only if he records before the prior purchaser does. In this type of system, if Oscar purports to sell a piece of land to Al for $100,000, and the next day purports to sell exactly the same piece of land to Bob for another $100,000, then Bob will own the land only if he was not aware of the prior sale to Al, and if Bob actually records his interest before Al does.

 

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Okay, so who has priority, Patsy Capital or Droolingboy Mortgage?  Well, both mortgage companies are bona fide purchasers for value.  In other words, neither company was in on the con, neither was aware of the other, and they both gave cold, hard cash for their mortgages.

Okay, who recorded their mortgage first?  Well, even though Carol Conman signed off with Patsy Capital first, it was actually Droolingboy Mortgage who won the race to the courthouse.  Droolingboy Mortgage has the first mortgage.

"But George, wait a moment.  What if Patsy Capital labeled their mortgage, "First Mortgage?"  It doesn't matter, even if Droolingboy Mortgage labeled their mortgage, "Seventh Mortgage."  If Droolingboy Mortgage beat Patsy Capital to the County Recorder's Office, then Droolingboy Mortgage wins.

"Yeah, George, I'm sure what you have just told me is right; but all Patsy Capital has to do is to submit its claim to the title insurance company."

Title insurance companies do not issue casualty insurance policies (policies that pay upon the happening of the car crash or the tree falling on the house).  Instead, title insurance companies issue indemnity policies.  Such policies only pay when an opposing party wipes out the policyholder's position, which could be a dozen years later, as long as Carol Conman is making her monthly payments.  (Carol just met and married Sammy Software, a wealthy dot-com owner.  Neither Sammy nor Carol want Carol to go to prison.)  In the meantime, the title insurance company could go bankrupt.  Yikes!

I have been in real estate finance for more than 40 years now.  I have never known a title company to pay without being sued by the claimant first.

Do you have a commercial real estate or mortgage website?  If so, you would be nuts not to add a link to C-Loans.com.  As long as you point your "Commercial Loans" or "Finance This Property" link to our home page (C-Loans.com), our computer program grabs your URL and prints it at the bottom of our loan application.  When the deal closes, we pay you a referral fee of 12.5 basis points (one-third of 25 basis points on loan larger than $5 million) when the deal closes.  We once paid Alan Dunn of Spydercube.com a referral fee of $21,250.  Can you imagine getting that call, "Hey, Alan, I have some good news for you..."

 

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Did you learn something today?  Get two to three free training lessons in commercial real estate finance every week by subscribing to our blog.  Guys, here is what is happening.  I have two wonderful sons, and my heart is failing.  I am rushing to teach my two sons everything I have learned in my 36 years in commercial real estate finance before I stroke out (the traditional way for Blackburne's to croak).  By subscribing to my blog, you get to watch for free this training that I am rushing to teach my boys.

 

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Are you a commercial real estate salesman?  Why on earth are you not brokering commercial loans on the side?  As I have often told my sons, "There is no easier way to meet high-net-worth real estate investors than to be a commercial mortgage broker."  Bam!  You were nodding off, and the teacher just SMACKED his desk with his yardstick!  The sound was so loud that Shakespeare just sat up in his grave.  "This is going to be on the test!  There is no easier way to meet high-net-worth real estate investors than to be a commercial mortgage broker."

 

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This is how I built Blackburne & Sons, my $50 million hard money commercial mortgage company.  I started out as a desk-and-phone commercial mortgage broker, but I was motivated.  I knew that I wanted to become a hard money lender.

Every time I talked to a high-net-worth commercial mortgage borrower, I saved my notes of the conversation.  "My goodness, George, you're quoting 2 points!  My own bank will give me the same loan at 1 point."  But three years later, that very same borrower got a word-processed letter from me, "Dear Dr. Smith, back in June of of 1982 I had the pleasure of working on a $450,000 refinance of your 16-unit apartment building in San Jose.  Today I want to talk with you about 10% first mortgage investments."  I raised 100% of my first hundred trust deed investments from former borrowers.  Former borrowers?  Hey, an investor is an investor!

Now I service a $50 million portfolio of hard money loans at an average loan servicing fee of 2% per year.  Do the math.

There is no easier way to meet high-net-worth real estate investors than to be a commercial mortgage broker."

Topics: Priority of mortgages

Ten Ways To Market For Commercial Loans (or Tenants) On the Cheap

Posted by George Blackburne on Sun, May 8, 2016

Poor_Man-1.jpgYou don't have to be a commercial loan broker to benefit from today's lesson.  You could be a commercial broker (commercial real estate salesman) or even a property owner looking for tenants.  This is the marketing program that I would adopt if a giant earthquake wiped out my entire business, and I was starting over from scratch, as poor as a churchmouse.

