Commercial Loans and Fun Blog

The 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.

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."

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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!

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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.

Commercial 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.

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?

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?

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.

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?

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.

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.  

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

Got an "A" quality (best rate) commercial loan request that is far too good for Blackburne & Sons?  C-Loans.com 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?

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.

I'm sure that you already know a great deal about commercial bridge loans, but I hope to add even more to that knowledge today.  If you are a commercial broker - a commercial real estate broker or salesman - today's training article will be particularly helpful.  By the way, it is the custom and practice in the industry to call commercial real estate salesmen "commercial brokers", even if these salesmen are not technically licensed as real estate brokers.

A bridge loan is a fast commercial real estate loan used to bridge a short period in time.  Years ago bridge loans were also known as swing loans, although this term has fallen out of common usage.  Typically bridge loans have a term of just 6 months or one year, but many bridge loans also provide for a 6-month or a one-year extension upon the payment of an additional 1/2 point to 2-point extension fee.

Bridge loans are used to bridge some short period of time.  Here are some examples:

1. Suppose a commercial property investor has listed his office building for sale, but the building hasn't sold yet.  In the meantime, the investor suddenly needs dough, perhaps to inject cash into his business.  A fast bridge loan solves his problem.
   
   
2. One of the unfortunate features about conventional commercial real estate loans is that they have balloon payments.  A conventional commercial real estate loan is a loan that is NOT guaranteed by the Federal government (SBA loans, USDA B&I loans, and FHA/HUD apartment loans are all guaranteed by the Federal government) or that is NOT guaranteed by a government sponsored entity (GSE's include Fannie Mae, Freddie Mac, and Ginnie Mac).  Since most conventional commercial real estate loans have balloon payments, what often happens right before the property is due to be refinanced?  Too often an important tenant moves out of the building!  Suddenly the property won't qualify for a bank refinance.  A bridge loan pays off the ballooning loan and gives the property owner six months to one year to find a new tenant.
   
   
3. Suppose a commercial property is well located, but it needs to be renovated, beautified, and re-leased at a higher rental rate.  The commercial property owner doesn't want to place a new fixed-rate permanent loan on the property yet because currently the rents are low.  For example, based on current rents, the property might only carry a $900,000 new permanent loan.  However, if the owner renovates the property and makes it look more modern and pretty, he might be able to rent it out for a much higher rental rate and qualify for a $1.5 million new permanent loan.  Who remembers the definition of a permanent loan?  A permanent loan is a first mortgage loan, with a term of at least five years, and which has some amortization (usually based on a 25-year schedule).
   
   
4. Bridge loans are often used to cover the cost of tenant improvements - those special improvements to the space required by a new tenant, like dividing walls, new paint, new carpet, bathrooms, etc.  Once again, the owner can't put a new permanent loan on the property yet because the space isn't yet occupied and because most new fixed-rate permanent loans today have a very painful prepayment penalty.

Bridge loans are designed are designed to bridge a gap in time but NOT a gap in the capital stack.  A lot of new commercial loan brokers mistakingly believe that if their client is trying to buy a commercial building for $1 million, the bank is only willing to make a $700,000 new permanent loan, and the buyer has just $150,000 (15% of the purchase price) to put down, that they need a bridge loan to bridge the $150,000 shortfall (15% of the purchase price).  No-no-no.  A bridge loan does NOT bridge a gap in the capital stack.  In most cases, only additional equity will bridge that gap.  Think of equity as the lender's protective cushion.  Someone else gets to lose a ton of dough (the entire downpayment) before the bank loses its first penny.

But this brings up an interesting question.  Is it possible to obtain a second mortgage bridge loan?  In the old days, there were lots of hard money lenders making second mortgages on commercial properties.  Most of these guys were wiped out in the commercial real estate massacre of 1986 to 1991, when commercial real estate fell by 45%.  The commercial second mortgage industry never really came back after that.  Most commercial bridge loans these days are therefore first mortgages.

Blackburne & Sons has a superb commercial bridge loan program.  We charge only one point, and our bridge loans have no prepayment penalty.  I am aware of no other private money bridge lender in the entire country who charges just one point.

I am always very grateful for your social media atta-boys, like Facebook shares, Twitter Re-Tweets, Linked-In shares, and Google Plus One's.  It's not possible for me to thank each one of you personally, but please know that these atta-boys inspire me to write and train again.  You can also now forward my commercial training articles to your co-workers, employees, and friends.

Did you just find out about this wonderful, free training in commercial real estate finance because a friend kindly forwarded this article to you?  Want to be sure that you'll never miss another free training lesson?

So you're a guy, you're single, and Jennifer Anniston walks up to you and says, "I'm feeling lonely tonight.  Want to go get a coffee with me?"  Best offer you'll ever get in your lifetime?  Nope.  The following offer is even better.  Ha-ha!  

I have a buddy, Les Agisim of TCRM Financial, who describes A-quality commercial loan requests as best rate deals.  If you have a best rate commercial deal sitting on your desk, a deal that is far too good for a private money lender like Blackburne & Sons, and this deal needs to get done by a life company, a conduit, or a bank, I urge you to submit it through C-Loans.com.

Don't forget that you can now close business loans - rather than just commercial REAL ESTATE loans - through C-Loans.

Are you wise?  If so, you will submit a copy of every small (less than $2 million) commercial real estate loan that you work on to Blackburne & Sons.  At NO COST, we will issue your borrower a Loan Approval Letter.  Go ahead and also submit your deal to a half-dozen banks in search of a best rate quote.  Banks issue great quotes; but they turn down a ton of great commercial loans for the goofiest of reasons.  If the bank leaves you standing at the altar looking stupid, you will be VERY grateful to be able to fall back on Blackburne & Sons.

The next three years promises to be the most profitable time in the history of commercial real estate finance for commercial loan brokers.  This assumes that you actually know the business.

If you don't lay awake at night dreaming of the day when you will enjoy $40,000 per month in loan servicing income, then you are missing the whole point of being in the mortgage business.  It's the loan servicing income, silly!  Last month Blackburne & Sons closed $4.5 million in loans.  This means that starting next month, we will earn an extra $7,500 per month in passive income for the next five years.  Helloooo?  Anyone catch the word, "extra"?  It's the servicing income, silly!

Wish you had a spigot that you could turn every time you needed more commercial loans?

Wish you could afford one of my training courses?

Seventy-five percent of the time when a developer calls a commercial mortgage broker to help him place a commercial construction loan - that deal is NOT do-able.  Why?  Because the developer doesn't have enough equity in the deal.  He doesn't have enough skin in the game.

"Gee, George, how can you make such a blanket statement like this?  How could you possibly know that the developer doesn't have enough equity? Are you the Great Oracle of the Indiana Cornfields?"

