Commercial Loans and Fun Blog

In June C-Loans.com closed a sweet $18.5 million commercial construction loan on a mixed use project in Wisconsin.  It's kind of an interesting story.  

This large commercial construction loan was actually made by a syndicate of small commercial banks.  Commercial construction loans have been greatly out of favor since the real estate market crash in 2008, and syndicates of banks are always somewhat rare.  The commercial loan broker who used C-Loans.com to find the lead lender of this syndicate earned a whopping $92,500 commercial loan fee. (A $92,500 commission?!  Wow.  Note to self:  Submit my commercial construction loan requests through C-Loans.com.)

The lead lender of a syndicate is the bank that services the commercial construction loan for the other banks in the syndicate.  The lead lender makes the progress inspections - periodic visits to the property and inspections of the work performed - to make sure that the project is being built according to plans and specifications and to make sure that there is always enough money remaining in the construction budget to complete the project.  For serving as the lead lender, the lead bank usually earns a higher (1/4% to 1/2%) interest rate and a larger loan fee (about 0.5 point on the entire loan amount) than the rest of the banks in the syndicate.

I am convinced that this large commercial construction loan closed because the mortgage broker who used C-Loans.com included the gorgeous architect's rendering shown above. (Please re-read this last sentence.)  This leads us to the whole point of today's article.

Last week a mortgage broker approached me to help him place a $90 million commercial construction loan on a residential condominium project.  The first thing I asked him for was a copy of the architect's rendering (like the picture above).  He didn't have one, so I declined to help him.

Huh?  Just because he didn't have an architect's rendering?  My request for a copy of the architect's rendering was an experience test for the sponsor.  Any sponsor experienced at building large commercial construction projects should know that he will need an architect's rending for any commercial construction loan larger than around $10 million.  The fact that this sponsor or developer did not already have an archtect's rendering suggests that he has never constructed a project of this size; i.e., he lacks the required level of experience.

In addition, an architect cannot draw a rendering of a project with no plans.  If the plans are not yet completed - or at least close to being done - then the time is not yet ripe to seek financing.  The project may still be just a pipedream.

Lastly, architect's renderings are expensive - my best guess is on the order of $5,000 to $10,000.  (Anyone out there have a better idea of the typical cost?)  If the developer is trying to get by without paying for an architect's rendering, he is probably undercapitalized.  That's not a good sign for the chances of the deal closing.

Large commercial construction projects should also include an aerial photograph of the building site, with the outline of the property labeled with a yellow line.  Important landmarks should be marked with an arrow and labeled.

Early in my career I remember taking a helicopter ride over a building site with my boss and mentor, the brilliant and charismatic Bill Oldenburg, to take our aerial photographs.  The doors had been removed from the helicopter, and Bill insisted on leaning far over the edge of the helicopter to take his photo's.  The only thing keeping him alive was me holding onto his belt!  Right now, as I remember this incident twenty-five years later, my hands are dripping with sweat.  OMG!

You also need attractive pictures if you are trying to place a commercial loan on a standing commercial property.  A standing commercial property is merely one that is completely built.  Every commercial loan application should include at least one color photograph of the subject property taken on a sunny day.

Folks, blue sky sells.  In the old days unscrupulous investment promoters would promise unsuspecting investors nothing but sunny days and blue skies.  As a result, each state has its own set of Blue Sky Laws that regulate the sale of investments.  

Make sure that every commercial loan you try to place includes at least one color photograph of the subject property, taken on a sunny day with blue sky.  Good luck trying to place a commercial loan armed only with a dreary, overcast picture like the following:

Got a commercial loan that you want to place?  Want to earn a $92,500 commission?  Just enter your commercial loan into the C-Loans System - NOT using one of the many gray buttons on the site but rather using the six-step process.  Based on the type of loan, the size of the loan, the location of the property, the type of property, and the borrower's credit, the C-Loans System will suggest 20 to 30 commercial lenders.  Put a checkmark next to six lenders at a time and then press submit.  And C-Loans is free!

I never offer a satisfaction guarantee on any of my training courses.  Lazy bums will order the course, open the wrappers, make the package unsaleable to anyone else, and then try to return it when they never get off their fat bums to actually study the course.  We have literally hundreds of thank you e-mails from satisfied students, so there is no question that my commercial real estate finance ("CREF") training courses really are great.