 

  1. We are going to use newsletters because (a) newsletters put your name and contact information right into the "hands" of the recipient; and (b) if you send out a newsletter every 10 to 21 days, and you never miss a newsletter, by the sixth to eighth newsletter, your recipients will have bonded with you - especially if you share a little bit of your life each time.  I call this tendency to bond with a pen pal, "The Newsletter Effect."  Those of you who have received newsletters from Blackburne & Sons, my hard money commercial mortgage company, may remember the section in each newsletter called, "On a Personal Note ..."

  2. We are actually going to use a snail mail campaign, rather than email, for this poor man's marketing program.  Why?  I want you to enclose two business cards in each envelope.  "But George, snail mail costs soooo much more than email!"  True, but we are only going to send out a small handful of letters.  This is not mass mailing.  This is very targeted marketing.

  3. What do you send them?  Answer:  Something fun or fascinating, along with a brief pitch for your services. For example, if you are a landlord trying to find a tenant, your pitch might just say something as simple as, "Please don't forget that our popular strip center at the corner of Main and 4th Street has a 1,600 sf retail space available for lease for only $30 per square foot."  Keep it short and sweet.  Training note:  The rent for commercial or industrial space is traditionally expressed by professionals as so many dollars per square foot per year.

  4. By something fun I usually mean a joke or two, a funny cartoon, a fascinating story, or a juicy bit of gossip.  An example of juicy gossip might be something like, "Donald Trump appears to be flip-flopping on a number of issues since he became the presumptive nominee.  The move may be a conscious part of a brilliant political manuever that was once used in ancient Rome 123 years BCE.  Here is how the technique might work.  Mr. Trump now says that he would have to consider raising the minimum wage.  Such an increase is hardly a pro-business, conservative position.  Nevertheless, if Hillary Clinton proposes a $15 minimum wage, the suggested move for Mr. Trump would be to propose a $16 per hour minimum wage.  If Hillary proposes two months paid maternity leave, Mr. Trump would propose two-and-a-half months of paid maternity leave.  In other words, Donald Trump would pivot even further to the left than Hillary Clinton, thereby stealing her thunder and her votes.  True story:  For centuries the Roman Senate stacked the deck in favor of the rich and powerful, making it virtually impossible for the plebes to improve their lot financially.  Most of the farmland was held by a small handful of super-rich patricians, and it was farmed by slaves.  Family farmers could not compete.  Then a reformer named Gaius Gracchus was up for re-election to the position Tribune of the Plebes, and he was promising agrarian reform (limiting the number of acres that one man could own).  The Senate therefore nominated their own candidate for Tribune of the Plebes, and the Senate's paid candidate promised even more than than Gracchus!  Gracchus was defeated, and he was soon murdered (beaten to death with legs torn off a wooden table) by a crowd hired by the Senate, just like his older reformer brother had been murdered by the Senate ten years earlier.  Of course, once the Senate's candidate was elected Tribune, he immediately recanted on all of his promises; but the point is that Donald Trump's recent policy reversals sound oddly familiar to students of history."  See, you don't have to use jokes or funny pictures.  Juicy gossip can be fun too.  (Guys, let's not trade angry emails about politics, okay?  Just because I recognize this diabolical but effective political technique does not necessarily mean that I approve or that I am a Trump supporter.) 

  5. So what should your newsletter look like?  Keep it simple!  Take a piece of copy machine paper and type your company name, address, phone number, and your cell phone number across the top.  Then, in large bold print, type:  Today's Joke.  The insert a joke or a cool story, a story that you might tell one of your buddies in a bar over a beer.  I want you to use improper English - that means contractions, sentences that end in prepositions, and sentences that start with "And" or "But".  Do not be professional.  Be fun!  Be sure to include at least two of your business cards in every newsletter.

  6. Okay, to whom should you send these newsletters?  Your snail mail list must be tiny.  To start, you might only have 50 to 70 names on your snail mail list.  If you are a commercial mortgage broker, most of these 60 contacts should be bank loan officers.  After all, the first place a potential commercial mortgage borrower calls is his banker.  If you are a leasing broker or a property owner, your list should primarily contain the owners of nearby companies who have nibbled on your space and local leasing brokers who are active in your area.  Ideally you have met each one of these contacts!  Snail mail is much too expensive to cold call new contacts.