Answer:  Banks love-love-love to make commercial construction loans, assuming the world needs what the developer is trying to build - like more office space in San Francisco.  Banks love to make construction loans because they are short term loans and because they very profitable.  Why are construction loans so profitable?  Because the bank immediately earns one to two points up-front on the entire loan amount, even though the developer's first draw might only be for a few thousand dollars.

Therefore any developer with half a brain calls a local bank long before he calls a mortgage broker.  And if the banks wants to make construction loans, yet it turns the deal down anyway, there has to be a reason.  Ninety percent of the time that reason will be because the developer doesn't have enough of his own - or his partners' - money in the deal.  Rather than try to raise more equity, he tries a mortgage broker.

Therefore, if you are a mortgage broker, the first thing you have to do, before you waste a lot of time, is to determine if the developer has enough equity in the deal.  But what counts towards the developer's equity?  It is the sum of the following:

1. The developer's cash down payment on the purchase of the land.
   
   
2. It does NOT include the principal and interest payments on the land loan used to buy the land.  Payments on a land loan don't add value to the project.  In theory, a developer is supposed to pay cash for the land.
   
   
3. But definitely include any appreciation in the value of the land since the buyer purchased it, either because of time (maybe the developer wisely bought the property in 2009 at the bottom of the market) or because of the happening of some external event, such as the completion of a freeway off-ramp on the subject strip or the opening of a nearby Wal-Mart.
   
   
4. Any increase in land value due to a zoning change or use change.
   
   
5. Any increase in value of the land due to assemblage.  Sometimes an assembled parcel is worth far more than the sum of the purchase prices of the various parcels.  Imagine a developer who is able to buy six ugly, old rental houses along a busy strip and combine them into a site large enough for a modern new strip center (called a mini-mall in Southern California).
   
   
6. Any monies already expended for architect's fees.
   
   
7. Any monies already expended for engineering fees.
   
   
8. Any monies already expended for legal fees, especially when used to get the zoning or use changed.
   

So how much equity is enough?  Generally a developer has to cover 20% of the total cost of a project.

Don't forget, when you are computing the Total Project Cost, to include such Soft Costs as the Interest Reserve, any loan points, appraisal fees, toxic report fees. structural engineering reports, plan check fees, and utility hook-up fees.  Any of these fees that are prepaid count towards the developer's equity in the project.

Remember, the developer, or his equity partners, must contribute at least 20% of the Total Project Cost.  If the property is a business property, such as a hotel, restaurant, or marina, the developer may have to contribute 30% to 40% of the Total Project Cost.

If you learned something today, would you kindly give me a social media doggie treat, like a Facebook Share, a Linked-In Share, a Twitter Re-Tweet, or a Google-Plus atta-boy?  It's how I can judge whether or not our readers are digging these articles.  Thanks so much!

Got some loan agents working for you or some buddies who are also in commercial brokerage or commercial mortgage brokerage?  It would be terrific if you would please forward this training article to them.  And if someone was indeed kind enough to forward this article to you, you can sign up to receive these free training articles in commercial real estate finance by going to our blog and typing in your email address below my rump-ugly picture.  :-)

When I teach commercial real estate finance, I try hard to use simple terms (baby language), lots of repetition, and tons of examples.  Although I ended up graduating from law school with honors and passing the California Bar on my first attempt. I also remember driving my law school instructors absolutely crazy with questions.  "I'm sorry, Judge, but I don't get it."  So my training courses are intentionally aimed at folks of average intelligence (like me).  I truly believe the best thing you can do for yourself in this business is to take my classic 9-hour training course.  Countless successful brokers have sought me out at trade shows to shake my hand and thank me for this course.  Heck, I expected to be dead by now (heart problems), so I created this program with great care to train my two wonderful Eagle Scout sons after my death.  God bless modern medicine!  Ha-ha!

If you put two plastic bottles into a recycling container you get to take the lovely Jennifer Aniston out to dinner.  (If you haven't seen the Jennifer Aniston movie, We're the Millers, you are missing a true treat.)  The recycling bottles deal is the only deal on Earth better than the following.

C-Loans is now placing business loans, rather than simply commercial real estate loans.

How would you like to be able to turn on a flow of commercial loan applications like turning on a faucet?  Hey guys, do you think that I really get to live near my daughter's $45,000 per year high school because I am so handsome and charming?  Helloooo?  Look at the picture.  It's because I am a master marketer, and everything I do is repeatable.  My son, George IV, has taken my marketing course, and he is emerging as even more effective marketer than me.

Do you sometimes look at my marketing courses and say, "Gee, George, I don't doubt that you can teach, but I don't have any dough."  I'll give you the training course of your choice if you convince a bank to join C-Loans.  This is no big deal, guys.  Just send them the link to this sales page.  Duh.  Bankers are getting pressure today from their bosses to make commercial loans and SBA loans.

I don't get you guys.  You are so focussed on saving the borrower 1/2% on the interest rate that you forget that the borrower's business actually needs money.  If they had money right now, they could triple it in 18 months.  And you're risking everything to try to save them 0.50%?  Really?  Are you retarded?  Blackburne & Sons will issue your client a Loan Approval Letter for free!  We're thrilled to do this because we know that 60% of the time your best bank will leave your borrower standing at the altar looking stupid.  Your borrower needs money!

A handful of well-trained commercial mortgage brokers are about to make a fortune originating commercial construction loans over the next few years.  There are three reasons why this is true.

1. There has been almost no new commercial construction in the U.S. for the past eight years.  The U.S. needs a few more commercial buildings in certain areas - like office space in San Francisco and multi-use industrial space in many of the nation's gateway cities (jokingly described as cities with football teams).
   
   
2. Commercial construction loans are large, so the mortgage broker's fee will be large.  One point on a $4 million commercial construction loan is a handsome $40,000.
   
   
3. Banks love to make commercial construction loans because they are very profitable.  The bank earns one point ($40,000) to two points ($80,000) upfront on the entire loan amount (say, $4 million), even though the first draw or disbursement to pay for the demolition and grading might only be for $37,000.  Construction loans are also short-term loans.  Banks greatly prefer short-term loans.

Commercial construction loans can also be an enormous waste of time for mortgage brokers, if you don't know how to quickly separate the wheat from the chaff.  An untrained commercial loan broker could easily originate two dozen large commercial construction loans and never close a deal.

The reason why is because the vast majority of developers don't have enough equity or skin in the game.  They want the bank to take all of the risk.  The problem for beginning and intermediate level commercial mortgage brokers is that they can spend dozens of hours packaging a commercial construction loan, when the deal never had a chance in heck of closing from the start because the deal lacked enough equity.  Over the several blog articles, I intend to teach you how to quickly determine if a commercial construction loan has enough equity.

If a commercial construction loan does close, it is almost always made by a garden-variety commercial bank.  You'll recall that a commercial bank - as opposed to an investment bank or a merchant bank - is just a bank that accepts deposits and makes business loans.  The word "commercial" is just a fancy term for "business".

