Commercial Loans Blog

Commercial Loans, Wealthy Investors, and the JOBS Act

Posted by George Blackburne on Mon, Apr 27, 2015

JOBS_ActThe world doesn't realize it yet, but three years ago Congress passed the most important piece of economic legislation since the Great Depression of the 1930's.  It's called the JOBS Act.  Both commercial brokers and commercial mortgage brokers can now use this new legislation to cheaply and easily raise money for their ventures.

First let me define the problem.  For the past seventy years it has been unnecessarily difficult for company owners and syndicators to raise investment money.  A businessman or syndicator could either register his new investment offering with the SEC - at a cost of 18 months and $300,000+ in legal and accounting fees - or he could quickly and cheaply do a private placement offering under Reg D.

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The problem with a Federal Regulation D offering, however, was that the company or syndicator was not allowed to do any public advertising.  This meant no TV ads, no newspaper ads, no mass mailings, no flyers, and no Google ads.  The sponsor could only make the offer to friends and wealthy acquaintances with whom he had a prior personal or business relationship.  Hence the term, private offering.  The result was that it has been extremely difficult for small businessmen and real estate investors to raise equity.  Heaven only knows how many more new businesses would have been formed in America without this burdensome restriction.




Then the Great Recession hit.  Few have any idea how close the U.S. economic system came to failure.  In my opinion, former Fed Chairman Ben Bernanke is as much a national hero as Patton or MacArthur.  Eventually many of the greatest economic minds in our country gathered around a conference table and brain-stormed about how to get the U.S. economy rolling again.

"Hey, guys, you know what might really help new companies form and hire new workers?  What if new companies and new ventures could raise equity much more easily?  Hedge funds can easily raise money because they are allowed to publicly advertise to accredited investors.  Let's allow businessmen and syndicators to publicly advertise, as long as they take careful steps to make sure that each and every investor is accredited.  After all, accredited investors are rich.  Even if an accredited investor is personally clueless, he can afford to hire a CPA or attorney to check out the investment."

And so the JOBS Act was passed on April 15, 2012.  The acronym stands for Jumpstart Our Business Start-ups.  Under this act, companies, syndicators, and developers are now allowed to publicly-advertise to accredited investors to invest in their venture.  The big commercial brokers - like CBRE and Marcus & Millichap - are already using the JOBS Act to sell commercial real estate.  No longer do you have to buy the whole property.  Now you can just invest $100,000 in a new LLC formed to buy and operate the property.




But what about commercial mortgage brokers?  How can a commercial loan broker use the JOBS Act?  For one thing, a whole new class of hard money lenders is appearing on the scene.  These new hard money lenders raise their lending dough by syndicating a different group of accredited investors for each new loan.  

There is absolutely no reason why YOU can't start syndicating private investors and funding your own commercial loans.  I have been telling you for years that the real money in the mortgage business is in loan servicing.  Remember, you can always hire a subservicer to do the actual work of loan servicing.  You charge your investors $400 per month to service the loan, and then you pay the subservicer $50 per month to do the actual work.

But where are you going to find rich investors in invest in your loans?  Helloooo?  Aren't you a commercial mortgage broker?  Aren't almost all of your borrowers rich?  An investor is an investor.  The same guy who owns commercial real estate is the same guy who owns stocks, bonds, and first trust deeds.  Don't most of your commercial mortgage borrowers already have large IRA's or pension plans with money just earning 1% to 3% in bonds?  Folks, this is easy ... and the average commercial hard money broker makes five times more per hour than the average commercial loan hack.  After all, when you own a hard money shop, you are Loan Committee.

Got a commercial loan that is not quite perfect?  Is your client's commercial property partially vacant? 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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Got a drop-dead gorgeous deal that is much too perfect for a private money lender?


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Because of all of the commercial mortgage loans ballooning in 2015, 2016, and 2017, the commercial mortgage brokerage business may have the brightest prospects of any profession in the U.S. right now.  If only you actually knew what on earth you were doing...


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I laugh to myself whenever I make the following offer - to trade 2,000 commercial real estate loan officers working at banks for just one of yours.  Turning down this offer is like saying to Giselle, "Its true, Giselle, that I'm not in a committed relationship right now, but I'm also not interested in taking you out to dinner after Tom Brady dumped you.  You'll have to find someone else to console you."  Really?????  BTW, I heard that on photo shoots Mrs. Brady (now retired) is one of the sweetest, most humble ladies you could ever meet.  Nice.


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You can now place business loans - like equipment loans, inventory loans, etc. - using C-Loans.


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We just paid our first $500 commission to a mortgage broker who convinced a banker buddy to join C-Loans as a lender!  I am so excited.


