Commercial Loans Blog

Commercial Loans and a Reminder About Net Worth

Posted by George Blackburne on Mon, Mar 25, 2019

Commercial loan on a residential subdivisionSomeone applied for a $32 million commercial construction loan on C-Loans.com today, and the commercial loan request was looking pretty good until I got down to the net worth of the borrower.  Arghh!

The broker inputting the deal indicated that the land was worth $13,000,000, but the developer was only worth $1 million to $2 million.  Huh?  What?  And he wants to borrow $32 million?

 

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Guys, you're reminded that the Net-Worth-to-Loan-Size Ratio is supposed to be at least 1.0.  In other words, if a developer is trying to build a $32 million project, the combined net worth of the guarantors should be greater than, or equal to, $32 million.

This brings up an interesting point.  When computing the Net-Worth-to-Loan-Size Ratio, you can combine the net worths of the various developers, if there is more than one.

 

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Example:

Bobbie Builder, Donnie Dentist, and Sandy Saleswoman are trying to build a spec office building.  Spec is short for speculative, meaning that the developers do not have the building pre-leased.

The total cost of the project is $10 million.  The credit union will only lend up to 70% of cost, meaning that the commercial construction loan in our example will only be $7 million.  Note:  Credit unions are now making commercial construction loans.

Bobbie Builder's net worth is $2 million.  Donnie Dentist has a $1.5 million net worth.  Sandy Salesperson also has a net worth of $1.5 million. Their combined net worth is $5 million. Will they qualify for a $7 million commercial construction loan?

 

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Answer:  Probably not because their combined net worth is only $5 million; however, if Donnie Dentist had $1 million in cash and marketable securities; i.e., he had lots of liquid assets, the group might just qualify for their commercial construction loan from a credit union, but probably not from a commercial bank.  Credit unions are desperate for commercial loans these day, so they are very loosey-goosey.

Back to Our $32 Million Commercial Construction Loan:

The maddening thing about this particular commercial loan application is that the commercial loan broker indicated that the land was worth $13 million.

In general, a developer will usually own the land before applying for a commercial construction loan.  Ideally, the bank would prefer that the developer own the land free and clear.  Even if there is still some sort of first mortgage on the land, I suspect that the developer probably had several million dollars in equity just in the land.  Therefore his net worth is almost certainly far more than just $1 million to $2 million.

 

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If this is true, then the commercial loan broker who entered this attractive commercial construction loan into C-Loans.com really blew it!  The bank is going to take one look at the relatively pathetic net worth of the developer and summarily turn the deal down.

Lesson of Today's Article:

Pay attention to the net worth of your borrower.  His net worth must usually be at least as large as the loan amount; otherwise, you are probably wasting your time.  The ratio is not written in stone, so if your ratio is 0.92, you're probably still okay.  Every commercial loan ever made had a few black hairs; i.e., imperfections.

 

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Topics: Net Worth

Commercial Loans and the Junior Box

Posted by George Blackburne on Fri, Mar 22, 2019

PetsmartOne day a lawyer was riding in his limosine when he saw a guy eating grass. He told the driver to stop. He got out and asked him, "Why are you eating grass".

The man replied, "I'm so poor, I can't afford anything to eat." So the lawyer said, "Poor guy, come back to my house." The guy then said, "But I have a wife and three kids." The lawyer told him to bring them along.

When they were all in the car, the poor man said, "Thank you so much for taking us back to your house. It is very kind."  "You're going to love it there," said the attorney. "The grass is over a foot tall."

 

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I just learned a new commercial loan and commercial real estate term today - the junior box.  We have all heard of big box stores like Wal-Mart, Target, and Home Depot.

A junior box is a type of big box store, just the smaller variety.  It is a retail space containing 20,000 to 40,000 square feet.  Common examples of junior box tenants are Hobby Lobby, Goodwill, and PetSmart.  Junior boxes actually make up the largest portion of overall net-leased big-box stores on the market.

Big boxes are larger than 80,000 square feet, while the mid box is a retail unit of 40,000 to 80,000 square feet.

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Dear Abby:  I think I need to see a specialist, but my doctor insists he can handle my problem.  Can a general practitioner really perform a heart transplant right in his office?

A.   Hard to say, but considering that all you're risking is the $20 co-payment, there's no harm in giving him a shot at it.