Construction loans have to be disbursed in stages; otherwise the developer could just skip town with his Barbie doll girlfriend and the bank's $4 million.  The bank will therefore insist on making frequent progress inspections to ensure that building is being constructed according to the plans and specifications.  Of all of the various types of commercial lenders - life companies, conduits, commercial banks, credit unions, and hard money lenders - commercial banks are the ones best equipped to issue a number of smaller disbursement checks.

Since construction loans need to be disbursed in stages, after frequent progress inspections, it follows that commercial construction loans are made by local banks.  It wouldn't make sense for a Chicago bank to make a $4 million commercial construction loan in Dallas.  You can't keep putting an inspector on a plane to Dallas every ten days.  It's not economically feasible.

Okay, so an $8 million commercial construction loan falls in your lap.  Do you accept the loan brokerage assignment.  Well, let's underwrite the deal.  To underwrite a commercial construction loan, you need to apply a number of tests and ratios.  We will cover each of these tests or ratios in more detail in upcoming blog articles:

1. Loan-to-Cost Ratio.  Is this deal less than 80% loan-to-cost?  Does the developer have enough skin in the game?  Most deals will fail this test.
   
   
2. Loan-to-Value Ratio.  When completed and leased out (stabilized), will the construction loan be less than 70% to 75% of the property's fair market value?
   
   
3. Debt Service Coverage Ratio.  Will the finished property, when leased out and stabilized, generate enough net operating income to give the takeout lender his required 1.25 debt service coverage ratio?
   
   
4. Debt Yield Ratio.  This ratio is new, and it is different from the debt service coverage ratio.  This ratio is typically only used for commercial loan requests larger than about $5 million to $10 million.  If the borrower defaulted on his first payment and the construction lender immediately foreclosed, will the leased and stabilized property produce a cash-on-cash return to commercial construction lender of at least 8% or higher?
   
   
5. Experience of the developer.  Has the developer built and managed a number of similar buildings almost this large?  Be sure to ask for a curriculum vitae ("CV").
   
   
6. Is the project ready to be financed?  Does the developer have his final working drawings?  Can he show you an architect's rendering?

We will cover each of these subjects in more detail in the coming weeks.  

If you learned something today, would you kindly give me a social media doggie treat, like a Facebook Share, a Linked-In Share, a Twitter Re-Tweet, or a Google-Plus atta-boy?  It's how I can judge whether or not our readers are digging these articles.  Thanks so much!

Got some loan agents working for you or some buddies who are also in commercial brokerage or commercial mortgage brokerage?  It would be terrific if you would please forward this training article to them.  And if someone was indeed kind enough to forward this article to you, you can sign up to receive these free training articles in commercial real estate finance by going to our blog and typing in your email address below my rump-ugly picture.  :-)

Do you need a commercial construction loan right now?  You can submit your application to hundreds of different hungry commercial construction lenders in just four minutes using C-Loans.com.  We recently closed an $18.5 million commercial construction loan on the mixed use project in Wisconsin seen below.  The mortgage broker who used C-Loans.com earned a $92,500 loan fee:

So please click here to enter your commercial construction loan.

Get a free directory of over 2,000 commercial real estate lenders here:

Because an enormous tidal wave of commercial loans are maturing, the next three years are likely to be the most profitable years for commercial mortgage brokers in the history of the industry.  This assumes that you know what you are doing:

We will pay you to recruit lenders for C-Loans, plus give you a free training course of your choice.

Have you delivered a $2.5 million commitment leter - representing a $25,000 fee to you - and had the borrower cancel yet without justification? This happens many times to every experienced commercial mortgage broker. Gotten really mad yet?  Had thoughts of violence?  Don't go to jail.  Get paid instead.

How would you like to have a faucet that you could easily turn on any time you needed more commercial mortgage leads?

C-Loans now offers business loans, as well as commercial real estate loans.

The commercial loan broker most likely to get paid is the one who gets his client the largest loan.  The commercial broker (commercial realtor) most likely to sell an income property is the one who can show his prospective buyer the highest, honest cap rate.  Therefore this article is very important to you because I am going to show you how to honestly, legitimately, and believably calculate and display the highest possible net operating income.  I could make a good argument that no blog article I will ever write might make you more money than this one, so, as your 8th grade teacher said, right after - BAM! - slapping her yardstick on the desk of the dozing student in front of her, "Pay attention!  This is going to be on the test."  Ha-ha.

If you are trying to sell a commercial property, you want the buyer's cap rate to appear as high as possible.  You will recall that a cap rate is just the return on his money that a buyer would earn if he paid all cash for an income property.

If you are trying to place a commercial mortgage loan, the limiting factor to the size of your new commercial loan is often the debt service coverage ratio ("DSCR").  You will recall that the debt service coverage ratio is merely the net operating income divided by the annual debt service (principal and interest payments) on the proposed new commercial loan.

DSCR = (Net Operating Income / Debt Service) x 100%

Even though the results are better (the DSCR appears higher) if you compute the debt service coverage ratio on a monthly basis, commercial lenders require that you compute the DSCR using annual numbers; i.e., the NOI from the pro forma operating statement and the annual debt service on the proposed new commercial loan.

Debt service coverage ratios are normally expressed out to two digits to the right of the decimal; e.g., 1.27 or 1.42.  Expressing a DSCR of 1.1 would be wrong.  It should be 1.10 or 1.12.  A debt service coverage ratio of 1.00 is what is known as a breakeven cash flow.  Less-than-breakeven cashflows should be expressed as -

0.96  ($112 per month negative)

Notice that I showed just how much or how little the negative cash flow is per month.  This allows a banker to say, "Yeah, well, this buyer is a physician, and he makes $300,000 per year.  He can afford a lousy $112 per month negative cash flow."

Let's get back on track.  We are trying to make the net operating income appear as high as possible on the pro forma operating statement.  You will recall that a pro forma operating statement is merely an operating budget for the upcoming year, with reserves for the eventual replacement of the roof and the HVAC system, along with a reserve to resurface the parking lot and to repair and repaint the exterior.

Okay, here is the good stuff:

1. You can use the contracted rents that will be in place for the upcoming year (use next year's projected rents), rather than last year's actual rent receipts.  For example, let's suppose that one of your industrial tenants has a $500 per month increase in his lease payments spelled out in his already-executed lease.  You get to use the higher rent.
   
   
2. When preparing your Pro Forma, you use last year's actual expenses, even if next year's expenses are probably going to be higher.  This is the custom and practice in the industry.  Sometimes being forced to use last year's actual operating expenses really hurts you because, for example, last year was unusually cold and your heating bills were extremely high.  Sometimes, however, using last year's actual expenses can help you.  For example, perhaps your water company just announced a dramatic increase in water rates for the coming year.  Remember, the custom and practice in commercial real estate finance (CREF) is to always use next year's projected rents and last year's actual operating expenses.
   
