Commercial Loans and Fun Blog

In addition, most of the large commercial loans we see as mortgage brokers have already been turned down by several banks.  The loan may have been turned down because borrower’s credit was flawed, the borrower lacked enough equity in the property or a large enough cash down payment, the developer was not contributing enough equity into the construction deal, or the borrower’s net worth was too small when compared to the loan amount.  Remember, if a commercial real estate investor is really clean and really strong, he usually has a half-dozen different bankers in his back pocket.

Lastly, even if a mortgage broker is lucky enough to have a perfect large commercial loan in hand, he will often still fail to place the loan because he is not in the Big Boy clique.  Remember, the bank loan officers who close the really large commercial loans are very choosy about the brokers with whom they will work.  They’ll politely take your call, but the moment they discover a black hair – and every deal has a black hair – they will often just shoot you out of the water.

All these things being said, however, a few large commercial loans do sometimes close.  What allows these large loans to close?  Here’s my observation:

Large commercial loans only close when the
mortgage broker doesn’t need the commission.

If the mortgage broker has plenty of dough in the bank, and if he has a huge pipeline of small and/or high-probability commercial loans in processing, the mortgage broker will sound cool, relaxed, funny, and knowledgeable when he presents his large loan to his lender.

But if the mortgage broker needs the large loan to close, the battle is already lost.  The mortgage broker will sound nervous and needy on the phone, so the bank loan officer will already be assuming his “No!” position.

The wise mortgage broker will therefore focus his time on building a huge pipeline of smaller and/or high-probability commercial loans before spending a lot of time trying to close a single large loan.  I’m not saying that you shouldn’t work on a large commercial loan if it falls in your lap.  I’m just saying that you shouldn’t neglect the smaller commercial deals in your pipeline because they are probably the only deals that will close.

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There are a lot of different ways to structure a commercial loan in order to close a tougher deal. Here are just a few:

1. Carrying Back a Second Mortgage on a Different Property. Suppose a seller is motivated to sell his property, and your buyer lacks the full 35% cash down payment often required by banks nowadays. The typical bank will also prohibit junior financing. Here's a trick: Get the seller to carry back his second mortgage on a different property owned by the buyer, say, a rental home or his vacation home.
   
   
2. Subordination for a Partial Paydown.  At Blackburne & Sons, we use this trick all of the time.  Suppose a former seller has a $1 million ballooning note.  Because commercial real estate has fallen about 45% since the start of the Great Recession, perhaps the largest prudent new commercial loan that can be made is just $600,000. Many times the former seller will take just $600,000 now and will subordinate his remaining $400,000 as a second mortgage.  Most banks today will not allow junior financing, but Blackburne & Sons will!
   
   
3. Blanket Other Collateral.  If the deal is close, frequently a commercial lender can be convinced to do the deal if he can also have a second mortgage on the borrower's personal residence and/or another property.
   
   
4. Bring In an Outside Personal Guarantor.  If the borrower's credit is flawed or his net worth is small compared to the loan request, you can often help a commercial lender to get comfortable by bringing in the borrower's father, brother, or friend to personally guarantee the loan.
   
   
5. Have the Borrower Bring Cash to the Closing Table.  Let's suppose the borrower has a $720,000 ballooning loan, but he can only qualify for a $600,000 refinance.  The borrower may be able to raise the remaining $120,000 by selling some stocks, liquidating his IRA, or refinancing his house.
   
   
6. Convince the Bank to Take a Discounted Pay Off (DPO).  Banks have never been more willing to accept 65 cents on the dollar in order to get a commercial loan off the books.  Most banks are under heavy pressure from their regulators to clear their troubled commercial loans off the books.  At Blackburne & Sons, we have seen a great many banks accept DPO's recently.  We love to help borrowers pay off banks at a discount.
   
   
7. Sometimes the Borrower Just Has to Accept a Smaller Loan.  Every borrower wants max cash, but sometimes he just needs to be convinced that you are getting him the most cash that is possible.

If you found this article to be instructive, I strongly encourage you to subscribe to our blog via email.  To get a copy of each new training blog article, without having to remember to come back, please fill in your email address in the spcae provided on the right.

Lastly, if you're a buddy or a former student of mine, would you please do me the great kindness of hitting the Like button, the Google+1 button, and the Linked-In Share button above.  Thanks so much.  :-)

Most commercial mortgage brokers devote less than 15% of their time to marketing for commercial loans. They devote the vast bulk of their hours to trying to place a $4 million loan on a money-losing bowling alley in some hollowed-out city or a $20 million construction loan on a new resort in Belize.