 

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Topics: junior box

Could You Find Me 20 Bankers Making Commercial Loans?  I'll Teach You a Profession.

Posted by George Blackburne on Wed, Mar 20, 2019

RabbitThe LAPD, The FBI, and the CIA are all trying to prove that they are the best at apprehending criminals. The President decides to give them a test. He releases a rabbit into a forest and has each of them try to catch it.

The CIA goes in. They place animal informants throughout the forest.  They question all plant and mineral witnesses. After three months of extensive investigations they conclude that rabbits do not exist.

Then the FBI goes in.  After two weeks with no leads they burn the forest, killing everything in it, including the rabbit, and they make no apologies.  The rabbit had it coming.

Then the LAPD goes in. They come out two hours later with a badly beaten raccoon. The raccoon is yelling: "Okay!  Okay!  I'm a rabbit!  I'm a rabbit!"

 

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Are you an accredited investor?  Interested in earning 26.2%?  My wife's cousin, Alex, specializes in hotel construction, and over the past 23 years I have watched him, as a hotel general contractor, build 60 hotels, most of them flagged.  On a personal level, Alex is a true gentleman, with a lovely wife and fine children.  If you ever met him, you would admire his gentlemanly ways.

Alex is now building for his own portfolio his second flagged hotel, a Marriott Fairfield Inn located on I-5 in Oregon.  The equity investors in his first hotel earned well in excess of 25%.  I begged him to allow me to help raise equity for him.

Folks, I am an attorney.  I am an Eagle Scout (like both of my sons).  I have faithfully managed $50 million of my investor's money for 39 years.  I am telling you, this is the most promising investment I have ever seen.  This equity investment opportunity is sold out on paper, but there is always some shrinkage as we approach the closing.  Some of the backups will almost certainly get in on the deal.  I urge you to call Angela Vannucci at 916-338-3232 and get on the list of backups.

 

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A few moments ago a guy named Alan made one of the best deals of his life.  He traded me a list of 20 bankers making commercial real estate loans.  In return, I am sending him our 9-hour video training course, How to Broker Commercial Loans.

This course is absolutely fantastic!  We teach our students an entire profession in one, long exhausting day; and those of our students who are natural salespeople will earn incomes rivaling those of a physician.  

We sell it elsewhere on C-Loans.com for $549 - not the $250,000 in tuition that some liberal arts colleges charge.  Haha!  The course teaches you everything from marketing for commercial loans, underwriting commercial loans, packaging the commercial loan, finding the right commercial lender, and lastly, fee collection.

 

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But let's suppose you are a starving commercial mortgage broker. You would love-love-love to own this course, but you don't have $549.  I will give you this 9-hour commercial mortgage brokerage training course course for free, if you will compile a list for me of twenty bankers making commercial loans.  These are DVD's, so you will have to pay $30 or so for the shipping.

I will please need the name of the loan officer, the bank, the address, the phone number, and his email address. And guys, these commercial real estate loan officers must work at either a FDIC-insured bank or a NCUSIF-insured credit union. I will not accept commercial real estate loan officers working for any other type of commercial lender. I just want bankers.

 

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You will probably want to call the twenty closest banks to your office and ask for a commercial real estate loan officer. Sometimes getting the banker's email address can be tricky. They don't like giving it out. I like to ask, "If I wanted to send you a commercial loan package, to what email address would I send it?"

Please send your list to me by email, george@blackburne.com. Please insert in the subject line, "Trade for 20 Bankers." Don't forget your own own address and phone number. Obviously this is George Blackburne III (the old man). Guys, I get 1,300 emails every single day, so it will be very easy for me to miss your email. Right after emailing me your list of bankers making commercial loans, please send me a text to 574-360-2486, "George, I just sent you a list of 20 bankers."

 

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 Guys, I Please Need Your Help

I have a problem.  Between C-Loans.com and CommercialMortgage.com, I am generating a half-dozen large ($1 million+) bridge loan requests every single day, and I don't have enough Big-Boy bridge lenders to work them.

Now I have given you free, searchable access to almost 4,000 commercial lenders (mostly banks) on CommercialMortgage.com.  Would you kindly please-please-please return the favor by sharing with me some bridge loan lenders that can comfortably handle commercial loans of over $1 million.  I am really looking for the proven guys who do deals of $1 million to $10 million or $2 million to $20 million. 