   
3. If some of your units are vacant, use the market rent of any vacant units.  So many brokers forget to do this - especially if there are sixty or more units in the apartment complex, and the borrower hands you this very long rent roll.  A Rent Roll is just a long list containing the units by unit number, the size of each unit, the name of the each tenant, and the amount of the rent.  This allows the appraiser to ask Mr. Jones in Unit 17 whether he is really paying $1,300 per month in rent (rent roll audit).  Rent rolls are used for apartment building and self storage projects.  The equivalent document for office buildings, strip centers, and industrial centers is called a Schedule of Leases.
   
   
4. Don't forget to use the market rent of the manager's unit.  If an owner pays his on-site property manager a salary, that owner has to pay painful employment taxes on this salary.  Therefore, in order to cheat on their taxes, a great many (most?) property owners will give their on-site managers a free apartment, instead of a salary.  The Rent Roll given to you by the owner will therefore often understate the property's true Gross Potential Income (top line of the Pro Forma) by as much as $1,800 per month - the market rent of the manger's unit.  The manager's unit is usually the largest and most desirable unit in the building.  This is huge!  An extra $1,800 per month in income could mean a loan amount that is a whopping $160,000 larger.  Commercial mortgage brokerage is NOT about finding the lender with an interest rate that is a lousy 0.25% lower.  The commercial mortgage broker who closes the deal, gets paid, and kisses the pretty girl is the one who gets his borrower the LARGEST LOAN AMOUNT!!!  It's NOT all about that base - that base.  It's about who gets the borrower the largest loan amount.
   
   
5. If the market rent of a vacant unit is legitimately between $1,150 per month and $1,225 per month, use the larger number.  Duh.  For you commercial loan brokers, the larger your NOI, the higher your DSCR and the larger the commercial loan that you can deliver to your client.  For you commercial brokers (commercial realtors), the higher your NOI, the higher your cap and the more attractive your property appears to a prospective buyer.

Okay, now a really sophisticated issue.  How do you prepare a Pro Forma Operating Statement when part of the building is leased on an industrial gross basis and part of it is leased on a triple net basis.  An industrial gross lease is one where the landlord pays the real estate taxes and the fire insurance, and the tenant pays the rest - repairs, utilities, etc.

Answer:  You prepare the Pro Forma as if the entire building was leased on an industrial gross basis; i.e., you show in the body of the Pro Forma 100% of the expenses for real estate taxes, fire insurance, management, and reserves.  If the building is younger than 35-years-old, I like to use 2% of Effective Gross Income for the Reserves for Replacement (roof, HVAC, parking lot, exterior walls, etc.).  If the building is older than 35-years-old, you should use 3% of Effective Gross Income for the reserves.

Okay, back to this sophisticated question about preparing a Pro Forma Operating Statement on a building that is leased partially on an industrial gross basis and partially on a triple net basis.  So we will show 100% of the expenses for which the landlord might be responsible; but then we recapture, say, 47% of the real estate taxes and fire insurance as CAM reimbursements from the NNN tenants who occupy 47% of the space.

Totally lost?  Don't worry about it.  This is pretty advanced stuff for a deal that we are actually working on this week in our office.

If you are new to this blog - perhaps because one of my readers kindly re-Tweeted this article or shared it on Facebook - I encourage you to sign up for this free training blog about commercial real estate finance.  Simply find my rump-ugly picture on our actual blog site and register by merely typing in your email address.

If you learned a little today, I cannot tell you how much I appreciate it when you re-Tweet my articles, share them on Facebook, or give me a Linked-In or Google-Plus atta-boy.  Those thumbs-up encourage me to write more.

If you are a commercial mortgage broker, you surely must be calling on all the local banks and credit unions near your office for their turndowns.  Bankers are the single best source of commercial mortgage referrals because the first place a commercial mortgage borrower shops is his own bank.  You picked up his business card.  Why not trade the contents of that single business card for a free directory of 2,000+ commercial lenders?  You certainly don't have to trade me your best banker - your equivalent of a Mickey Mantle or Willie Mays rookie card.  Just trade me your Phil Panera card.  Who?  Exactly.

Last week I told you about how you could win a free copy of any of my training programs - as well as $250 per closing - just for convincing one of your bankers to join C-Loans as a lender.  Don't make it a big deal.  Just send him this link.  Let the story sell itself.  After all, it doesn't cost the banker one penny.  If he is hungry to make commercial loans, he'll sign up.

My private money commercial mortgage company, Blackburne & Sons, is on fire.  We just had our best February in 35 years.  Your borrower needs one of our commercial loans.  Remember, we issue Loan Approval Letters for free.  While you are out there trying to convince some conservative banker to part with a loan, the smarter mortgage broker down the street is rushing the deal to Blackburne & Sons.  He knows that its not all about rate.  The borrower - often a business owner - simply needs the money.  If nothing else, use us as a backstop, while you plead with that nervous banker.  If the borrower runs out of time and/or patience, at least you still make a fee when he falls back on our free Loan Approval Letter.  Since you are going to have to gather the same documents for the bank, and since you can easily email them to us as well, and since our Loan Approval Letters are free, why wouldn't you want a fall-back lender waiting in the wings?  

The next three years are likely to be the most three profitable years in the history of the commercial mortgage business.  (See my earlier blog article about the tidal wave of ballooning commercial mortgage loans coming due.)  Don't you think its finally time to learn this business?  Remember, the same practical and understandable guy who writes this down-to-earth and fun blog will be the same guy teaching the course.

In June of last year, one our brokers earned a $92,500 fee when he closed an $18.5 million construction loan using C-Loans.com.  What would you do with a $92,500 fee right now?  And remember, C-Loans.com is free!

The reason why you want to get involved in business financing, in addition to commercial real estate finance, is because these business loans close in just 10 to 12 days.  (There is no appraisal, remember?)  Could you use a nice payday in just 10 more days?   Be sure to add "Business Loans" to your fliers, newsletters, and business cards.

Are you a pretty successful commercial loan originator?  You are about to make the single biggest mistake of your life.  It has never been easier to raise private money for mortgage investments than right now.  It's like shooting ducks in a barrel.  The banks are paying less than 1% interest.  You could offer them 10%, and the loan could still be a reasonably prudent investment.  The money in commercial real estate finance is in loan servicing fees.  (Heck, you could simply assign the servicing to a sub-servicing company for a lousy $100 per month and keep the difference!)  I'm doing a $2 million deal this month where my loan servicing fee will be $58,000 per year for collecting 12 payments and forwarding them on to my investors.  Please read that last sentence again.  Helloooo?  You will name your second son after me.

Have you been cheated out of $15,000 loan fee yet?  It's coming.  Nobody who is active in commercial mortgage brokerage escapes without this calamity happening at least twice a year.  I am NOT talking about the deal closing and the borrower performing a commission-dectomy on you.  In real life, this seldom happens.  I am talking about when you deliver the exact loan commitment you promised to deliver, after months of back-breaking and sometimes brilliant work, and the borrower says, "Gee, I feel really bad, but I have decided not to borrow."

