You will recall that a permanent loan is a first mortgage commercial loan with a term of at least 5 years and with at least some amortization. Conventional commercial loans are usually amortized over 25 years, but they balloon after just five, seven, or ten years. If the property is older than 40-years-old, many banks and other commercial lenders will amortize such permanent commercial loans over just 20 years.
Historically, Blackburne & Sons has only made permanent commercial loans. There was an important reason for this. We knew that a deflationary depression was coming, and we were anxious to book long-term loan servicing rights.
"Okay, George, but what's so special about loan servicing rights? You're always harping on the fact that the real money in the commercial loan business is in loan servicing fees. What's so special about loan servicing income? It sounds like a lot of work to me."
Loan servicing income is dreamy. When Blackburne & Sons books a permanent commercial loan, we might charge the borrower 12.9%. We then sell off this commercial loan at just 11.0% to a syndicate of private investors that we assemble. We then keep that 1.9% spread as our loan servicing fee.
Its a lot more work for us, but we actually assemble a new syndicate of private investors for each new commercial loan that we make. Don't worry about speed. After 33 years in the commercial loan business, we can syndicate a new commercial loan in 24 hours without making a single outgoing phone call. That's how ravenous our 1,500 private commercial loan investors are for our deals.
Although we manage two large mortgage funds, but I am not a big fan of mortgage funds. Large commercial loan mortgage funds always fail during real estate depressions. We seem to have one of these commercial real estate depressions about once every eight to twelve years, and typically commercial real estate values fall by 45% during such depressions.
Having a diversified portfolio of commercial loans doesn't help when the value of the collateral falls by 45% as to every single loan. It's like a life insurance company having a diversified portfolio of 2,000 different life policies, but every insured is a passenger on the Titantic.
By the way, did you know that Blackburne & Sons was the only commercial hard money lender that was actively making commercial loans every single day of the Great Recession? Almost every other commercial hard money lender had been funding their deals using a commercial loan fund, and their funds were now facing large losses and massive redemptions. In contrast, we were not relying a commercial loan fund. We just kept syndicating individual commercial loans - albeit at higher rates because of the fear in the marketplace.
Okay, so the year is 2000. I am a serious student of economic history. I know in my gut that the mother of all deflationary real estate depressions is coming. Therefore I refuse to make bridge loans. Instead I make permanent commercial loans that give me long-term loan servicing rights. By the time the Great Recession hits, we have almost $45 million in long-term commercial loans in our portfolio. A 1.9% annual loan servicing income on $45 million produces over $70,000 per month in passive loan servicing income - money that comes in every month whether we arrange a new loan or not.
It was on this residual income that our company survived the Great Recession. It is for this reason I think that commercial loan servicing income is the greatest thing since sliced bread.
It's time to circle the wagons and to get the point of this economic history lesson. The Great Recession is over. I, George "The Sky is Falling" Blackburne III, have swung from being the biggest bear in the industry to the most confident bull in the industry. The future is wonderfully bright. The best economic years of our careers are immediately ahead of us.
Therefore Blackburne & Sons is now happy to make bridge loans, and our low rates will rock your world.
If you have a handsome California property, we will now make the following bridge loan:
Interest Rate: 7.9% to 8.9%
Loan Fee: Two points
Term: One year
Prepayment Penalty: None
We love the primary markets in Texas (Austin, San Antonio, Houston, Dallas). Properties in other states may be at a slightly higher rate.
You will also find us more aggressive in terms of loan-to-value. We might consider 75% loan-to-value on a purchase money deal to a good-credit borrower if he was putting down cash-to-loan. Bottom line: Blackburne & Sons is hungry for bridge loans.
Got a potential deal? Please call:
Tom Blackburne (my son)
574-210-6686
Alicia Gandy (called the Loan Goddess because she's our biggest producer)
916-338-3232
Desmond Stoll (called Loan Atlas because he'll move mountains for you)
916-338-3232