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Topics: JOBS Act

Commercial Loans and Winning Through Intimidation

Posted by George Blackburne on Tue, Apr 21, 2015

WinningThe most helpful business book that I have ever read is Robert Ringer's 1973 New York Times #1 Best-Seller, Winning Through Intimidation.  In fact, I remember flipping through a Playboy magazine - just reading the articles - when I came across a photo of a party at the Playboy Mansion.  There was Robert Ringer, sitting in a hot tub with two beautiful, topless Playboy bunnies.  Wow, was I ever envious.

Before we go any further, I want to stress that the "intimidation" that Robert Ringer was talking about was NOT physical intimidation.  He was NOT talking about employing brown-shirted Nazi thugs to browbeat people.  What he was really talking about was flamboyance - intentionally creating the impression that he was important, powerful, and a person not to be trifled with.

The really interesting thing about this book was that Robert Ringer was a successful commercial real estate loan broker.  What a coincidence!  Here the author writes a #1 best-selling business book, aimed at the general business audience, but all of the horror stories about how he repeatedly got screwed in business were from his experiences as a commercial mortgage broker.  Talk about relevant!


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Robert Ringer - through his humorous war stories - teaches us that there are only three types of people in this world - the type of person who will cheat you out of your loan fee, the type of person who will tell you in advance that he will cheat you out of your loan fee and who will then proceed to cheat you out of your loan fee, and the worst type of of all, the type of person who will swear to high Heaven that he won't cheat you out of your loan fee and who will immediately proceed to cheat you out of your loan fee.

Mr. Ringer will teach you about Legal Man, the caped crusader trained in law school to intentionally kill deals on the two yard line.  He will teach the Expert From Afar Rule.  He will teach you many of the countless ways his commercial loans were killed or he was screwed out of his commission.

But then he will teach you how to put on a show that will impress your borrowers and convince them that you are this big, invaluable expert.   He once walked into a commercial loan closing with two attractive female assistants - one to carry his typewriter (this was long before computers) and the other to carry his briefcase - all so his hands would be free and to create the impression that he was far too important to carry a case.  He was just a loan hack, but he was a clever one.  (Know anyone else who comes across as this powerful expert in commercial real estate finance, but who, in reality, is short, chubby, and far from all-knowing?  Hint:  He is often seen in a dark blue suit and maroon tie.)




Robert Ringer gets screwed out of his loan fee so many times that he eventually starts bringing his own attorney to commercial loan closings.  Remember, he's not a fund manager or even the owner of a hard money shop.  He's just a loan broker!  The lender brings his attorney to the closing.  The borrower brings his attorney to the closing.  In past years, the two attorneys would often conspire to whittle down the size of Robert's fee; but not anymore.  You'll learn all about the Attorney-to-Attorney Respect Rule when he brings his own attorney to the closing.

Robert Ringer often charged five to six points on $5 million hard money loans, so the fees he was protecting were pretty large.  I don't really expect you to bring your own attorney to a closing.  Personally I solved the cost of an attorney by becoming one myself.  I was sooooo fed up with being cheated.

But the story illustrates an important point about business.  If you don't come from a position of strength and if you don't protect yourself, opposing businessmen everywhere will remove special parts of your body.  Robert Ringer called such surgeries, "commission-dectomies", and anesthesia was never administered  You will be immensely wiser (and richer) after having read this book.

My friends, outside of the Bible, I can think of no more influential book on my success in the commercial mortgage business than this book.  I've read it at least three times.  I am making my two sons read it, and I am docking one of them $50 if he doesn't finish it by next Monday.  I am not getting paid to hawk this book.  It's just a book that you abstitively posilutely need to read.  As us attorneys often say, the book is right on point.


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Topics: Fee Collection

Commercial Loans, Cap Rates and Ghetto Properties

Posted by George Blackburne on Mon, Apr 20, 2015

Ghetto2The other day I received an email flyer from a commercial broker trying to sell an apartment building.  The commercial broker boasted that this potential investment offered a whopping cap rate of 14%.  The first thought that passed through my head was that this property was almost certainly in a war zone.

It's very hard for commercial mortgage brokers to close commercial real estate loans in war zones.  Few commercial lenders want to make commercial real estate loans in high-crime-rate, high-drug-use neighborhoods, if for no other reason than the justifiable fear that a vacant, foreclosed commercial property may be quickly vandalized and stripped of its copper.  (Been there, suffered this far too often.)  Therefore the wise commercial loan broker will be sensitive to any clues that might tip him off that he is unlikely to get paid for his hard work on a deal.

You will recall that a cap rate is simply the return on his money that an investor would earn if he paid all cash for an income property.   It's the Net Operating Income (NOI) from a rental property divided by its Purchase Price (times 100% to express the decimal as a percentage).