Please write to me at george@blackburne.com.  So I don't miss it, would you please make the Subject Line, "Bridge Lender(s) For You."

A lady was picking through the frozen turkeys at the grocery store, but couldn't find one big enough for her family.  She asked a butcher, "Do these turkeys get any bigger?"  The butcher replied, "No, ma'am, they're dead."

 

 

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Where to Find Bankers

It's easy to find 20 bona fide bankers to trade to C-Loans, Inc. for our wonderful, 9-hour video training course, How to Broker Commercial Loans.

Before I explain how, there is an even more important reason why you want to build your own list of bankers. The single best way to market for commercial loans is to advertise to commercial bankers.

Why? The first place a potential commercial mortgage borrower calls is his own banker, so the typical commercial real estate loan officer, working for a bank, gets two or three such calls per day. He turns down 80% of these commercial loan requests. There is no reason why he can't refer them to you.

 

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Okay, so how do you find these these bankers? I recommend that you start with those banks that are located close to your office. These banks are very easy to find. Simply go to Google Maps and type in the address of your office. Then click the "Nearby" icon and type in, "Banks." Every bank within 50 miles of your office will pop up.

Then call the bank and ask to speak with a commercial real estate loan officer. The typical bank has a single commercial real estate loan officer covering five or six branches, so he will likely work out of a different branch. Then work with the loan officer or receptionist to obtain his phone number (try to get both work and mobile), address, and email address.

The email address is critical, and sometimes bankers are a little freaky-deaky about giving it out. They are worried about being spammed. The best way to ask for a banker's email address is to ask, "If I wanted to send you a commercial loan summary, to which email address should I send it?"

 

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A white-haired old man walked into a jewelry store on a Friday, with a beautiful young lady at his side.  "I'm looking for a special ring for my girlfriend," he said. Our jeweler looked through our stock and took out an outstanding ring priced at $5,000.  "I don't think you understand.  I want something very unique," the man said.  At that, our now very excited jeweler went and fetched our special stock from the safe. "Here's one stunning ring at $40,000."

The girls eyes sparkled, and the man said that he would take it.  How are you paying?" asked our jeweler.  “I'll pay by check; but of course the bank will want to make sure that everything is in order, so I'll write a check and you can phone the bank tomorrow, and then I'll fetch the ring on Monday," replied the old man.

Monday morning, our very disappointed jeweler phoned the man. "You lied, there's no money in that account."  "I know - sorry - but can you imagine what a FANTASTIC weekend I had?!"

 

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Topics: trade for 20 bankers

What Types of Lenders Are Making Commercial Loans?  Part 1

Posted by George Blackburne on Tue, Mar 19, 2019

Financial districtTwenty years ago, if you wanted a commercial loan, you might have applied to a savings and loan association, a thrift and loan association, or even a credit company.  None of these company types are making many commercial loans today; so I am not even going to bother to describe them.  They have gone the way of the buffalo.

All new commercial lenders have entered the commercial loan market.  I will describe each type of commercial lender active in the market today, starting with the ones with the lowest interest rates.

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Life Companies:

The term, life company, is short for life insurance company.  For the last 50 years, life companies have always offered the absolute lowest commercial loan interest rates.

Life companies offer fixed interest rates for up to ten years at rates as low as 175 to 200 basis points (1.75% to 2%) over ten-year Treasuries.  That's the good news about life companies.  The bad news is that life companies do not lend to mortals like you and me.

In order the qualify for a commercial loan from a life company, the loan must usually be larger than $5 million, the property must usually be less than ten years old, it must usually be located in a primary location in a football team city, and the property must usually be office, retail, or industrial.  The property also has to be gorgeous, and the maximum loan-to-value ratio that you are likely to achieve is 55% to 58% LTV.

 

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Like I said, life companies do not lend to folks like you and me.  They lend to investors so stinking wealthy that they don't want a lot of leverage.  They want the cash flow.

 

Conduits:

A conduit is short for Real Estate Mortgage Investment Conduit ("REMIC").  A conduit is a specialized commercial mortgage company that originates large commercial real estate loans for their eventual placement in the Commercial Mortgage-Backed Securities ("CMBS") market.

These conduit loans are aggregated in a giant pool of $2 billion or so, and then bonds, backed by the commercial mortgages in the pool, are issued and sold off by Wall Street-like investment bankers to life companies, pension plans, family trusts, bond funds, and other institutional investors.