  7. Now let's talk frequency.  The Newsletter Effect does not start to produce until the sixth to eighth mailing.  Please read that sentence again.  Sorry.  I wish I had a miracle wand that I could wave for you, but there is none.  Mass mailings, newspaper ads, and magazine ads do not work at all.  Google ads, while effective, are pretty expensive (several dollars per click).  But after the 6th to 8th mailing, a newsletter campaign works as effectively as turning on a faucet.  Therefore we want to get the first eight newsletters out of the way as soon as possible.  I recommend mailing every ten days for the first eight times.  After that you can dial back to your Jenny Craig maintence program of once every 21 days.  Now you can see why we have to keep your snail mail list very small; otherwise a poor church mouse could not afford to send out his eighth newsletter.  Even though you may only be mailing to 60 guys, you will still have to send out six to eight newsletters to each one before you start to get a return.  Verbal proof story:  At Blackburne &  Sons I required each of my loan officers to build an email list of commercial brokers (commercial realtors).  My loan officers grumbled bitterly at first.  "This isn't working."  Then the seventh or eighth newsletter hit, a wonderful flow of deals started to come in, and my loan officers stopped grumbling.

  8. Where do you get fun material for your newsletter?  Go onto Google and type in, "Jokes."  You will see a dozen free joke newsletters to which you can subscribe.  Or you can just go onto C-Loans.com and find my past newsletters.  Feel free to steal them.  You'll find over 600 cute, clean jokes from which to choose.  Also be on the lookout for interesting stories.  The most successful newsletter that I ever wrote was 20 years ago, and it was entitled, "Ebola is Going To Kill Us All!"  It was based on the wonderful book, The Hot Zone.

  9. Now let's talk about great additions to your mailing list.  Let's suppose you're a leasing agent, and you meet the owner of a local tool and die company who mentioned that he may want to someday expand into a larger space.  Make sure that you save an extra supply (30 to 40 copies) of every newsletter that you send out.  Now print out ten envelopes to this new contact.  Stuff each one with an old newsletter and two business cards.  Now, using a pencil, write in the upper-right-hand corner a date, ten days apart.  For example, today is May 10th.  The first newsletter would go out today, and then another on May 20th, May 30th, June 10th, June 20th, etc.  Keep these  pre-addressed, pre-stuffed, and pre-sealed envelopes in an old envelope box in chronological order.  Then when you come in the office in the morning, you pull today's envelopes and place a stamp over the small date written in the upper-right-hand corner.

  10. Folks, I have been in marketing for almost 40 years.  It is much better to have a tiny list of hot prospects (50 to 70) and to hit them with a newsletter every ten to twenty-one days than it is to send bulk mail to a list of 10,000 strangers.  I have wasted $4,000 doing mass mailings at least a dozen times during my career, and I never closed a single deal from such a mailing.  "You peed away $4,000 a dozen times?  Geez, George, are you mentally challenged?  When are you finally going to learn?"  Like my beautiful but long-suffering wife often tells our daughter, "Boys are stupid."  Ha-ha!  :-)

 

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Do you need a commercial loan with no prepayment penalty? Is your client's commercial property partially vacant? Do all of your commercial leases run out in the next 18 months? Do you need a lender who will allow a negative cash flow? Do you need a lender who will also look at the borrower's global income - income from salaries, other investments, etc.? Do you need a lender who will allow the seller to carry back a second mortgage? Does your client have a balloon payment coming due on his commercial property? Has your bank offered him a discounted pay-off? Does your borrower have less-than-stellar credit? Is your client's company losing money? Is your borrower a foreign national? Do you need a non-recourse loan?

 

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Be sure to save the business card of any banker you meet who makes commercial real estate loans.  We'll trade you a list of 2,000 commercial real estate lenders for that one banker.  We solict these guys to refer their commercial mortgage turndowns to C-Loans.com.

 

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Have you registered on C-Loans.com ?  This just means filling in your name and contact information into Step One of Six.  We want you pre-registered so that if you get a a hot commercial real estate loan that you can quickly enter it into C-Loans.com.  In return, we'll give you a free Commercial Mortgage Underwriting Manual, a course that we sell on C-Loans for $199.

 

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Are you a commercial real estate broker?  Why aren't you brokering commercial mortgage loans on the side?  I have often told my sons, "There is no easier way to meet high-net-worth investors than to be a commercial mortgage broker."

 

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Did you learn a few things today?  If so, subscribe to this blog and receive two training articles in commercial real estate finance every week for free.  We also try to have a little fun with it too.

 

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The Church Lady on Saturday Night Live described the general election.  "It's a choice between a godless liberal democrat and Hillary Clinton."

Is one of Trump's political advisors a student of history?  I wonder... And Gaius Gracchus, didn't you learn from what happened to your older brother?  Geesch.  Maybe my wife is right.  "Boys are stupid."  :-)

 

Topics: Cheap Marketing