Before I give you the surprising answer, it is critical that you understand this important fact:

The typical commercial real estate loan officer working for a life company, a bank, or a hard money lender will take at least 40 to 50 phone inquiries and will underwrite 10 to 15 loan packages for every loan he approves.*

Commercial real estate lending therefore is an immense sifting and sorting process.  The value you add as a commercial mortgage broker is to help your lenders sift and sort through dozens and dozens of loan requests to find that one deal that makes sense.

Your job is NOT to grab ahold of the first loan request you find - say, a $4 million land loan in the desert of California - and then spend 20 precious working hours trying to place a deal that is not do-able.  Your job is to say to your borrower or realtor, "I'm sorry, Bob, but in today's market I'm not sure anyone will finance this project."

Therefore, it is my opinion that the typical commercial mortgage broker should devote SIXTY PERCENT (60%) of his time to marketing for commercial loans!

When a lead call comes in, you should quickly qualify it over the phone.  If this is a purchase money deal, how much cash is the borrower putting down?  If this is a refinance, and he needs a 75% LTV loan, or higher, to pay off his existing lender, kill the deal.  What is the borrower's net worth compared to the loan size?  It should be at least equal.  Got an auto mechanic with a $200,000 net worth trying to buy a $3 million apartment building, kill the deal.

"But George, what if I don't have a single deal in processing?"

Then spend every possible minute calling, writing, or visiting nearby bankers and commercial real estate brokers.  Write newsletters and get them out.  Go to mixers.  Schmooze.

Do not - do not!!! - waste your precious time trying to place pipedream deals.  It is far better to turn away one deal in forty that might have been do-able than to waste precious marketing time trying to pull off a miracle on a goofy loan.  Your policy should be, "If a deal is not obviously a winner, I'm turning it down and working on my marketing."

You should be absolutely confident that every deal in your processing pipeline is do-able.  And if you don't know how to underwrite commercial loans perfectly, learn your profession!  You can learn commercial real estate finance using our 9-hour video training program.  It costs only $499 to learn a profession.  Compare that to what you paid for your college tuition.

But I am not writing to you today to sell you videos.  I'm writing to drill something vitally important into your head.  Your job is to sift and sort through the thousands of loan packages floating around the marketplace to find the small handful of deals that are do-able.  If you don't have scores and scores of potential borrowers with whom to speak, then spend your time on marketing for commercial loans!  You should probably be spending 60% of your time on marketing.

Why are small commercial loans so much easier to close?

1. Small commercial loans do not have to be absolutely perfect.  The loan amount is small, so any loss on the deal is also likely to be small.  In contrast, if a bank is contemplating making a $4 million commercial real estate loan, that loan better be almost perfect.  After all, if a loan of that size goes bad, somebody’s head is going to roll.  And let’s face it, you and I are mortgage brokers.  Borrowers with perfect deals seldom come to us.
   
                             
   
   
2. There are far more banks and hard money lenders competing to make small commercial loans than there are competing to make huge commercial loans.  Only a small percentage of commercial real estate lenders feel comfortable making such large loans.  Therefore, there are far more lenders who might potentially make your small commercial loan than your large commercial loan.
   
                                           
   
   
3. Normally only one or two executives have to sign off on commercial real estate loans smaller than $2 million.  Therefore there is a less of a chance that of one them will have a pet peeve about this kind of property, this town, or this particular borrower.  With a full Loan Committee of eight executives reviewing your large deal, the chances of successfully running the gauntlet of pet peeves is much lower.
   
                                             
   
   
4. If you are a mortgage broker, you will find the typical small commercial borrower is far less sophisticated and far more appreciative of your help.  The owner of a small commercial property is likely to be a busy business owner, whose time is better spent running his own business, rather than shopping his commercial loan to 200 banks.
   
                                               
   
   
5. The guys who own the really large commercial properties are professional investors.  All they do in life is manage, lease, and finance commercial properties, so they often already have a dozen direct lenders in their back pocket.  They don’t need you … unless their deal is a complete stinker.
   