 

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The good news about conduit lenders is that their interest rates are only about 75 basis points (0.75%) higher than those offered by life companies.  Conduits will also lend in secondary locations in fairly large cities not quite large enough to have a football team.  In addition, the property does NOT need to look like a color, glossy postcard.

The bad news about conduits is that their minimum loan size is large - typically $4 million+.  In addition, their loan-to-value ratios are pretty low.  CMBS investors got hammered during the Great Recession, so conduit lenders now use a commercial loan underwriting ratio that few other commercial lenders use.  This ratio is the Debt Yield Ratio.

 

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A Debt Yield Ratio of 9% limits many conduit loans to a maximum loan-to-value ratio of around 65% to 68%.  This is not the the kind leverage that most investors are seeking.  As a result, conduit loan originations in the past several years have been no more than 40% of their pre-2008 loan volume.

We will cover Commercial Banks, Credit Unions, Wall Street Non-Prime Lenders, Bridge Lenders, and Hard Money Lenders in coming blog articles.

 

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Topics: Types of commercial lenders

Commercial Loans and the Age of Proscriptions

Posted by George Blackburne on Sun, Mar 17, 2019

ProscriptionImagine the following fanciful scenario. Beto O’Rourke wins the Democratic nomination, and the presidential campaign for President in 2020 is hard fought and bitter. O’Rourke loses in a close race, and then Trump sets out to ruin O’Rourke’s most important supporters and donors.

Eighty-one subpoenas go out to O’Rourke’s key supporters seeking evidence of bribery by Mexican drug lords of top Democratic Senators and Congressmen to prevent the construction of the Wall. “They must have been bribed,” Trump declares, “otherwise, why would the Democratic leadership allow 137 Americans per day to die from drug overdoses from drugs smuggled across the border from Mexico?” Remember, folks, this is just a fanciful scenario I have created to make a point. The facts are nonsense, of course, but please stay with me.

 

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By the end, a dozen top O’Rourke supporters and donors are arrested for either perjury, obstruction of justice, or totally unrelated crimes uncovered by this giant fishing expedition. Trump declares, “The Rule of Law must be followed.” The surviving O’Rourke supporters are cowed and pledge to themselves to stay forever out of politics. Never again will they contribute.

These attacks were like a proscription on key Democratic supporters and donors.  Proscription?  What on earth is a proscription?

In the generation right before Julius Caesar, the Italians cities under Roman rule rebelled against Rome. They paid taxes to Rome, and they provided soldiers for the Roman army; but they were treated like second class citizens. They wanted Roman citizenship.

During the Social War that followed, two different Roman generals rose to prominence, Gaius Marius, the old veteran, and Lucius Cornelius Sulla, the younger, quite brilliant general. Marius and Sulla absolutely hated each other. They competed to be the leader of Rome.

 

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As the Social War was winding down, Marius returned to Rome and was declared First Consul. He managed to convince the Senate at sword point to declare Sulla an outlaw. Then Marius systematically rounded up all of Sulla’s supporters and murdered them. He killed thousands. In the meantime, Sulla took his six legions and conquered a neighboring empire, Pontes.

Marius was old during the Social War, and he soon died of natural causes. Sulla then marched back to Rome with the vast treasures of the Pontes Empire, thousands of prisoners to be sold as slaves, and his six loyal legions. The Senate had no choice but to declare Sulla First Consul.

"A proscription is a posted notice listing Roman citizens who had been declared outlaws and whose goods are to be confiscated. Rewards were offered to anyone killing or betraying the proscribed, and severe penalties were inflicted on anyone harboring them. Their properties were confiscated, and their sons and grandsons were forever barred from public office and from the Senate.”

 

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“Proscription was first used by the dictator Sulla in 82 or 81 BC to avenge the massacres by Gaius Marius and his son. Accounts differ, but between 520 to 4,700 wealthy opponents of Sulla were proscribed and their property given to Sulla’s veterans. Julius Caesar in 49 BC emphasized his own clemency after his victory in the Roman civil wars by avoiding proscriptions and restoring the sons and grandsons of those proscribed by Sulla to full citizen rights.”

