Commercial Loans Blog

Using Cheddar Stacks to Get Commercial Loans

Posted by George Blackburne on Mon, Aug 19, 2019

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Nineteen men and women get together every week for breakfast or lunch.  Included in the group is a -

  1. Residential real estate saleswoman
  2. Residential mortgage agent
  3. CPA or accountant
  4. Handyman
  5. Real estate attorney
  6. Commercial real estate appraiser
  7. Fix and flip specialist
  8. Owner of a flooring business
  9. Owner of as water damage restoration business
  10. Commercial real estate broker
  11. Residential real estate appraiser
  12. General contractor
  13. Owner of a moving company
  14. Painting contractor
  15. Roofing contractor
  16. Probate or tax attorney
  17. Estate planner or life insurance agent
  18. Owner of a property management company
  19. You - a commercial loan broker.

 

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Several times a week each of you says to a client, "As it turns out, I know a very good real estate agent (or a commercial loan broker or a handyman).  Would you mind if I gave your name and number to him, so he can contact you?"

Then each member of your group takes out his cell phone, opens up the Cheddar Stacks app, and, in just 45 seconds, sends the lead to his fellow group member.

At lunch, you guys share additional leads, and talk about replacements for the attorney or flooring contractor, who is not sending leads or who is not even showing up for meetings.  Cheddar Stacks makes identifying the hang-dog quitters easy.

 

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What does Cheddar Stacks cost?  It's free at first, and then, after it has proven it's worth, there is a token fee every month.  And guys, compared to paying for Google Adwords, direct mail, or internet display ads for commercial loan leads, the cost of Cheddar Stacks is trivial.  Pocket change.  Two coffees from Starbucks.

It is critical that you learn this lesson about originating commercial loans.  A commercial loan lead that that you get by referral is worth THIRTY leads generated by your own advertising.  

Why?  When you advertise for leads, you get shoppers.  The problem with shoppers is that there is always a bigger liar down the street.  "Oh, yes, I can get you a 2% commercial loan that is fixed for 100 years.  And my commercial lender will lend up to 130% loan-to-value."

 

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Referrals, on the other hand, tend to trust you.  They put themselves into your good, honest hands, and they follow your advice.  So I say again, "A commercial loan lead that that you get by referral is worth THIRTY leads generated by your own advertising."

Okay, you're interested.  Who wouldn't be?  For the cost of a couple of coffees each month, you can get three or four good referrals per month?  This is a no-brainer.

 

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Each of you should already to be pushing your real estate investor clients to refinance their commercial properties.  Banks are making new permanent commercial loans at just 4.5% today; but your clients better hurry.  A recession is coming, and when it hits, banks are likely to get vey conservative about debt service coverage and loan-to-value ratios.  If your client moves right now to refinance, he should be able to get a new commercial loan of 75% loan-to-value.  You can find hundreds of the most aggressive credit unions and banks by using C-Loans.com

 

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One of my favorite scenes from any movie was from Ghostbusters II.  Now, remember, FORTY years ago, Sigourney Weaver was smokin' hot.  A demon had possessed her body, and she was writhing on the bed in a very seductive manner.  Tending to her was Bill Murray, of classic Saturday Night Live fame (also Caddy Shack).  The demon utters, "Do you want this body?"  Bill Murray turns to the audience and says, "Is this a trick question?"  Hahahaha!   

So, do you want referral commercial loan leads?  "Is this a trick question?"  There are some propositions that do not need to be oversold.  Simply click here.

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Topics: Cheddar Stacks

Elon Musk and Space X Could Be Our Savior From World War III

Posted by George Blackburne on Tue, Aug 13, 2019

WVorld War IIIHere's the problem.  The winds of war are blowing, and China thinks that it can win.  By the way, this cool image to the right is from The Sun newspaper in the U.K.  I am far from the only guy who is worried about this.

World War III won't be a nuclear war, for the reasons I outlined in a blog article I wrote ten days ago.  It will be a war fought with surface-to-sea intermediate range missiles, and our aircraft carriers are at great risk.  If Russia joins on the side of China, which is increasingly likely, Russia will almost certainly use hypersonic conventional missiles that can fly at up to 15 times the speed of sound.

 

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North Korea and Iran would likely join the two former communist superpowers.  North Korea would probably try to seize South Korea, and the Iranians would probably try to seize Saudi Arabia.  Did you notice that the North Koreans tested their intermediate range conventional missiles this week?  Twice.

Imagine the war beginning with Russia launching intermediate range conventional hypersonic missiles (no nukes) at U.S. and German military bases, airports, anti-aircraft batteries, our own missile batteries, bridges, power plants, pipelines, ports, and munitions depots.  