Question:  What is in-line retail space?

Answer:  Think of a neighborhood shopping center, without the grocery store anchor tenant.  In-line retail space is just two to six (or more) retail spaces, arranged in a line.

"But George, what's the difference between in-line retail space and a garden variety strip center or a mini-mall (the term used in Southern California)."

In-line retail space does not have to be on a busy commercial strip (thoroughfare).  In-line retail space can be set back from, or even perpendicular to, the nearest busy strip.  In-line retail is often shadow-anchored by some big-box retailer, like a Wal-Mart or a large grocery store.  Shadow-anchored means that a major retailer is located nearby, which draws the customers, but the small retail space in question is not located on the same parcel as the major retailer.

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Question:  What is senior stretch financing?

Answer:  Instead of a first mortgage and a mezzanine loan "behind it", the lender makes just one loan, priced similarly to the blended rate of the first mortgage and the mezzanine loan.  (My thanks to Michael Hoffenberg, Founder & Managing Principal, of Trevian Capital for this good explanation.)

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Here's a good marketing tip:  Lender turndowns are a great source of referrals.  "I'm sorry, sir, but Bank of Montana can't do this deal; but you might try Bob Smith over at Rocky Mountain Funding.  His number is..."

To be even more effective - and this is the point of this mini-lesson, you should market to the companies that are spending a lot of dough on marketing.  After all, they're the ones who are getting all of the leads, due to their marketing.

So if you see that a bank, credit union, or hard money lender nearby that is advertising for commercial loans, be sure to call them or visit them and solicit them for their turndowns.  Because of their heavy marketing, they will have lots and lots of turndowns for you.

Then be sure to follow up.  If I were a one-man commercial mortgage shop in Billings, Montana, I would make it a point to send by snail mail a funny joke or cartoon to the banker at Bank of Montana every week, along with two of my business cards.  "But George, I sent him two cards last week," you say with a slight weenie-whine in your voice.  "Well, then send him two more... and then two more."  The banker opens your envelope.  Inside he finds a hilarious political cartoon or a cute, clean joke printed out on plain copier paper, along with two of your business cards.  He knows what you want.

And it goes without saying that the expression, "Commercial Mortgages", shows up on your business card, right?  Right?  Helloooo?  You better fix that fix that right away. 

Suppose your client has a balloon payment coming due, and the banker swears that he is going to start foreclosure on March 10th if the loan isn't paid off by then.  In real life, if you show him a Loan Approval Letter from Blackburne & Sons, 99% of the time he will back off long enough for us to close the loan.

We charge nothing to prepare a Loan Approval Letter because we are happy to serve as a backstop to the bank that has been dragging you out for months.  Why?  Because we know that at least 40% of the time the bank will leave you standing at the altar looking stupid.

Question:  Who out there remembers what a mezzanine loan is?

Answer:  A mezzanine loan is a loan secured by 100% of the membership interests (think of them like stock certificates) in the LLC (think of a LLC like it was a corporation) that owns the property.  If you own 100% of the membership interests (100% of the stock) of the LLC (corporation), then you own the building.

Why would a commercial lender bother to make a mezzanine loan rather than a second mortgage?  Because membership interests (think stock certificates) are personal property, not real estate.  You can attach (foreclose on) personal property in a matter of days.  If you are 10-days late making your car payment, you could walk into McDonalds and find your car has been towed away just five minutes later.

By the way, my first job was as a credit manager for a finance company, and I got to ride along with the repo man when we popped cars.  What a rush of excitement because it was dangerous!

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Question:  How large are mezzanine loans?

Answer:  Mezzanine loans are usually larger than $5 million, and they are usually behind either conduit first mortgages or life company first mortgages of at least $10 million.  Mezzanine loans are the province of the Big Boys doing very, very large deals.  

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Question:  Do mezzanine lenders ever make construction loans?

Answer:  Mezzanine lenders do not actually make construction loans, but they will make mezzanine loans behind big commercial construction loans.  In fact, whenever you see some skyscaper being built these days, you can bet that some mezzanine lender probably made a mezzanine loan behind that construction loan. 

The reason why is because commercial construcion lenders really got clobbered in 2008.  While commercial construction lenders - almost always banks or syndicates of banks - will, in theory, lend up to 80% loan-to-cost, bankers today are still traumatized by the losses they suffered in construction lending during the Great Recession.  On the really large construction projects, the ones larger than $40 million, the bank will normally not exceed 70% of cost.

Very few developers have the cash to contribute $12 million (30% of the cost) of a $40 million project.  Therefore, the developer goes to a construction mezzanine lender and has him contribute 20% of the total cost ($8 million).  The construction lender contributes 70% of the cost ($28 million), the developer  contributes 10% of the cost ($4 million), and now you have the required 100% of the cost ($40 million).

Learn anything today?  If so, I am very grateful for each re-Tweet, each Facebook share, and each LinkedIn and Google+ atta-boy.

If you are new to this blog, and you like the idea of getting three or four training lessons in commercial real estate finance every week, please fill in your email address, below my rump-ugly picture, on the right.

Please don't forget that C-Loans also places business loans not secured by real estate.  This includes unsecured business loans, equipment loans, leases, accounts receivable financing, factoring, inventory financing, and asset-backed lines of credit.  The reason why you want to start brokering business loans is because they close in less than 12 days.

Surely you have met at least one banker who makes commercial real estate loans.  I'm offering to trade you over 2,000 bankers for the contact information on just one more.  2,000 for 1?  Hellooooo?

When I go to trade shows, it is rare when several practicing commercial mortgage brokers don't walk up to me and thank me for my 9-hour video training course, How to Broker Commercial Mortgage Loans.  This course covers marketing, underwriting (lots of ratios), packaging, placement, and fee collection - all for a lousy $549.  It also now includes my 7-hour audio course, Intermediate Commercial Mortgage Finance.

Something has happened recently.  Years ago I couldn't get the hoity-toity loan officers working at the lenders who made the really large commercial loans to join C-Loans.  Now, after 1,000+ closings, they are becoming believers.  C-Loans is no longer just a portal for small (less than $5 million) commercial loans.  It can now truly handle commercial loan requests of $20 million to $200 million.

One more thing thing:  Every time you use C-Loans, you will be be shown a different set of suitable lenders.  Some loan officers will be aggressive and competent.  Others will be lazy and worthless.  You will be able to tell them apart by their lender score. Pay attention to their lender scores!!!

If you have a real estate web site, and if you don't have a link to C-Loans on it, wake up.  No.  Don't wake up.  Go to sleep.  We once paid a referral fee of $21,250 to Alan Dunn of Spydercube, and he was asleep when the borrower clicked on his link.  Imagine making a $21,250 referral fee in your sleep.