“After Caesar’s assassination, his clemency was used as an excuse for the proscriptions of the triumvirs, Mark Antony, Octavian, and Lepidus (43–42 BC). They used proscriptions to rid themselves of their enemies and to acquire land for their legions and funds for themselves. (One unfortunate Senator was proscribed because the people in power wanted the natural hot springs on his land. When the Senator saw his name posted on the proscription list, he moaned, “My hot springs have killed me.” About 300 senators and knights were proscribed, including Cicero. Many of the proscribed escaped, and more than a few were later restored to their privileges.”

 

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You can now see what happened in ancient Rome. As soon as one side (Marius) came to power, they murdered the supporters of their opponents. Then the other side (Sulla) would do the same when they returned to power.

Since the start of Mueller’s investigation, government forces have gone after about a dozen of Trump’s supporters, including Paul Manafort, Michael Cohen, Michael Flynn, Rick Gates, George Papadopoulos, Roger Stone, and, to a lesser degree or with lesser success, Jared Kushner, Ivanka Trump, Donald Trump Jr., and Eric Trump. This month eighty-one additional subpoenas have been served on other Trump supporters and organizations.

 

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                         “Elections have consequences.” – Barack Obama

Do you doubt that the Republicans will someday return the favor? Welcome to the Age of Proscriptions. I wonder how soon it will be before some billionaire refuses to go to jail just because he supported the wrong candidate.

 

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Topics: Proscriptions

Commercial Loans and the Flood of New Hard Money Lenders

Posted by George Blackburne on Wed, Mar 13, 2019

Great DepressionBefore the Great Recession, there were about 300 hard money mortgage companies making commercial loans across the country.  By the end of the Great Recession, fewer than 20 of them survived.

I can only imagine how badly their private investors must have fared when their hard money broker failed.  No one was left to make collection calls to the borrowers.  No one was left to keep fire insurance in force.  No one was left to make sure the real estate taxes got paid.  No one was left to hire an attorney to foreclose on the property.  No one was left to rekey the property after the foreclosure and to install an alarm system and a security fence.  No one was left to winterize the property.  Think broken pipes and tens of thousands of dollars in water damage and mold.  No one was left to start the renovation.  Every foreclosed commercial property needs to be renovated before it is offered for sale.

 

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The only party left to do all this was a sleepy bankruptcy trustee, appointed by the court.  As a general rule, bankruptcy trustees are either overworked or they are indifferent.  They seldom, if ever, return phone calls.

I have often said that the single most important decision that a trust deed investor can make is to choose a hard money broker who is likely to survive the next bad recession.  About every fifteen years commercial real estate values seems to fall by exactly 45% before recovering to new highs.

If you get nothing else out of today's training article, you would be wise to remember that magic number - 45%.  During the S&L Crisis, the Dot-Com Meltdown, and the Great Recession, commercial real estate fell by almost exactly 45%.  Therefore, during the next real estate depression, you should start buying real estate like crazy when the collapse has reached about 40%.

 

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But after the Great Recession, interest rates on bank C.D.'s fell to less than 1%.  Private investors were desperate for yield.  A blind, cripple could hang out his shingle as a hard money broker, advertise that his trust deeds were yielding 10% interest, and hungry trust deed investors would flock to his banner.  As a result, thousands of new commercial hard money lenders have sprung up in the past four years.

One of the good effects of this flood of new commercial hard money brokers is that the interest rates charged by hard money brokers have plummeted.  There is so much competition among hard money brokers, on behalf of their ravenous private investors, for good loans that they have all been forced to lower their interest rates significantly.  The vast majority of hard money loans are written today at single-digit interest rates.  Before the Great Recession, commercial hard money shops used to charge 12% to 13%.

Blackburne & Sons recently did a small apartment loan in California at just 7.9%.  We sold it off to our private investors at a net yield of just 6%.  Wow!  Just 6% net.  And our investors clamored for even more of these 6% deals.  "Now this is one I have been waiting for.  Send me more," wrote one of our 6% investors.  

 

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If you have not started your own hard money shop, a good argument can be made that you are a dummy.  The average hard money broker makes TEN TIMES more than the average desk-and-a-phone mortgage broker.  Why?  Hellooo? Because you get to approve your own loans!!!!   Click here to learn How to Find Your Own Private Mortgage Investors.

Do you already own your own commercial hard money shop?  Do you need more commercial loan applications?  Blackburne & Sons is not crazy about commercial loans larger than $1 million.  We greatly prefer junky little commercial permanent loans in the heartland of America.  Click here to submit a smallish deal to Blackburne & Sons.

