Nobody is applying for commercial loans right now. In my 33 years in the commercial loan business, I have seldom seen the commercial real estate finance industry so dead.
Commercial loan demand today is almost as bad as in 1982, when the prime rate dropped from 21.5% to just 14% over about a year. Good luck trying to convince a borrower to apply for a commercial loan when interest rates are falling by 1% a month!
When interest rates are falling, commercial mortgage borrowers proscrastinate because interest rates will only be lower the following month.
My commercial mortgage company (Blackburne & Sons was founded in 1980) almost failed in 1982 because new commercial loan applications that year were almost completely nonexistent. If my sweet mother had not loaned me some dough, my commercial mortgage company would have failed.
Today's darth of commercial loan demand is fortunately weather related. It will pass when the weather improves. Those of you in sunny California just don't appreciate how bad the weather is for much of the country. The cold, the snow, and the wind chill are so bad here in Plymouth, Indiana that everyone was confined to their homes for four of the last seven days. One local resident, I heard, was fined $500 when his car slipped off the road and went into a ditch, on a day when road travel was banned.
My point is that no one wants to think about applying for a commercial loan when the weather is this bad. When the weather improves, commercial loan demand should come roaring back.
I wrote a blog article earlier in the week where I pointed out the advantage of marketing for commercial loans using lists (email, fax, and snail mail). The nice thing about list advertising is that you can quickly send out a newsletter to your contacts when your commercial loan business gets slow. In contrast, if your sole source of commercial leads is through magazine ads, you may have to wait for weeks until the next magazine issue goes out.
Anyway, one of my regular readers wrote to me this week and complained that he had gotten virtually no response from his newsletter campaigns. Here is the thing about newsletters: Commercial mortgage newsletters do not even start to pull until the sixth newsletter.
Why is this? I dunno. It's just a fact of life that I have observed over the past 33 years in the commercial mortgage business.
But what I can tell you - and you can take this to the bank - is that:
If you send out a fun, personal, folksy, intentionally-unprofessional newsletter, every ten days to every three weeks, for at least six times religiously (with no gaps), pretty soon your recipients will consider you one of their best friends. They will consider themselves to be the backup Godparents of your children, and they will swear that they have known you for years (even though you have only been marketing to them for seven months).
I call this special bonding effect, The Newsletter Effect. In my training classes I compare the strength and intensity of this bond to The Stockholm Syndrome, that strange, emotional bond that was built between the terrorists and their hostages back in the 1970's.
Your newsletters have to be fun, so you can condition your customers to actually open your newsletters and read them. I always include tons of fun stuff (Rat Goodies) in my newsletters, like jokes, funny pics, and links to great videos. In fact, I think of my newsletters like a TV show, with only an occasional and brief word from our sponsor.
So to my regular reader, the reason your newsletter campaign failed was because you had too many time-gaps between your newsletters (it wasn't regular enough), and you gave up on sending them MUCH too soon. You need at least six newsletters for The Newsletter Effect to take effect. It is on the sixth newsletter and beyond when the leads finally start to come in.
My own son - Doubting Thomas - was losing heart in his own newsletters. "They aren't working, Dad!" Then his sixth newsletter went out, and - BOOM - lead calls finally started pouring in for him.
Another loyal subscriber to my Commercial Loans Blog asked, "To whom should I send out my newsletters, George?"
It depends on whether you are using snail mail (which costs money) or email, which is essentially free. If you are using snail mail, I recommend that you should only spend the money to send out your newsletters to people who see lots of commercial loan applications every month because of their jobs. This includes bankers, commercial real estate brokers, property managers, residential mortgage brokers (on a name and number referral basis only), residential realtors, attorneys (who know you personally), CPA's (who know you personally), and life insurance agents.
If you are using email newsletters you should add every wealthy real estate investor you meet in the regular course of business, even if you only quote a loan to him. If you are diligent, you can build a book of two or three thousand commercial real estate investors in a couple of years. Then, if you never fail to send an email newsletter every three weeks, you will have a booming commercial loan business that you can someday pass on to your own sons and daughters.
I read all of your comments to my blog articles, so if you have other questions and topics that you would like me to cover, please just post a comment. And thanks for being a regular reader! :-)