Because these new hypersonic missiles are so fast, they will strike before the U.S. and our allies can react.  The war in Europe could effectively be over in the first week.

 

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Germany's military is a paper tiger.  The Germans spend less than 1.5% of their GDP on defense, and they depend on the U.S. for their defense.  The Germans are so anti-war that they even refused this month to provide ships for the international flotilla being assembled to protect vital oil tankers from Iranian attacks in the Persian Gulf.    

Why would Russia do this?  Putin wants to go down in history as the man who returned Russia to its former glory.  After victory, Russia would probably seize the Ukraine and the three Baltic states of Estonia, Latvia, and Lithuania.

China wants Taiwan back.  Economic relations between the U.S. and China have deteriorated so far that China has less and less to lose if it moves to seize Taiwan.  Yes, the United States is China's best customer, but did you know that we only buy 20% of their exports?  They could survive without our business.

 

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To take back Taiwan, the Chinese military will have to storm the beaches of Taiwan.  Did you know that the Chinese Navy has more ships than the U.S. - something like 305 to our 287?  These Chinese ships are not sandpans either.  These are modern warships, though typically smaller than ours.  China just launched it second aircraft carrier this week, and they constructed this one themselves.

Their landing craft will have to endure withering fire from the U.S. 7th Fleet; but U.S. naval power is centered on our aircraft carriers, which could be sitting ducks for Chinese surface-to-sea missiles.  Sure, our cruisers will shoot down a ton of incoming missiles; but they are likely to be overwhelmed by the sheer volume of Chinese missiles, directed on target by Chinese military satellites.  Billion-dollar aircraft carriers are likely to be taken out by storms of mere million-dollar missiles.

It is interesting to note that hypersonic missiles travel so fast that they hardly need a warhead to sink a carrier.  They would strike with so much kinetic energy that the speed of the strike would be enough.

 

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But finally there is hope.   A Naval spokesman this week praised the accomplishments of Elon Musk and Space X.  

Less than two months ago, Space X rocket opened its payload doors and rolled out 60 refrigerator-sized communications satellites.  Each successfully took up position in geosynchronous orbit around the world.  Each is connected and capable of relaying high-speed internet messages.  The network is called Spacelink, and it will eventually be comprised of 12,000 interconnected satellites, costing a total of $10 billion.  When completed, everyone on earth will have access to cheap, high-speed internet service.

The U.S. military now wants a similar satellite network.  If it can be completed before World War III starts, the U.S. can pull back its Navy all the way back to Midway Island, 4,000 miles from the Straights of Taiwan.  Incoming Chinese missiles could then be easily spotted from space and targeted for destruction.  U.S. intermediate-range missiles could then target Chinese ports, railway lines, anti-aircraft batteries, missile batteries, factories, bridges, power plants, communication hubs, and the like.  In other words, we win World War III.

 

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You might be tempted to think, "Oh, well.  What do I care if the Chinese take Taiwan, the Russians take back much of their former empire, the North Koreans unite the Korean Peninsula, and the Iranians take the Saudi Arabian oil fields?  We have plenty of oil here in the U.S."

The Russians are working right now on nuclear hypersonic missiles with an unlimited range.  They will be able to hit middle America from middle Russia.  Imagine your life if every bridge, power plant, port, dam, oil refinery, airport, railroad yard, and cell tower in America is smashed in a one-year missile campaign.  We would all starve.  

By the way, the Russians are not ready yet.  One of their nuclear-powered hypersonic missiles (conventional warhead) exploded this week, killing seven scientists, releasing radiation, and forcing a nearby Russian town to evacuate.  (Source:  Bloomberg and the New York Times)  I wonder if the CIA was responsible?

 

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The big question is whether Elon Musk and Space X can complete this new military satellite network in time.  The winds of war are blowing.

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Commercial Loans and Why Interest Rates Are Falling Like a Rock

Posted by George Blackburne on Fri, Aug 2, 2019

Population declineThe ten largest economies include (1) the United States; (2) China; (3) Japan; (4) Germany; (5) United Kingdom; (6) India; (7) France; (8) Italy; (9) Brazil; and (10) Canada.  I was personally surprised to see that the economies of both Brazil and Canada made the top ten.

Most of these economies are shrinking in population, and this is extremely deflationary.

 

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Why is a shrinking population deflationary?  In order for the money supply of a modern economy to grow, its banks need to make new loans.  In order to make new loans, banks need borrowers.  If the number of potential borrowers is shrinking, eventually the country's money supply - and hence inflation - will shrink.

