What is a money center bank? You've heard me use the term before, as in the statement in my recent blog article about securitized commercial loans, "The money center banks - huge banks like Bank of America, Wells Fargo Bank, J.P. Morgan Chase - and the conduits would originate about $1 billion worth of commercial first mortgages on the four major food groups: multifamily, office, retail, and industrial properties." But what turns a garden-variety commercial bank into a money center bank?
A money center bank is defined as a very large commercial bank, usually headquartered in a gateway city, which earns a substantial portion of its revenue from transactions with governments, big businesses, and other banks. A large share of the deposits in money center banks come from foreign investors and foreign companies. It is this access to foreign capital that gives money center banks an essentially unlimited access to capital.
Most money center banks have either their headquarters or a major footprint in such economic hubs as New York City, Los Angeles, San Francisco, London, Zurich, or Hong Kong.
Examples of money center banks include JP Morgan Chase, Bank of America, Citibank, Wells Fargo, US Bank (a lot of Asian deposits), Bank of New York Mellon, HSBC (London), Deutsche Bank (Frankfurt), and Credit Suisse (Zurich).
What makes money money banks so special - in addition to their access to virtually an unlimited amount of foreign capital - is that they help to sell U.S. Treasuries. Have you ever wondered why only Lehman Brothers (an investment bank rather than a money center bank) was allowed to fail during the Great Recession? At one point most of the money center banks and all of the major investment banks (think stock brokers) were technically insolvent. Why not let them all fail and finally be done with them? Without the money center banks and the major investment banks, there would be no one left to sell U.S. government bonds!
Okay, as commercial real estate investors and brokers, why do we even care about about money center banks? Answer: They are the lenders who have the dough to make the really large commercial construction loans. If you need to build a residential tower in Brooklyn or a regional distribution center for Amazon.com or Wal-Mart outside of Houston, these are just about the only lenders who are perfectly comfortable making $50+ million loans.
Considering that these banks have an (essentially) unlimited deep pocket and a huge appetite for good loans, you can understand why they greatly prefer BIG loans. They are not going to be terribly interested in a $400,000 commercial loan to buy a bar in Trenton.
Here is a great piece of advice: Match the size of your commercial loan to the size of the bank. Take small commercial loans to small banks and large commercial loans to large banks.
What is a small commercial loan? Anything less than $2 million is know as a small balance commercial loan. Take such loans to small banks. What is a small bank? Any bank with less than $1 billion in assets.
Take your mid-sized commercial loans to mid-sized commercial banks. What is a mid-sized commercial loan? Any commercial loan between $2.1 million and $10 million. What is a mid-sized bank? Answer: Any bank between $1 billion and $10 billion in assets.
Take your large commercial loans to large banks. What is a large commercial loan? Any commercial loan larger than $10 million. What is a large bank? Any bank with more than $10 billion in assets.
"That all sounds great, George, but how could I possibly know the asset size of a bank?"
You can quickly find the asset size of any bank in the country using BankFind, a wonderful search engine created by the FDIC. (Loan Officers for Blackburne & Sons, please click on this link and bookmark BankFind right now. Then please send me an email that says, "I bookmarked this tool.")
As you go about your business, be sure to hang on to the business card of any banker you meet who makes commercial loans. You can parlay the contents of that one business card for a list of 2,000 commercial real estate lenders. We solicit these bankers to refer their turndowns to C-Loans. Or you can just buy that list for $29.95.
Do you have an "A" quality commercial loan that is simply too squeeky clean for my private money mortgage company? You can run your commercial loan by 750 different banks with one click using C-Loans.com. And C-Loans is free!
The following scenario plays out all of the time:
Two commercial mortgage brokers are competing to place a commercial loan for the same borrower. The borrower wants the best rate possible, but ultimately he needs the money pretty soon to pay off some overdue company bills. The rookie mortgage broker stubbornly keeps submitting the deal to banks, who keep turning him down for admittedly goofy reasons. The veteran mortgage broker also has several banks looking at the commercial loan package; but just to be SURE he has some loan for his borrower (remember, this borrower needs money), he also submits the deal to Blackburne & Sons. After all, Blackburne & Sons doesn't charge a penny to prepare a (conditional) commitment letter. Sure enough, all of the veteran's banks flake out on him too, but the veteran ends up closing the deal and earning a nice commission because the borrower decides to accept the SURE DEAL on the table from Blackburne & Sons. You submit your commercial loans by email anyway. It will take you just three minutes to also submit a duplicate copy to the one commercial lender who is always in the market and always in the mood to make commercial real estate loans. Blackburne & Sons was in the market every day of the Great Recession.
Did you learn something today? Am I helping you? Everybody appreciates atta-boys. :-) How about a Google-plus one, a Linked-In share, a Facebook share, or a ReTweet? Maybe you might even forward this article to one of our buddies in commercial real estate investment or commercial real estate finance. I sure would appreciate it.
And thanks for your kind words of support during my heath scare!! All appears well right now.