                                                
    
6. The loan officers who work for the really large commercial lenders can be very cliquish.  If you, as a relative newbie commercial mortgage broker, try to bring them a loan, they’ll often just shoot you down.  But if one of the good ‘ole boys brings them the exact same deal, they’ll close it for him.  The loan officers who work on small commercial loans are usually much more friendly and helpful.
   
                                 
   
   
7. If you stick to small commercial loans, there will be less competition from veteran commercial mortgage brokers.  You are probably taking this course because your commercial mortgage brokerage business is struggling.  The old veterans are probably much better at this stuff than you.  They will outsell you almost every time because they sound so much more knowledgeable.  The good news is that these old veterans will seldom work on small commercial loans anymore.  Therefore, it will be far easier for you, the newbie commercial mortgage broker, to win the borrower’s business.
   
                                               
   
   
8. The moral of the story, therefore, is that if your commercial mortgage business is not making any money, stop working on commercial loans larger than $2 million.
   
                                    

As the operators of C-Loans.com - the most popular of the commercial mortgage portals - we constantly have to be on guard against advance fee scammers.  Therefore, last night I was teaching my son, Tom, how to spot these crooks.

There are other ways to spot advance fee scammers, but you'll know right away that a guy is just an advance fee scammer if he uses one of the following three phrases:

1. "We are merchant bankers."  Hogwash!  Use of the phrase, "merchant banker", is a dead giveaway that the guy is an advance fee scammer.  There are probably fewer than 400 true merchant bankers in the whole world.  Merchant banks are typically a subsidiary of a commercial bank (fancy word for a garden variety bank) or an insurance company.  If a bank or a life insurance company is making money hand-over-fist, the holding company will sometimes open a tiny subsidiary to invest the profits into go-go investments, like high-yield bridge loans, mezzanine loans, preferred equity, and direct equity investments into operating companies and real estate development deals.  Folks, there are probably fewer than 400 true merchant bankers in the whole world.  And mere mortals, like you and me, don't ever get to talk to these guys.  So if the guy on the other end of the line is claiming that he is a merchant banker, he's a liar and a fraud.  Run away!
   
   
2. "We make international loans."  In your dreams!  Every country in the world wants to protect its small local banks against huge foreign competitors, like Bank of America, Credit Suisse, and Deutsche Bank.  Therefore every country imposes a 30% withholding tax on all interest earned by foreign lenders.  Even if a bank could earn 10% lending in Mexico, for example, it would only get to keep 7%.  Folks, that's a deal killer.  There are no true international commercial real estate lenders.  Anyone who claims to make international loans is either some idiot rookie mortgage broker or an advance fee scammer.
   
   
3. "We represent a number of hedge funds."  What a load of manure!  I challenge any of you mortgage brokers out there to prove to me that you have actually ever closed a commercial real estate loan through a hedge fund.  Remember, offshore hedge funds can't make commercial loans directly without running afoul of the 30% withholding tax described above.  They can buy existing loans, but they cannot make new ones.  In theory domestic (American) hedge funds could make commercial real estate loans, but they lack the licensing and the expertise.  They do not originate commercial real estate loans.  If some clown is claiming that he represents hedge funds, he is a liar and very likely a con man out to steal your advance fee.

So the next time you run into someone who boasts that he is a merchant banker, he makes international commercial real estate loans, or he represents a hedge fund, you can chuckle to yourself and walk away quickly.

I recently received a well-written email newsletter from a hard money lender that will make construction loans to complete partially-constructed commercial buildings.  The loan officer did a brilliant job in describing the issues and difficulties facing a lender that wants to fund the completion of construction of a partially completed building.

Here is what he wrote:

We Do Partially Complete Construction
 
One of the most difficult loans to place for brokers is a loan on a partially complete structure. Traditional lenders avoid this property type because of the many complications involved. These complications have largely to do with the possibility of a mechanics lien from an unpaid contractor or contractors. As you may or may not know, a mechanics lien takes precedent on the property’s title, even over a first position lender. Having another entity in front of a lender is a nightmare scenario and it’s a situation they avoid at all cost. Fortunately we have the experience to deal with this and we’re comfortable lending on most partially complete properties.
 
The bulk of the work to underwrite such a loan is to contact the contractors on the project to determine the status of monies owed to them. It’s critical that we know every contractor who worked on the project, if they are owed a balance on their work and when the work was completed (contractors have a limited time to file a lien against a property and sometimes forget to do so in the time allowed). We also need to verify by inspection that the claimed work has been completed. If it has, we can include funds to pay the contractor in the construction budget going forward or obtain a lien waiver from the contractor who may be willing to wait to get paid.
 