About 18 months ago I wrote an excellent online course about marketing for commercial mortgage loans.  Just $199.

Nobody listens to me.  For the 212th time, "The real money in the commercial mortgage business is in loan servicing fees."  We have so many private investors clamoring for our mortgage investments that we recently increased our loan servicing fee from 1.9% annually to 2.9% annually.  In other words, we earn $29,000 per year for collecting 12 monthly payments on a single loan of $1 million.  You could close four loans per year and play golf the rest of the time.

How about if I pay you money?  I'll give you the free training course of your choice and pay you $250 every time your banker closes a loan for C-Loans.

Even though I have been in the commercial mortgage business for 35 years now, I still learn new commercial real estate finance (CREF) terms every month.  Here are some CREF terms that I've learned recently:

Dequity - Typically the maximum loan-to-value for commercial mortgage loans is 75% (80% LTV for multifamily).  Typically the maximum loan-to-cost ratio for commercial construction loans is 80%.  If the sponsor / borrower / developer needs more capital than that, he has to raise equity.  Equity is typically very expensive - in the range of 12% to 24% annually.  Dequity is slightly cheaper equity that is structured as debt.  I'll explain this in more detail below.

Equity is the the cash downpayment, prepaid costs (for example, architectural and engineering fees), cash contribution, and/or the equity in the land that the sponsor contributes to satisfy the lender that there is enough of a cushion in the deal to protect the lender from loss.  The equity investor is the first guy to lose money if the deal goes South.  The equity owner is therefore known as the first-loss piece.    

Carried Interest or Promote:  In the hedge fund* world, the sponsor is the guy who raises the dough and manages the fund.  He typically earns a management fee of 1% to 2% annually, plus a piece (often around 20%) of the investors' profit.  This piece of the the profit is known as the carried interest or promote.  

*Hedge Fund - A hedge fund is an investment fund that is exempt from many of the legal requirements and heavy costs of registration with the SEC because ALL of the investors are accredited investors (filthy rich guys).  I put an asterik (*) in front of the word, "hedge fund", because the experienced commercial mortgage broker will be very leery about working with any commercial mortgage company that calls itself a hedge fund.  A big percentage of the time, they will either be rookie-blowhards or flat-out advance fee scammers.  Guys claiming to be merchant bankers are equally suspect.  Ignore my warnings at your own peril.

Above I described dequity as equity that is structured as debt.  Let me give you an example.  Suppose a developer wants to build a speculative or "spec" office building.  A construction project is considered speculative or spec if there is no pre-leasing.

The total cost of the project is $10 milllion, and construction lender - almost always a bank - will only go 80% loan-to-cost.  The bank will make an $8 million construction loan.

The developer therefore will have to contribute $2 million in equity.  He paid $400,000 cash for the land, but he got it rezoned from agricultural to office use (an amazing feat of politics).  Everyone agrees that with this zoning change - a real value-added accomplishment - the land is now worth $850,000.  The developer paid $50,000 to the structural engineer and $100,000 to the architect (prepaid expenses), so he has $1 million in total equity in the project ($850,000 + $50,000 + $100,000).

But he needs another $1 million in equity, so he approaches a broker-dealer that specializes in raising equity dollars for developers.  The broker-dealer agrees to raise the $1 million for him, but the broker-dealer warns the developer that the money will be very costly - around 22% annually.

For legal reasons (less reporting requirements), the broker-dealer structures the deal as a mezzanine loan.  You will recall that a mezzanine loan is similar to a second mortgage, except that the security for the loan is not a mortgage on the property, but rather a security interest (think of a security interest like a lien or mortgage on personal property - aka - chattel mortgage) on the membership interests of the LLC that owns the property.

Phew!  Lost?  Don't give up.  A mezzanine loan is simply like a loan against the stock of a corporation that owns a property.  If you own the 100% of the stock of the corporation, then you own the building.

Why go through the agony of all these fancy terms and exotic instruments?  Because it can take 18 months to foreclose a mortgage on a property in many states.  On the other hand, the finance company can repossess your car in a week, if you miss a payment.  Why?  Because the car is personal property, not real estate.  Miss a payment - bam!  You pull into a McDonald's.  When you come back six minutes later with your burger, your car is gone-girl.

This is why the Big Boys making loans at the top of the capital stack make mezzanine loans.  Late on a payment?  Bam!  Gone, girl.

Remember, we are melting your brain with all of these fancy terms, just to define dequity.  Now normally mezzanine loans on standing properties (much less risky deals) only cost around 8% to 10% interest.  Here the broker-dealer is charging us on the order of 22% interest.  Now the coupon rate (note rate) might only be 8%, but the lender is also charging an 8 point exit fee, plus a profit participation (share of the profits) of 20%.  Put them all together, and the lender earns his required 22% internal rate of return (IRR).  Ouch.

By the way, an exit fee is merely a "prepayment penalty" that is owed, whether the loan is paid off early, exactly on time, or late.  There is no escaping it.

Okay, okay, don't melt.  We're finally there.  You cursed child.  I'm melting. 

Dequity is equity money that is structured as incredibly-expensive debt.

If you enjoyed this article, I really do appreciate the re-Tweets, Facebook shares, and LinkedIn and Google+ atta-boys.

Hey, guys, please don't forget that C-Loans also offers business loans - unsecured loans, equipment loans, inventory loans, accounts receivable financing, factoring, leasing, and asset-backed lines of credit.

Our private money commercial mortgage company is tearing it up; but no matter how many loans we offer to our private investors, they keep insisting on more.  We need commercial real estate loans!

When I was at the MBA CREF Conference in San Diego, lenders signed up for C-Loans in droves.  Get your deals into C-Loans.com.

You think that when I talk about "getting shafted out of $10,000 commission by a client" that I am talking about a deal closing without you getting paid.  That seldom happens.  What I am talking about is when a borrower runs you ragged for months chasing a commercial loan for him, and then he backs out without any justification.  You don't have to take that nonsense.

The most satisfying business deal you will EVER make.

My nine-hour course in How to Broker Commercial Loans includes marketing, underwriting, packaging, placement, and fee collection.  And now it also includes my 7-hour audio course on Intermediate Commercial Mortgage Finance.

You have no idea how glorious it is to receive tens of thousands of dollars every month in loan servicing fees, whether you close a new loan or not.  You guys think loan servicing is so hard and scary.    It's not hard, and its not scary.  Right now you start out every month unemployed.

Wish you could afford one of the above training courses?  If you convince a banker to sign up with C-Loans.com, you can choose any of our training courses as a gift, AND we'll pay you $250 every time he closes a deal for C-Loans.  I would just forward this blog article to your banker buddies and let the article sell itself.

You've seen my commercial real estate finance training courses, and they intrigue you.  That Commercial Mortgage Marketing course would really help right now, and my nine-hour course on How to Broker Commercial Loans would fill in a lot of holes in your knowledge of the business.  Unfortunately, you just don't have the money right now.