For example, suppose a five-plex generates $37,432 in annual Net Operating Income.  An investor pays $730,000 for this five-plex.  To compute the cap rate, simply divide $37,432 by $730,000.  The result is 0.051.  If you multiply this decimal by 100%, you get an answer that is easy to understand - 5.1%.  In plain English, the investor will earn an annual 5.1% return on his money.

Okay, if you were an investor, and all the properties were roughly similar, would you rather earn 5.1% on your money or 14.0%?  Uh... is this a trick question?  Obviously, if all else is equal, investors would greatly prefer to earn the higher return on their money.


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But what if you personally had to collect the rent every month, and people were being shot down on a regular basis in that neighborhood?  "Oh.  In that case, I'll take the 5.1% return rather than the more dangerous 14.0% return.  The extra 9% return may not be worth dying for."


True Story:  Thirty years ago I am doing a site inspection on an apartment building in San Jose.  I stepped back to capture more of the building in my camera.  As I did, my foot slipped in a mud puddle... except it wasn't mud.  It was a pool of congealed blood from a fatal knife fight the night before!  The victim's bloody handprints were even visible on a nearby car, as he slid to his death.  Eeuuuu!


Therefore, when I saw the 14% cap rate on that apartment building being marketed, my first thought was, "I'll bet this is a high-crime-rate, high-drug-use area."




Here's another concept I learned only this year.  Just like poor-credit car buyers often have to pay much more for cars than good-credit car buyers, apartment renters in the ghetto often pay more per square foot in rent than far more affluent folks in middle class areas.  Here's why:

Renting an apartment on the safer, more affluent side of the tracks requires a steady job and good credit.  A great many ghetto residents lack a steady job and good credit, so they don't qualify.  They therefore have to  live in an apartment where poor credit will be accepted.  It is ironic, but often apartments in the poorer areas of town will rent for more money per square foot than those in the rich areas.

In defense of the landlords, collection losses from poor-credit renters are often very, very high - as much as 30% to 40% of the scheduled rent.  New tenants may pay their rent for a few months, but then they often stop paying.  These poor-quality tenants next live in the apartments rent-free for 90 to 120 days, as the eviction process slowly inches its way through the courts.  When they finally leave, they often cause far more property damage than the size of their meager security deposits.

The landlords therefore have little choice but to charge poor-credit renters a sizable rent premium.  A 2-bedroom, 1 bath apartment might rent for $800 per month in a safe, middle-class area.  The same-sized apartment might rent for $975 per month in the ghetto.

Therefore, whenever you are working on a commercial loan, be very careful of properties that sell for high cap rates or which have impressive-looking debt service coverage ratios.  These properties may be located in neighborhoods where the landlords are charging a big rent premium.  Such properties may have impressive rent rolls, but the landlords seldom collect more than 60% to 70% of their scheduled rent.

If you're the typical commercial loan broker, you work 100% on commission.  Right or wrong, commercial lenders will look for any legal excuse not to lend in high-crime-rate, high-drug-use neighborhoods.  When you get a commercial loan on a property selling at a very high cap rate or which cash flows unusually well, you are on notice.  This commercial property is probably in a high-crime-rate, high-drug-use area.  This commercial loan will be hard to place.


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Topics: Cap Rates

Commercial Loan Demand is Seasonal

Posted by George Blackburne on Mon, Apr 6, 2015

SpringCommercial loan demand is both seasonal and predictable.   Busy Season for commercial loan originators starts around September 15th and ends by late November.  Forty percent of all of the commercial loans closed by Blackburne & Sons each year are originated during the brief two months of Busy Season.  This is why we have a two-month stretch, like retailers during Christmas Season, during which vacations are prohibited.

Why does the commercial loan business have a Busy Season?  By the middle of September, summer vacations for the family are over, and the kids are back to school.  It's then time to get down to business.  Commercial real estate investors have balloon payments to refinance and more expensive commercial-investment properties to acquire, if for no other reason than the need for more tax shelter.

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The second busiest time for commercial loan demand begins around the third week in January, and this brisk period continues for the next 70 days or so.  Why then?  Christmas Season is over, the family has gone home, and the Christmas decorations have all been boxed and packed away.  Its once again time to get down to business.  Commercial real estate investors need money to pay their income taxes, to expand their own businesses, or to buy other properties.  They can often get at some cash by refinancing their existing commercial buildings.




Commercial loan demand also has its Slow Season.  For commercial loan originators the pickings get pretty slim beginning around April 1st.  This lasts for about 40 days.  Why is commercial loan demand so weak during Slow Season?  The weather turns beautiful in April, and who wants to mess around with reams of paperwork when the sun is shining and the birds are singing?