However, I sell one CREF training course that is soooo good that I actually offer a one-year, 100% money back satisfaction guarantee.  This course is entitled, The Practice of Commercial Mortgage Brokerage.  It is designed for both newbies and veterans who want to become one of the top 20% of commercial mortgage brokers who make 80% of the dough.  I guarantee - literally - that you will double your net income as a commercial mortgage broker.

My job at both Blackburne & Sons and C-Loans, Inc. is to bring in the commercial loan applications, and I have been the rainmaker at my companies for over 34 years now.  Imagine soliciting commercial loans for a whopping 34 years.  I have tried everything, including exhibiting at trade shows, newspaper ads (back in the day), magazine ads, ads on Google, direct mail, and countless other strategies.  I have found the Fountain of Commercial Leads.  It's in the courtyard of the Hyatt Hotel in Miami, and you just dip your red solo cup into the water and ... 

I tell a story in my commercial loan brokerage training classes that goes as follows:  I get hit by a bus.  I'm quickly bleeding out on the street.  With my dying breath, I say to my two beloved sons, "Always remember, sons, the most important lesson in all of commercial loan brokerage is this, 'Commercial lenders close loans for their friends.'"  Please pay attention to those final words.  They are so important that I utter them with my dying breath.  "Commercial lenders close loans for their friends."

In other words, its not how good your commercial loan application is, but rather whether or not the commercial loan officer at the bank likes you.  Why?  Because every commercial loan ever made had at least one black hair.  A black hair is a flaw.  Maybe the commecial loan didn't cash flow perfectly.  Maybe the building was a little old.  Maybe the leases were all short term.  Every commercial loan application has at least one serious black hair, and whether or not the commercial loan officer at the bank chooses to overlook it depends on whether or not he likes you.

C-Loans.com is a commercial mortgage portal that boasts of 750 participating commercial mortgage lenders; but it also displays a small handful of Proven Brokers.  A Proven Broker is a C-Loans lead buyer who has closed at least five commercial loans for us.

I get emails all of the time from commercial loan brokers saying, "C-Loans.com is a stinky site.  So-and-so is not a real lender.  He's just a broker."

These nay-sayers couldn't be more wrong.  First of all, we never represented the broker as a direct lender.  He was clearly labeled as a Proven Broker.

Secondly, you will learn over time that most bankers are extremely lazy.  They are usually on straight salary.  While their small bonus may depend on their personal commercial loan production, most bank commercial loan officers couldn't give a flip whether they closed another commercial loan or not.

And if they are going to close a commercial loan, its not going to be for some stranger.  It's going to be for one of their friends, a very competent commercial loan broker who has already underwritten the deal and who knows that this particular commercial loan is a good one.  Ideally you are that friendly commercial loan broker; but if you're not, it sure helps to have that friendly commercial loan broker presenting your deal to the bank.  Think of him as your advocate, your attorney, or your union representative.

Here's a statistic that will open your eyes.  C-Loans.com has around 750 participating banks and other commercial lenders, and the portal has just 40 Proven Brokers.  Our Proven Brokers close about 45% of all of the commercial loans closed by C-Loans!

The truth is that our Proven Brokers are some of the best commercial loan closers on earth.  We have three different Proven Brokers who have each closed more than 40 different commercial loans for C-Loans.

So what do these Proven Brokers have in common?  What are they doing right?  What makes them the Best Commercial Loan Closers in the World?

1. First of all, they are all very likeable people.  Let's face it, some people are grumpy.  Some people are wall flowers, who say little and blend in well with the wallpaper.  But a few people are gregarious.  They are the life of the party.  They are just fun to be around.  Proven Brokers tend to be these likeable folks.
   
   
2. They know how to underwrite commercial loans, and they don't waste their banker's time bringing them deals that don't qualify.
   
   
3. They are good friends with a half-dozen to a dozen bank commercial loan officers, who close 80% of the deals closed by that Proven Broker.

So when you submit a commercial loan to one of the Proven Brokers on C-Loans.com, you are associating in a gregarious salesman with a proven track record of closings and with a stable of a dozen different banker-buddies anxious to close your commercial loan.