The good news is that you don't need money to get one of these courses.  You probably know six or seven bankers who actually want to make commercial real estate loans.  If you convince one of your bankers to sign up as a lender on C-Loans.com, we will immediately give you a free training course of your choice and pay you $250 every time he closes a commercial real estate loan for a C-Loans user.

Choose any one of the following training courses as your prize:

1. How To Broker Commercial Mortgage Loans - 9 hour video course
2. How To Find Your Own Private Mortgage Investors - 4 hour video
3. Intermediate Commercial Mortgage Finance - 7 hour audio program
4. Marketing for Commercial Loans - 90 minute online course
5. Practice of Commercial Mortgage Brokerage - 5 hour audio course.

All you have to do is to convince some bank or credit union (their deposits must be Federally insured) to read this form:

How Bankers Can Receive Pre-Screened Commercial Loan App's

And then complete this form:

Commercial Lending Preferences

In addition to receiving the free training course, don't forget that you will also be paid $250 for every commercial loan your banker closes for C-Loans - potentially for the next 25 years. This could amount to some real money. We have one commercial lender on C-Loans who has already closed over FIFTY loans for us, and he has only been listed on C-Loans for eight years.  He probably won't retire for another 15 years.  If you had introduced us to him, you could easily have ended up earning $250 on over 125 closings. That's over $30,000 for investing just 15 minutes to convince your banker to join C-Loans.

"But, George, is it hard to convince a commercial real estate lender to join C-Loans?"

Joining C-Loans is a no-brainer.  There is no sign-up fee to join C-Loans. There is no monthly fee.  There are no contracts to sign.  If the bank never closes a single loan, joining C-Loans costs the bank nothing. If they do close a loan, however, banks and credit unions pay C-Loans a software licensing fee of just 37.5 bps. (just 25 bps. for deals of greater than $5 million). Nonprime, bridge, and hard money lenders pay 50 bps. Most bankers just build our software licensing fee right into their own loan fee (they charge 1.375 points rather than just 1), so in reality belonging to C-Loans costs the bank nothing.

And if they do join, they will only receive carefully-screened commercial mortgage leads.  The loan will be the right loan amount, in the right counties of the right states, and secured by the exact kind of property that the bank prefers. We will only send them permanent loan requests, unless they specifically request SBA loans, bridge loans, construction loans, USDA B&I loans, and/or mezzanine loans. One easy click sends the bad loans away, and if they want the deal, we provide all of the contact information they need to call or email the borrower to make the sale.

I recommend that you simply forward this blog article to your banker and let him decide.  The hungry bankers will look at our track record of 1,000 commercial real estate loan closings and decide to join.  To you bankers out there, here is some information to help you sell your boss:

1. Your bank, like almost every other bank in America, has plenty of cash right now.  A good bank customer is no longer a large depositor.  A good bank customer is now a reliable borrower that can be trusted to borrow millions every year.  C-Loans.com is in a unique position to introduce your bank to scores of these experienced, high-net-worth borrowers every year.
   
   
2. C-Loans.com is a part of Blackburne & Sons, a $40 million, private money commercial lender that has been in the market to make commercial real estate loans every day of every year for 35 years.  This is the same company that I founded in June of 1980 - a company that has survived at least four bad real estate recessions.  Talk about building important relationships!
   
   
3. C-Loans, Inc. owns CommercialMortgage.com.  We paid more than the cost of a house for it.
   
   
4. The owner of C-Loans, Inc. is an attorney licensed in California and Indiana.
   
   
5. C-Loans.com has closed over 1,000 commercial real estate loans totaling over $1 billion - and we did it without one penny of venture capital, and we did it without ever paying one cent for advertising.  Our site contains hundreds of page of good content, and the search engines love us.
   
   
6. C-Loans, Inc. also owns CommercialLoans.com, CommercialRealEstateLoans.com, CommercialLenders.com, IncomePropertyLoans.com, CommercialConstructionLoans.com, MezzanineLoans.com, and over 200 other CREF sites.
   
   
7. The founder's sons have joined him in the business, so if the bank develops a relationship with C-Loans, Inc., that relationship could conceivably continue for another 40 years.

Does C-Loans.com really work?  Oh, my goodness!  In 2006 C-Loans closed 225 commercial loans totaling over $206 million. Since inception, we have closed well over 1,000 different commercial real estate loans totaling well over $1 BILLION.  Probably only three companies - Bank of America; Wells Fargo Bank; and Holliday, Fenoglio Fowler - have closed more commercial real estate loans than C-Loans over the same period. So yeah, its fair to say that C-Loans works.

Once your banker completes his Commercial Lending Preferences, please make sure that you notify Mick Carlson, the General Manager of C-Loans, and let him know that the banker came from you. Mick's phone number is 574-855-6292. His email address is mcarlson@blackburne.com. 

It is up to you, however, to make the sale. Merely sending us the banker's contact information, and then relying on us to make the sale, earns you nothing.

Important note:  You get paid when your loan officer closes a deal for C-Loans. You don't "own" the bank, but you do - as far we we are concerned - "own" the loan officer.  Keep in mind that we allow multiple loan officers from the same bank to join C-Loans. 

It's all about the loan officers. Some are stars. Some are sleepy. A borrower or broker could submit the same loan to two different loan officers at the bank. The sleepy loan officer might blow it off. The hungry loan officer may cleverly massage it and push it through his Loan Committee.  Your job, and our job, is to find those loan officers who are the stars. 

If you do know some stars, you'll want to get them added to C-Loans before some other broker introduces them to C-Loans first. If you have a good banker in mind, I recommend that you simply show him this page and encourage him to complete his Commercial Lending Preferences. Then call Mick Carlson at 574-855-6292 and choose your prize.

And please - no mortgage brokers masquerading as bankers. This offer is only for bankers and credit union loan officers - commercial loan officers working for insitutions whose deposits are Federally-insured.

Back in August of 2012, I wrote my most important blog article ever of the subject of commercial loans and commercial loan brokerage.  If you read only one commercial real estate finance training article in your lifetime, make sure you read my 2012 blog article entitled, The Most Important Lesson in All of Commercial Real Estate Finance.  This lesson is an advanced version of that article.

In real life, the typical commercial real estate loan officer working for a bank, a conduit, or a life company closes 80% of his commercial loans for just 5 or 6 mortgage brokers.  I am going to call these five or six mortgage bankers and mortgage brokers the loan officer's "best brokers".

By the way, do you know the difference between a mortgage banker and a mortgage broker?  A mortgage banker retains the loan servicing rights and typically earns between 8 and 32 basis points per year for collecting the loan payments on behalf of the lender.

I know that 10 basis points doesn't sound like much, but 10 basis points on a $20 million loan is $20,000 per year, just for collecting 12 payments and forwarding them on to the investor.  Remember this:  The real money is commercial real estate finance is in the loan servicing rights.