Why is deflation so bad?  A little bit of deflation is not terrible.  It makes the dollars of working Americans go further.  For example, if the price of a new bike for your kid falls from $70 to $62 over two years, that is surely not a bad thing.

But there is a dark side to deflation.  For one thing, deflation makes it harder to make the loan payments on your existing debt.  For example, if your mortgage payments are fixed at $2,000 per month, and the prevailing wage rate is falling at 2% per year, you could be in for a world of hurt if you have to change jobs and accept a new one at the lower wage rate.

 

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The second problem is that deflation slows an economy because people postpone their purchases.  For example, why buy a new car for $50,000 this year when the price will probably fall to $46,000 next year?  Why not just postpone your purchase until next year?  If enough Americans delay their purchases of a new car, the automotive industry will soon tank and tens of thousands of workers will be laid off.

Lastly, significant deflation usually comes with a contracting economy, layoffs, falling demand, and job insecurity.  Deflation can easily become self-feeding.  

This is so important that I am going to say it again.  Deflation can easily become self-feeding.  A modern economy can quickly cycle down the drain.

 

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So the cycle goes as follows:  

People stop having children.  The number of potential borrowers shrinks.  As the number of potential borrowers shrinks, banks make fewer loans.  The money supply then contracts, and a wave of deflation sweeps the country.  As deflation washes over a country, it becomes harder for borrowers to raise the dough to make their loan payments.  As more borrowers start to default, the banks get frightened and stop lending; but they keep gathering in their loan payments.  Because the Multiplier Effect works in reverse at the rate of 20:1, for every $1,000 received in loan payments that is not immediately recycled back out into a new loan, a whopping $20,000 get sucked out of the country's money supply.

Then you REALLY have deflation, like we had in 2008, when at least four trillion dollars was destroyed.  Yes, money can be destroyed.  How else do you think the Fed could have injected $4 trillion into the economy without creating horrible hyperinflation?  

 

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The U.S. used to be the one shining star in terms of population growth.  Most of this population growth came from immigration.  The U.S. birth rate is not large enough to replace itself.  With the U.S. now preventing migration from the south, the population of the U.S. will soon start to decline.

Even China, which has lifted its One Child Policy, is shrinking.  The cost of education is high in China, so the typical Chinese family is saying, “Naw, no thanks.  One child is enough.”

Adding to this deflationary trend is the graying of each of the top ten economies.  Over a billion retired folks across the modern world are saying, “I’m done.  Take my life’s savings and give me an income.”

 

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The problem is that there is FAR too much savings, too little growth potential, and not enough workers to do all of the work.  The young people are saying, through their lack of loan demand, “We don’t need your stinky money, old man and old lady.  We’ve got more than enough money to do what we want.”

There is too much saving retirement chasing too few borrowers.  Therefore, the price (interest rates) must come down.

Grasp this concept:  There is now almost $11 TRILLION dollars invested in bonds, CD’s and business loans with a negative yield.   Most of this is in Europe and Japan.  Did you know that in Europe you now have to pay your bank to accept your deposits?!

 

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Investors in Europe and Japan are so desperate for yield that they are snapping up U.S. Treasury securities.  Did you know that the yield on the U.S. ten-year bond dropped from 2.03% yesterday to just 1.88% yesterday?!!!  The ten-year U.S. bond yield may drop below 1% within the next 18 months - maybe even within one year.

I don't want the world.  I just want to refinance every commercial building in America with a lower interest rate.  Is that too much to ask?  :-)

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Before calling us, please click on this link, which totally explains the offer.  Basically you enter your deal into the six-step C-Loans System (not just filling out a form to get a freebie), you put a checkmark next to six lenders, and you then press Submit.  Finally you send an email to Tom Blackburne and tell him which two of the above gifts that you want.

If you have used C-Loans.com in the past, you are going to be amazed at the huge number of hungry new commercial lenders.


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Commercial Loans and the Relaxation of the Debt Yield Ratio

Posted by George Blackburne on Thu, Aug 1, 2019

German bundFirst a correction.  A few days ago, I wrote a blog article about how deflation is sweeping the world.  In that article, I mentioned that deposit rates in Germany are slightly positive.  I am pretty sure that this statement was wrong.

Listening to Bloomberg today, I just discovered that the yield on ten-yield German bunds is a negative 0.46%.  The world is deflating so fast that this yield fell by a full 0.02% in a single day.  That's a pretty big move.  No wonder the Fed is trying to get ahead of deflation in America.

 

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I couldn't find the current yield on bank C.D.'s in Germany right now, but they simply must be negative because German banks are making hundreds of billions of dollars in commercial loans to large German businesses at a negative interest rate.