Folks, I didn't set out to write a plug for C-Loans when I started this article.  The whole point of today's article is that the world's best commercial loan brokers are friends with their bank loan officers.  Commercial real estate lenders close loans for their friends.

Don't you wish you were a Proven Broker listed on C-Loans.com?  You would get a half-dozen to a dozen good commercial loan applications delivered to your email box every day for free.  All you have to do to get listed on C-Loans is to close five commercial loans for us.

To submit a commercial loan using C-Loans:

This next section I personally think of as an intelligence test.  Trade one banker for 2,000?  Helloooo?  If you have to think about this offer for longer than about three seconds, maybe ...

Do you remember that buyer who lied to us (told us she was current when she was 10+ months down on her mortgage payments)?  She agreed this week to pay us $5,000 up-front and $1,000 per month for a year.  I could have been hard-nosed, but a bird in hand ...

This is the BEST training course I have ever written.  The Practice of Commercial Mortgage Brokerage has 67 lessons on how to fix your commercial mortgage brokerage business.  This dirt-cheap ($199) audio course is sooooo good that I offer a 100% money-back guarantee of satisfaction - on this magnificent course only.  It is my masterpiece.

Do you REALLY feel comfortable underwriting commercial loans?

Commercial brokers (the correct term for commercial real estate salesmen and brokers) are no longer just listing their commercial property on LoopNet and sticking a sign on the property.  They aren't just sitting there, patiently waiting for the phone to ring.

Instead, commercial brokers are taking a more proactive approach these days.  They are pushing their marketing brochures out to both commercial real estate investors and other commercial brokers using mass email services.  Quite a number of these commercial real estate marketing services now exist.  Here are just a few:

1. BigBoysBlast.com
   
   
2. PropertySend.com
   
   
3. PropertyCampaign.com
   
   
4. PropertyLine.com

Each of these marketing services charges between $100 to $1,000 to blast out a mass email to tens of thousands of recipients.  Some of these services boast a commercial real estate circulation of over 120,000.  That's a lot of exposure for a marketing brochure for less than $200.  We have heard good things about BigBoysBlast.com.

Commercial loan companies are also successfully using these mass email marketing services.  I know they have been successful because at least one commercial mortgage company is re-using their services about once every 10 days.  If they weren't getting a lot of good commercial loan leads, they would have discontinued using the service.

If you own a commercial loan company, you can also buy leads from C-Loans.  Our leads are priced differently from every other commercial loan lead seller in the country because we know our leads are good.  C-Loans has closed over 1,000 different commercial loans totaling over $1 billion, including one in June that was $18.5 million.  The broker on that deal made a sweet $92,500 commission because he used C-Loans.com.

Instead of $40 per lead, the up-front cost of our leads is just $1 to $9 each.  However, when the commercial loan closes, our lead-buying commercial loan companies owe us an additional 37.5 bps.  But that probably works just fine for you because you have just earned a big commercial loan brokerage commission.

I have often commented that, "No one gets cheated in business more often than the typical commercial loan broker."  Borrowers outright lie to us all the time, and based on that lie, we waste countless working hours chasing a commercial loan that has no chance in heck of ever closing.  It's why I went back to law school at age 32, with two kids in diapers.

Yesterday we received notice that we just won our case against another lying borrower.  Our award was on the order of $48,000.  "Yeah, George, but suing people is easy for you.  You're an attorney."  Folks, I had nothing to do with trying this case.  My wonderful E.V.P. (a non-attorney) filled out the one-page Demand for Arbitration in pen, and she handled the entire trial herself.

So stop being a victim of lying, cheating, fraudulent borrowers who think that because you are on commission that your time and effort have no value.  These "users" are horrible people.  We don't sue unfortunate people.  We sue the "users" and "evil actors".  Clearly the arbitrators have agreed with us over the years by consistently ruling in our favor.  These horrible "users" have no compassion for your family or the terrible economic stress under which you live (being on straight commission); so stop being a victim.

Get a free directory of 2,000 commercial real estate lenders.