"Yeah, George, but servicing loans is hard."

Naw.  My beautiful bride serviced our first 30 commercial real estate loans out of a bedroom in our home, when George IV and Tommy were still both in diapers.  She did it with no loan servicing software, just using some payment books given to us by the title company.  The borrower would send in his payment book, along with his monthly check.  She would write in the payment book the total amount of his payment, the amount that went to interest, the amount that went to interest, and his remaining principal balance.  Then she would mail the payment book back to the borrower.  Voila!

Today, my hard money commercial mortgage company, Blackburne & Sons, services about 180 private money commercial loans, totaling around $40 million, for an average annual loan servicing fee of 200 basis points (2.0%).  You really-really owe it to yourself to do the math.  What is 2% of $40 million?  Now you can see why I say the real money in commercial real estate finance is in loan servicing fees.

Okay, now back to how most commercial loan officers close 80% of their loans for just 5 or 6 "best brokers".  The 2,000 other brokers who bring this loan officer deals account for a mere 20% of his total production.  And folks, this reality is probably true for almost every commercial real estate loan officer in the country.

So why do commercial loan officers close most of their deals with just a half-dozen of their "best brokers"?  Expediency.  A commercial loan officer cannot possibly train every mortgage broker who calls him in what exactly to look for in a deal.  There is simply not enough time in the day.

So most commercial loan officers end up training a mere half-dozen brokers in the finer details of his bank's particular commercial loan appetite.  As a result, since the lender has carefully trained these 5 to 6 brokers, he knows that if one of his best brokers does call that this best broker probably has a carefully-screened and do-able deal for him.  The lender takes his call.  For every other broker who calls, the commercial loan officer's staff often just takes a message.  Maybe the non-preferred mortgage broker get a call-back later, but often he doesn't.  Best brokers get priority.

There is a huge advantage to being a banker's best broker.  If a commercial lender likes you and/or considers you one of his best brokers, he will often overlook a black hair.  A black hair is a flaw in the deal.

Underwriting commercial real estate loans is not about finding a black hair in a deal and then turning it down.  The truth is that every commercial real estate loan ever made has had at least one or two black hairs.  The secret to underwriting commercial loans is to know how to properly weigh the strengths of the deal against the weaknesses.  If you are a banker's best broker (one of six or so), he won't get fixated on just one or two black hairs.

Okay, so obviously we all want to be some banker's best broker.  So how do you become a best broker?

A lot of it is luck.  If you happen to stumble upon a commercial loan that is perfect for some new lender, and he happens to close it for you, you both leave the relationship with a good feeling about each other.  The next time you call this lender, with one closing together already under your belt, he will be much more inclined to look favorably on your deal.

The lesson to be learned here is this:  Suppose you close a nice apartment deal with Bill Smith at Union Bank.  Suddenly, another sweet apartment deal falls in your lap.  Do you take the loan to Bill Smith again at Union Bank, or do you take it to Todd Stranger at JP Morgan Chase?  Maybe, under this fact pattern, you should take the deal back to Bill Smith and really cement that budding best broker relationship.

So how else can you become the best broker of a number of commercial loan officers?  Here are some thoughts:  (1) Deliver your commercial loan packages in person and schmooze the loan officer.  (2) Charm the receptionist or loan department secretary, so she will mention your name positively around the office.  Flowers.  Candies.  Compliments.  (3)  Take your loan officer to lunch.  (4)  Play golf with your banker.  (5)  Invite him to your home to watch football or to BBQ.  (6)  Perform a kindness or favor, like visiting him in the hospital or finding him a new book by his favorite author.  My darling wife taught me this.  If you want friends, be a friend.

This brings me to my last point.  I once shared that even though there are 750 different commercial lenders on C-Loans, fully 40% of our online loans are closed by the 30 or so "Proven Brokers" listed on C-Loans.  Why?  Because these Proven Brokers are the best brokers for three, four, or five different banks.  As a result, when they submit a loan to one of their banks, with whom they have a special relationship, the banker properly weighs the pro's and the con's of the deal, and the black hairs are often overlooked.

I know you guys prefer to deal directly with the bank, but there is a time to leverage the special relationship our Proven Brokers have with their banks.  Commercial loan brokerage is not so much about what you know, but rather with whom do you have a best broker relationship?

If you are new to this blog - perhaps because someone kindly re-Tweeted the article - and you felt like you learned something today, please be sure to come to the home page of our blog and subscribe to it by filling in your email address.  And to our regular, loyal readers, thank you so much for you recent re-Tweets, Facebook shares, and LinkedIn and Google Plus atta-boys.

I once paid a $21,250 referral fee to a guy who merely put a Commercial Loans link on his real estate website.  How would you like to get that phone call?

I like residual income - money that comes in every month whether I close any new loans or not.  Residual income, like loan servicing income, allows me to sleep at night.  A huge network of referring sources is not technically a form of residual income, but enjoying a steady flow of incoming leads every month sure chases away my mental storm clouds.

We have added my seven-hour audio course, Intermediate Commercial Mortgage Finance, to our famous (2,000+ graduates?) 9-hour basic training course, How to Broker Commercial Loans, all for just $549.

You can add my four-hour video course, How To Find Your Own Private Mortgage Investors, to the above training collection, and get all three training courses for just $849.  The real money in commercial real estate finance is in loan servicing fees.  The easiest way to get loan servicing rights is to become a hard money lender.  Its never been easier to raise money from private investors.  The banks are paying less than 0.50%.

My hard money commercial mortgage company is approving commercial loans like crazy these days.  Yield-desperate private investors are beating down our doors.  We need commercial loans!  And we issue Loan Approval Letters for no charge.  You can show our LAL to your banker and say, "A private money lender has already approved this loan.  You can beat these rates, right?"  It's a lot easier to meet lovely ladies when you already have a pretty girl on your arm.  And if the bank leaves you standing at the altar looking stupid, your borrower can always fall back on our loan.

C-Loans now arranges business loans NOT secured by real estate, like unsecured loans, equipment loans, inventory loans, accounts receivable loans, factoring, leasing, and asset-backed lines of credit.

Great commercial lenders are flocking to C-Loans again.  We recently signed up, in addition to a dozen other lenders, one of the largest investment banks in th world.

Sooner or later I am going to come to my senses and take this offer away.  "George, you stupid-stupid man, why are you giving away a list of 2,000 commercial real estate lenders - a list that cost you at least $10,000 to build - all for the contents of one lousy business card?"

Been cheated out of a $10,000 commercial loan fee yet?  If not, your impalement is coming.  It happens to all of us.  It happened to me so many times that I went to law school at night, graduated with honors, passed the Bar on my first attempt, and then never accepted a single law client, outside of my own company.  I would fall off my chair in shock if any other company had completed and won more loan fee collection suits than my own.  And no, I will NOT represent you.  But I will teach you my secrets.  Armed with these secrets, you won't need me.