All of this requires a great deal of legwork. It also requires that your borrower have the information on hand to provide to us (and that it’s complete and organized). A list of all the contractors who worked on the job (including sub-contractors) would be on the checklist we would send you. If you can provide that information, we can offer you a potential way to fund a class of loans few other brokers can.

If you have a commercial loan request to finish a partially completed construction project, and you would like to contact this lender (it is NOT Blackburne & Sons), please email me, George Blackburne III, at george@blackburne.com , and I'll arrange an introduction.  Please type, "Partially Completed Construction" in the subject line.  I charge a 50 bps (a half-point) fee, if the deal closes, for hooking you up with this lender.

If you are a commercial mortgage broker trying to convince a lender to make a commercial loan in one of the cities, or if you are a commercial real estate broker trying to sell a commercial property in one of these cities, being on this list is a BIG deal!  Be sure to stress it to your investor.

Forbes' List is based on the Milken Institute's Best-Performing Cities Index.  This index measures U.S. metropolitan areas based on growth in jobs, wages and salaries, as well as technology output. It weighs these factors over a five-year span, to account for varying business cycles.  It stirs in the latest year’s performance, and it then adds each city's 12-month job growth performance to account for recent momentum.

Here are the Top Ten Best Performing Cities in America:

1. San Antonio, TX
2. El Paso, TX
3. Fort Collins-Loveland, CO
4. Austin-Round Rock, TX
5. Killeen-Temple-Fort Hood, TX
6. Salt Lake City, UT
7. Anchorage, AK
8. Huntsville, AL
9. Provo-Orem, UT
10. Kennewick-Richland-Pasco, WA

Be sure to note that four out of the top five best performing cities in the country are located in Texas!

To see the complete list of the 25 best performing cities in America, please click here.

Every day our commercial mortgage portal, C-Loans.com, generates between 50 to 100 commercial mortgage leads.  Mortgage brokers can buy most of these leads for just $1 to $3 apiece, plus a closing fee of 37.5 bps. (a little more than one-third of a point), if the deal closes.

What do our commercial leads look like?  Please click here to view a sample lead.

Are our leads any good?  C-Loans has closed over 1,000 different commercial real estate loans totaling over $1 billion.  This is probably more closings than most of our competitors combined.  It is interesting to note that two out of every three commercial loans closed by C-Loans in the past three years were closed by our lead buyers and commercial mortgage brokers, owners of small commercial mortgage companies just like yours, who took our deals to their own pocket commercial lenders.

Did you inquire into buying our commercial mortgage leads in the past?  Were you discouraged at your chances of qualifying to buy our leads?  In the past, C-Loans required substantial commercial loan experience and a credit score of 700 or higher in order to qualify to buy our commercial leads.  We here at C-Loans have come to realize that most mortgage brokers were chewed up financialy by the Great Recession, and their personal credit suffered greatly.

C-Loans has therefore greatly relaxed its credit, financial, and experience standards required to buy our commercial leads.  Most brokers will now qualify to buy our leads, even if their credit is significantly damaged.

Interested in more details about buying our commercial leads?  Please click below:

C-Loans.com once paid a guy a referral fee of $21,250 for referring us a commercial loan.  The really funny thing is that the guy was asleep when he referred us that loan.  Really.  How is that even possible?

There are lots of tricks and techniques you can use to find more commercial mortgage referrals to send to Blackburne & Sons and/or C-Loans, Inc.  For example, where do you find commercial loans to refer?  Is there a way to automate the process so you can earn $5,000 referral fees in your sleep, just like that lucky guy described above?

You'll find the answers in our wonderful free whitepaper, The Inside Secrets of Earning Huge Referral Fees.

From time to time you probably run across business owners and investors who are looking for a commercial real estate loan.  Blackburne & Sons will happily pay you a 20% referral fee for that lead.

All you have to do is visit our Commercial Lead Input Form.  Then just fill in the name of the borrower.  Voila!  You're done.  When the deal closes, we'll send you a big referral fee.  We once paid a $21,250 referral fee to a guy named Alan Dunn from a company named Spydercube.  Wow.  As you can imagine, he was pretty happy to get that call.

Why don't you please go to our Commercial Lead Input Page and bookmark it right now?