I recently received a $300,000 commercial loan application that read as follows:

"I need a temporary bridge/start-up loan of $300,000 for about one month's time only for securing a project loan of $300 million. A lender has approved a loan of $300 million for my projects, and I need to provide an Insurance Bond Certificate covering $300 million in order to get the loan funds released. The Impressive-Sounding-Foreign-Name Insurance Company AG of the Netherlands has agreed to provide me with the required Insurance Bond Certificate, for which I need to pay $300,000 before we will receive the loan money."

Ha-ha!  This is a con.  This commercial loan request reminds of the old joke, "What do a tornado and a redneck divorce have in common?  Answer:  Somebody is gonna lose a trailer."  Or in the above case, somebody is gonna get conned out of $300,000.

Folks, I have been in commercial real estate finance now for 34 years, and I have never known a single borrower to ever successfully obtain commercial real estate financing using exotic instruments.  By exotic instruments, I mean certificates of deposit, foreign letters of credit, insurance bond certificates, indemnity bonds, or any deals involving foreign banks, offshore funds, or merchant bankers from anywhere.  

Show me a "foreign commercial lender" allegedly using "exotic instruments", and I'll show you a commercial loan confidence game in process.  Somebody is gonna lose a big advance fee.

And while we're on the subject, if you ever meet a financier who claims to make international loans, 95% of the time he is either a big story teller or an outright crook.  Maybe he genuinely tries to close international loans.  Maybe he thinks he can close international loans... but he can't.  I can just about guarantee you that he has never closed an international loan.  The issue is a 30% tax on foreign lenders.  See my earlier article on the subject of international loans.

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The elderly priest, speaking to the younger priest, said, "It was a good idea to replace the first four pews with plush bucket theater seats. It worked like a charm. The front of the church always fills first now."

The young priest nodded, and the old priest continued, "And you told me adding a little more beat to the music would bring young people back to church, so I supported you when you brought in that rock'n'roll gospel choir. Now our services are consistently packed to the balcony."

"Thank you, Father," answered the young priest. "I am pleased that you are open to the new ideas of youth."  "All of these ideas have been well and good," said the elderly priest, "but I'm afraid you've gone too far with the drive-thru confessional."  "But, Father," protested the young priest, "my confessions and the donations have nearly doubled since I began that!"

"Yes," replied the elderly priest, "and I appreciate that.  But the flashing neon sign, 'Toot 'n Tell or Go to Hell' cannot stay on the church roof."

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Another popular commercial loan "trick" is the owner's-estimate-of-value "trick".  Suppose you're a bona fide hard money commercial lender.  You really do close a few commercial loans every year.

Now let's also assume that you know that commercial loan borrowers almost always grossly exaggerate the value of their commercial property.

You could cunningly issue genuine, bona fide commercial loan commitment letters, subject to an MAI appraisal coming back at the owner's estimate of value or higher.  You could then charge a $100,000 to $200,000 up-front fee for your rush-rush commitment letter.  This huge, up-front commitment fee would be non-refundable if the appraisal came in too low to close any sort of new commercial loan.  

Well, heck, since virtually every commercial loan borrower is a big liar when it comes to the value of his property, and since the property will almost never appraise for enough money, you could pocket $100,000 to $200,000 commitment fees, one right after another.  What a racket!  You might have to fund 5% of the deals that you approve, but you could easily fund them using all of the huge, up-front commitment fees that you have pocketed.

But wait, this clever practice gets better.  In order to soothe any suspicious borrowers, you could add a provision allowing the borrower to get his own MAI appraisal if he wanted to challenge your own appraiser's valuation.  The problem for the borrower, however, is that your appraiser was instructed by you NOT to intentionally low-ball his valuation.  Therefore if your appraisal came in at $7 million, the property probably is worth no more than $7 million, not the $20 million initially "estimated" by the borrower.

The vast majority of all commercial loan borrowers, under this fact pattern, will not shell out another $6,000 for a new MAI appraisal to challenge your own fair and legitimate appraisal.  The borrower puffed up the value of his property, and he knows it.

Letters of complaint might be written to dozens of different state attorney generals, but the complaints would go nowhere.  You really do close commercial loans.  The only reason the complaining borrower's commercial loan didn't fund was because the borrower lied about the value of his property.  The loan commitment letter spelled out the terms of the deal in plain English.  (Note to self:  Carefully read contracts before signing them!)

