Commercial Loans Blog

Commercial Loans and the Sacrificial Virgins Theory

Posted by George Blackburne on Tue, Feb 14, 2012

Mayan RuinsWhen I was around twelve years old, my parents took me to a theater to see an action movie about the ancient Mayans.   I have never forgotten the terrifying scene where the priests dragged a lovely, young Indian maiden up the 200 steps of the their stone pyramid and held her down over a stone altar.  Then an ugly old priest looked up at the Sun God, chanted some nonsense, and drove his knife into the terrified maiden’s chest.  He carved for a minute or two, and then he held up her still-beating heart for all of the people to see.  Yikes!  I was much too young to see such real-life violence.

While that movie scene traumatized me for life, it also helped me to later develop an important theory about commercial real estate finance.

Sacrificial Virgins Theory:  In commercial real estate finance, sometimes a new commercial mortgage broker has to sacrifice five lovely packages on the altar of a new lender before the lender will finally start to seriously look at the broker’s deals.

The commercial real estate loan officers who handle the really large loans for banks and life companies are often swamped with calls.  To handle the volume, they usually turn down almost everything brought to them by newbie mortgage brokers.

When they actually want to close a deal, they work with one of their best brokers, who have been carefully trained to screen out all of the weak deals.  Therefore, when one of these best brokers (aka: Big Boys) calls the lender, the lender knows that his best broker probably has a very good deal in hand.

When a normal mortgage broker calls the bank or life company, the loan officer will listen politely, until he discovers the first black hair on the deal.  Then he will turn down your deal.  Since every commercial loan ever made has a black hair, this means you will always be turned down.  It doesn’t matter how good your deal is.  The loan officer just wants you to go away.

So how do you become a best broker?  You must first sacrifice five packages to this loan officer.  Suppose you have a $5 million office building refinance on your desk.  You can either take the loan to Bank A, a lender with whom you have a relationship, or to Life Company B, a new lender with great rates whom you would like to develop into a regular lender.  To whom should you take your package?

You should take the package to both lenders! 

“But, George, what if they both lenders issue a proposal?”

It won’t happen.  Why?  Because Life Company B is going to turn down your first five deals anyway.  You can therefore use your current package as a sacrificial virgin.

After you have sacrificed five lovely packages on the altar of this lender, he will start to realize that you are a survivor and a producer.  He will then start to train you to become one of his best brokers.

The ultimate irony is that you may someday drag in to this lender a rump-ugly carcass of a deal – a deal that could not hold a candle to the five lovely virgins you sacrificed earlier - and the lender will approve your deal!

Welcome to commercial real estate finance.

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