Commercial Loans Blog

Future of Commercial Lending

Posted by George Blackburne on Mon, Sep 27, 2010

A Few Commercial Lenders Must First Make Some Outrageous Profits

A banker, preparing to give a speech on the future of commercial real estate lending, called me last Thursday and asked for my opinion. Below is what I told him.

The banks are only making a handful of commercial real estate loans. The commercial loans that banks will fund today are those with either 40% down payments or those commercial loans where the borrower maintains huge deposits with the bank. The normal commercial loan to a mere mortal - a regular investor with just 25% to put down - no longer exists.

So where does that leave us?

If we want commercial lending to recover to a healthy and vibrant level, a handful of commercial lenders need to start to making an outrageous profit. Once this happens, it is a fundamental maxim of capitalism that, "Outrageous profits breeds competition." Seeing the competition enjoy outrageous profits will tempt the banks back into the market.

So are any commercial lenders making an outrageous profit? This year we have seen the birth of several opportunity funds, whose target yields are in the range of 16% to 18%. If these funds achieve their targets, these are the types of yields that will cause some bankers to yearn to return to the market.

What is an opportunity fund? An opportunity fund is pooled investment vehicle, like a mutual fund. A hard money broker might put together a mortgage investment fund that consists of the pooled investment funds of several hundred private investors. Although such a mortgage investment fund is very similar to an opportunity fund, there is a difference.

The investors in an opportunity fund are typically not private investors, but rather they are institutional investors, such as pension funds, college endowment funds, hedge funds and wealthy family trusts. Opportunity funds therefore tend to be larger than hard money mortgage investment funds, so the deals that these lenders do are also larger.

Right now these opportunity funds are financing the purchase and renovation of REO's (bank foreclosures) and the purchases of discounted notes. They are also helping large developers buy out their current lenders at a substantial discount (discounted pay-off's).

You can apply to scores of hard money mortgage funds and opportunity funds by using

Topics: commercial loan, commercial lending, commercial mortgage

Industrial Revenue Bonds

Posted by George Blackburne on Fri, Sep 24, 2010

The Company Avoids Real Estate and Personal Property Taxes and the City Gains Jobs

Most states and many local governments offer industrial revenue bonds (IRB) as a way to encourage relocations and expansions of companies that provide jobs and expand economic opportunities for residents and the community. IRBs are an incentive to encourage a company to invest locally.

What is an IRB?

An IRB is a loan to a company to build or buy a facility or buy land and/or equipment.

How do they work?

The city issues the bonds but is not making the loan. The investor - usually an institution, like a bank or life insurance company - buying the bond makes the loan. The company must find its own bond purchaser. It can also buy its own IRBs. The city technically owns title to the facility built with IRBs and leases it to the company for up to 20 years. At the end of the term, title is transferred to the company.

Here’s an example: Company X wants to build a $15 million plant and buy $20 million in equipment. The city issues a $35 million bond for 20 years. During this period the company will repay the bond. The company gets a break on property taxes for land of $4.3 million over 20 years and a break on equipment property taxes of $1.15 million over 7 years. It’s not correct to say the company is getting $35 million in tax breaks. The $35 million represents the amount of money the company will invest in our community

Do IRBs affect the city’s credit ratings?

No. Since the city is not responsible for the loan, the IRB does not have an impact on the city’s credit rating.

Why is an IRB desirable to a company?

IRBs help companies save money in two ways: Because the city owns the title to the project, it’s exempt, for up to 20 years, from 95 percent of property taxes on land, buildings, and equipment. Also, a company may receive gross receipts and compensating tax exemptions on initial purchases of equipment made with bond proceeds.

Can a small business use an IRB?

Because of financing costs, IRBs are typically used for larger capital projects. They are generally not recommended for projects less than $2 million.

Do companies still have to pay taxes?

The company must still pay a portion of property taxes, as well as all corporate taxes. In most cases companies will pay gross receipts taxes on the services or goods they produce and sell. In addition, a company’s employees are paying income taxes and gross receipts taxes on their purchases.

What are the steps to apply for an IRB?

  • After a company identifies a site, its representatives meet with the City’s Economic Development Department and the City's economic development corporation to get support and identify concerns.
  • The company identifies a purchaser for the bonds.
  • The company prepares a project description and calculates potential employment and submits an application, which includes the company’s financial information, to the City's Economic Development Department.
  • The EDD prepares a staff analysis for review by the Municipal Development Commission, the Administration and the City Council.
  • The Municipal Development Commission holds a public hearing and makes a recommendation to the city to issue the IRBs.
  • A city councilor, usually the one in whose district the project will be, sponsors an inducement resolution and/or bond ordinance to the City Council.
  • After passage of the ordinance, attorneys prepare closing documents covering the transaction.
  • At closing the bond purchaser buys the bonds.

If your company would like help placing these bonds, please call George Blackburne at 574-360-2486 or email him at  In the Subject line, please type, "Industrial Revenue Bonds."

Topics: industrial revenue bond IRB

NPN, DPO, and White Box Finish

Posted by George Blackburne on Mon, Sep 13, 2010

Learned a Few New Commercial Finance Terms This Week

Even though I have been working in commercial real estate finance for over 30 years, I still learn new terms and concepts all of the time. Here are a few new ones:

NPN - The acronym, "NPN", stands for for Non-Performing Notes.

DPO - The acronym, "DPO", stands for discounted pay-off. In recent weeks I have personally learned of a bank selling a $17 million performing loan for just $7.5 million. On another deal a group of banks are willing to sell $37 million of debt for just $8 million.

I love working on DPO deals (discounted pay off deals). Do you have a bank willing to accept a big haircut to get rid of a note? Please call me directly, George Blackburne III (the old man) on my cell at 574-360-2486 or email a deal to me to In the subject line, please type the words, "DPO Deal."

White Box Finish - This implies a finished unit that is missing only those items that the prospective owner or prospective tenant will choose, such as the type of counter-top, the carpeting, the color of cabinets, and for office or retail space, the location of the bathrooms and interior walls.

Topics: discounted pay off, DPO, non-performing loans, non-performing notes, NPN