Over time lenders using the owner's-estimate-of-value trick have added a new wrinkle.  Their commercial loan commitments obligate them to make a commercial loan at 60% of Quick Sale Value.  Wait a minute.  Did you just say Quick Sale Value?  Didn't you mean Fair Market Value?  Nope.  These lenders intentionally use Quick Sale Value in their commercial loan commitments.

What on earth is Quick Sale Value?  I dunno.  I have never seen a formal definition of Quick Sale Value.  The name, Quick Sale Value, suggests a value at which a seller could reasonably be sure of finding a buyer in, say, six weeks or so.

Let's say, for the sake of argument, that Quick Sale Value ("QSV") is around 60% of Fair Market Value ("FMV").  Let's also say that the FMV of an imaginary property is $10 million.  If the commitment letter reads that the commercial lender will lend up to just 60% of QSV, then the lender is only agreeing to finance 60% of 60% of Fair Market Value.  In other words, the commercial lender is only commiting to lend $3.6 million or 36% loan-to-value ("LTV").

In real life, most experienced investors, commercial brokers, and commercial mortgage bankers would agree that a commitment to lend just 36% LTV on an improved piece of commercial real estate would not be of much use to most borrowers.  And yet these clever lenders are regularly charging desperate, necessitous borrowers $100,000 to $200,000 commitment fees for these rush-rush commitment letters.

Isn't this a form of fraud?  Unfortunately not.  These clever lenders have repeatedly won in court.  After all, everything is spelled out in plain English in their commitment letters, and these lenders really do fund deals.    One year one of these clever lenders boasted of funding $100 million in commercial loans.  That's a very large and impressive number for a commercial hard money lender.

But what irks me is that this business plan is largely based on the reality that most commercial borrowers are big liars about the value of their property.  These clever lenders simply take advantage of that overwhelming tendency of commercial borrowers to grossly exaggerate the value of their property to retain unconscionably large commitment fees.

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Did you find today's article illuminating?  If so, how about giving your old pal, George, some Facebook Likes, some Linked-In follow-you's, some Twitter re-Tweets (am I saying that right?), and some Google-Plus plus-ones?  They mean a lot to me.  Thank you.

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You should also buy my wonderful course on the Practice of Commercial Mortgage Brokerage, which has 65+ audio lessons similar to this one.

Every day I have a C-Loans executive call at least five banks and solicit these bankers to join C-Loans.com.    Most of these bankers are scarety-cats (innovation is sinful), and they say no.  So we add them to a list of 2,000+ commercial real estate lenders that we sell for $39.95.  But why pay money when you can get this wonderful list for free?

The other day a mortgage broker just like you used C-Loans.com to place an $18.5 million commercial construction loan on a mixed-use project in Wisconsin.  His loan brokerage commission was $92,500.

My job in life is to solicit commercial mortgage loans and to play golf (not necessarily in that order).  After 34 years of soliciting commercial loans, I've gotten pretty good at it.  Whenever Blackburne & Sons or C-Loans.com needs commercial loans, I turn on the spigot.  Deals then flow in.

We once paid a guy a $21,250 referral fee to a guy, and he was asleep when he referred the commercial loan to us.  How is that even possible?

Are you telling me that every bank this year has been willing to loan your commercial mortgage borrower 100% of what he requested?  You never found yourself $100,000 to $1 million short?

When most mortgage brokers think about getting cheated out of their commission, they think of deals which closed and where they received a full or partial commision-dectomy.  But what about the borrowers who worked you for weeks and then cancelled altogther?  There is no right of recission on a commercial loan.

I have collected many hundreds of thousands of dollars over the years from cancelling or fraudulent commercial borrowers.  I don't even go to the arbitrations myself (think of a fairly casual, seated, Small Claims Court action in some attorney's conference room).  I just send one of my corporate officers.

You wouldn't hire an attorney either.  You would just show up and tell your story.  Who cares if you win or lose.  My agreement precludes the award of attorneys fees, and most cases (70%) settle before trial.  After your first case or two, you'll win 90% of your future cases.  Over a 25-year career in commercial mortgage brokerage, I'm talking about an extra half-million to $1 million in your pocket.  For real.  No BS.  No one gets screwed in business more than the typical commercial mortgage broker.  It's why I went back to law school at age 32.