This brings us to the point of today's training lesson.  There will be predictable times in the commercial mortgage business when commercial loan demand is going to be really, really slow.  You certainly don't want to just sit there twirling your thumbs.  A commercial loan officer can only process so many commercial real estate loans per year, if for no other reason other than he runs out of working hours.  If you let precious working hours slip away, you can never get them back.  That income-generating potential is lost forever.  So what's a boy to do?




This is why I am a huge fan of list advertising.  I started out 35 years ago sending out by snail mail thousands of newsletters printed on legal-sized sheets of copier paper.  My newsletters were simple and basic, but they worked pretty well.  Then I moved on to fax broadcasts, which worked cheaply and effectively for ten years.  Today I use fun email newsletters, complete with lots of jokes, funny pics, interesting videos, and training lessons in commercial real estate finance (CREF).  Maybe in the future I'll move on to video emails or talking avatars.  Who knows?

But my point is that I will probably always be a big proponent of list advertising.  By amassing a big list of buddies and contacts, I have a tool I can use to adjust the volume of my incoming loan applications.  When I'm buried, I can stop sending out newsletters for a few weeks.   When business slows down, I can double the frequency of my newsletters.  This way I can always keep our loan officers busy, without totally burning them out.

"But George, I don't have a marketing list."  Then use the next few weeks - they are going to be slow - to start building your list of contacts.  It's a slow process.  I almost never throw strangers on my list.  I only add those guys or ladies whom I meet in the regular course of business.  They either visit our website, write to me, or call into our office for a commercial loan.  But once I meet a good contact - you, for example - I try to maintain that friendship for the rest of our mutual careers.  There are several hundreds guys on our newsletter lists who have been my business buddies for over 30 years!

Doubling your newsletter volume doesn't always work.  Twenty-five years ago I remember calling my personal mentor - Bill Owens of Owens Financial Group - and complaining about the market being incredibly slow.  Bill is a huge fan of deep sea fishing, and I remember him saying, "Sometimes, George, all you can do is to go fishing."

Once again, thank you in advance for any social media atta-boys you can throw me, like Facebook Shares, Twitter Re-Tweets, Linked In Shares, and Google Plus-Ones.  Got any employees or industry buddies who might enjoy this training lesson?


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Are you the employee or friend who was just forwarded this article?  (Thank you to the sender!)  About five years ago I started writing this blog to train my two wonderful sons in commercial real estate finance.  I was afraid I might suddenly keel over from my bad heart.  Suprisingly, I'm still kicking, but twice a week I still try to write another training article about commercial real estate finance for my sons and good friends.  It's free training in a very lucrative field.  Why not subscribe?


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A huge wave of commercial loans will be maturing over the next three years.  Those commercial mortgage brokers who actually know what they are doing will make the windfall of their lives.


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No one ever listens to me.  The real money in real estate finance is in loan servicing.  I know what you're thinking.  "OMG!  I don't know how to service a loan!"  Hellooooo?  My beautiful bride and I serviced our first 30 loans by hand using payment books from the title company.  Or you can just cheaply hire a sub-servicing company for $20 per loan per month.  You charge your investors $1,000 per month to service the loan (its actually your deferred compensation for originating the loan), and then you hire a sub-servicing company for $20 per month.  Is there intelligent life out there?


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If you know just one banker who is making commercial real estate loans, you can parlay that information into a list of 2,000 commercial real estate lenders.  Don't want to give up your precious contact at the bank?  Then just buy the list for $39.95.


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In the 2,000-year history of commercial real estate finance, there has never been a single commercial mortgage broker who has not been cheated out of a $15,000+ commission by a borrower who either lied about his qualifications or who unjustifiably cancelled his loan request after the broker had devoted scores of hours to processing it.  When you get really-really mad, don't commit mayhem or murder.  Instead invest a lousy $199 and actually learn how to economically collect your justly due commissions.  


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The following commercial mortgage marketing course is one of my greatest works.


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Got an "A" quality (best rate) commercial loan request that is far too good for Blackburne & Sons? is a free commercial mortgage portal, where borrowers and brokers just like you have closed over 1,000 commercial real estate loans.  Last year one of our brokers closed an $18.5 million commercial construction loan using C-Loans, and he earned himself a $92,500 commission.  Could you use $92,500 right now?


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A few years ago we had the pleasure of calling up Alan Dunn of SpyderCube and informing him that the link  to C-Loans that he had placed on his site had worked.  The borrower had visited Alan's site while Alan was asleep.  We paid Alan $21,250.


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Topics: marketing for commercial loans