Holy crappola!  Is this a wild and crazy world or what?  This negative yield means that if you want the safety of loaning money to the German government, you have to pay the German government almost one-half of one percent per year for the privilege.

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The Debt Yield Ratio is different from the Debt Service Coverage Ratio.  

 

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The Debt Service Coverage Ratio is a financial ratio, used when making commercial real estate loans, designed to determine if the property generates more than enough net income (typically 1.25x) to make the loan payments on the proposed loan.

The Debt Yield Ratio, in contrast, is a financial ratio, used when making commercial loans, designed to make sure that the amount of the new commercial loan never gets too large in relation to the net income thrown off by the property - no matter how low interest rates get.  This latter point is critical.  

In the lead-up to the financial crisis in 2008, conduits brought amazingly low interest rates on commercial loans to prime commercial real estate.  Because interest rates were so low (in comparison to prior years) in 2005, 2006, and 2007 that investors were able to achieve historically sky-high loan-to-value ratios, sometimes as high as 80% loan-to-value!

 

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Because the buyers of commercial real estate could now buy trophy properties with 80% leverage, thousands of wealthy investors poured into the trophy commercial real estate market.  Up-up-up went prices.  Down-down-down went cap rates.  The property valuations and the size of the loans against them went crazy.

Bam!  Then the Great Recession struck.

Down-down-down went the values of trophy commercial real estate.  Borrowers defaulted on their huge CMBS loans.  The bonds backed by commercial mortgage-backed securities (IOU's backed by huge pools of commercial real estate loans) took horrendous losses.

 

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After taking horrendous losses, the buyers of commercial mortgage-backed securities lost their appetite for these bonds. In 2009, the CMBS industry contracted almost out of existence.  Dozens of conduit lenders (specialized mortgage companies originating commercial loans destined for securitization) closed their doors.  It was a bloodbath.  An entire industry - the conduit industry - was almost wiped off the face of the earth.

Finally - slowly - the appetite of CMBS buyers returned, but they were determined to never again invest in bonds backed by commercial loans that were far too large in comparison to the amount of net income being generated by underlying the property.

The result was the creation of the Debt Yield Ratio.  At first, a conduit could not originate a CMBS loan with a debt yield of less than 10%.  This kept most conduit loans at less than 60% loan-to-value.

 

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Why would any borrower be content with a $7 million loan against his office building if the loan-to-value ratio was only 58%?  The answer was that the conduits were the only lenders making non-recourse commercial loans.  

Okay, life companies were also making non-recourse commercial loans, but their properties had to be breathtakingly beautiful.  Conduits, on the other hand, would make large, non-recourse, commercial loans on average-looking commercial properties.

The new wave of CMBS loans performed spectacularly in 2011, 2012, and thereafter, so the appetite of CMBS investors became ravenous.  More and more exceptions to the 10% minimum Debt Yield Ratio were made until 9% became the norm.

 

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I am sure that conduit Debt Yield Ratios have fallen below 9%.  Does anyone out there work for a conduit?  What are conduit Debt Yields today?

This article was triggered by the rate sheet of a money center bank.  Now this bank is a portfolio lender, rather than a conduit lender, but they recently publicized a minimum Debt Yield Ratio of 5% for apartments, 6% for commercial, and 8% for multifamily.  Wow.  The market is truly ravenous for commercial loans.

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First of all, if you submit your commercial loan to six of our banks, you get to choose two of following gifts.  (1) Income Property Underwriting Manual ($199 retail); (2) Loan Broker Fee Agreement ($199 retail); (3) Commercial Mortgage Marketing Course ($199 retail); and (4) The Blackburne List of 750 Commercial Lenders ($79 retail).

Next, after submitting your commercial loan to six of our banks, you can create a gorgeous PDF of your loan package that you can use to submit your deal to dozens of your own banks.  Look for a button at the very end of the six-step process that says, "Create a PDF."

Lastly, you get to see the 150 new banks that we have added to C-Loans.com in the past three weeks.  Oh, my goodness.  Hungry banks are joining C-Loans in droves.

 

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Remember, Commercial Mortgage Mania is now in full swing.  This will be the greatest turkey shoot of your life.  You should make more money as a commercial mortgage broker in the next six months than you have ever made in your life; so get out there, find some commercial property owner, offer him a 4.75% new first mortgage on his office building, and put some cash in his pockets.

Seriously, if you meet anyone who owns a commercial property, tell them, "I can lower your interest rate to 4.75% fixed, lower your monthly payments, and put tons of cash in your pocket."  

 

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Topics: debt yield relaxation