At the same time, Blackburne & Sons and C-Loans, Inc. do a massive amount of marketing for commercial loans, and a great many of the leads generated are for commercial bridge loan requests of larger than $1 million. 

If you own a hard money shop, and you regularly close bridge loan requests larger than $1 million, you should join C-Loans.com as a lender.  The only requirement is that you must service at least $20 million in commercial loans.  It costs nothing to join.  There is no monthly fee.  You only pay a software licensing fee of 50 bps. when you close a deal.

 

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Another way to get more more commercial loan applications is to buy leads from CommercialMortgage.com.  The cost is just $1,000 per year per Loan Type.

I'm sorry, but the type of commercial leads called, "First Mortgage Requests Larger Than $1 Million", is fully-subscribed.  We are now creating a waiting list.  You would be VERY wise to get on the waiting list.  Email or call Tom Blackburne at 574-210-6686.

But you can still buy for just $1,000 per year commercial leads in the following loan type categories:  "Bridge Loan Requests Larger Than $1 Million", "SBA Loan Requests (any size)", USDA Loan Requests (any size)", "Construction Loan Requests (any size)", and "Second Mortgage Requests (any size)."  We do NOT sell first mortgage and bridge loan requests smaller than $1 million.  We save these for ourselves.  For more information.

 

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Important:

The most important lesson that I teach in any of my training courses is that commercial lenders approve loans for their friends.  Every commercial loan ever made had black hairs, but if the lender is your friend, he will ignore a bunch of them.  Therefore, the key to making BIG money in commercial mortgage brokerage is to make a bunch of commercial lenders your friend.

Now every commercial lender in the country has six to eight "Best Brokers" - guys for whom he has closed a number of deals.  When a Best Broker calls or brings in a new commercial loan to a lender, you can bet that this Best Broker gets the lender's most diligent service.  This what you want to become, the Best Broker for about eight commercial lenders - maybe four banks, two conduits, and a couple of hard money lenders.

For example, in our office we call Alicia Gandy our "Loan Goddess" because she originates well over 60% of our loans.  Alicia has about eight Best Brokers who, in turn, bring her about 60% of all of her business.

 

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You really-really want to become a Best Broker for either Alicia or George Blackburne IV (my oldest son, age 34) because my loan officers will crank out a Term Sheet in just hours for their Best Brokers, allowing them to quickly get the borrower off the street (to stop their further loan shopping). 

But here's the thing.  There are now sooo many competing commercial hard money lenders that you may be tempted to submit the deal to one of these relatively new competitors.  Don't.

Why?  Most (90%+) of these new hard money funds will be out of business during the next real estate depression.  How can be I be so cocksure?  During bad recessions, everyone withdraws from hard money mortgage money funds, so the hard money shop has no money with which to lend.  If the fund isn't making new loans, the fund manager isn't earning the fee income he needs to keep his doors open.  That friendship you developed with that newbie-hard money lender?  In the coming crunch, it will be worthless because he will be out of business.

 

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That no-brainer hard money deal on your desk?  Don't waste it on a hard money company that has not budgeted for the next real estate depression.  Use it to build a friendship with Alicia or George.  Become one of their Best Brokers.

Blackburne & Sons was in the market, making new commercial loans, every single day of the S&L Crisis (45% decline in real estate ), the Dot-Com Meltdown (45% decline) and the Great Recession (45% decline).  I do not know of a single competitor who can make that claim.  If you have a special relationship with a perennial lender during the next real estate depression, you will make a fortune.

So don't waste your good hard money loans on hard money brokers who will not be able to help you in return when you need them the most!  Just sayin'.

 

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Topics: Flood of hard money lenders

Large Commercial Construction Loans Are Often Syndicated

Posted by George Blackburne on Wed, Mar 6, 2019

SkierBefore we get into the subject of syndicated commercial construction loans and where to get your large commercial construction project funded, we have an important announcement.

Important Announcement:

We here at C-Loans, Inc. just discovered a HUGE bug in our newest commercial mortgage portal, CommercialMortgage.com.  Arghhh!  Queue the "Agony of Defeat" scene where that downhill skier takes a horrible biff.

Our computer programmers made one single digit error.  As a result, none of the 500 new banks we have added in the past six months have been appearing on the Lender List!  Picture old man Blackburne careening and tumbling down a steep slope in a giant ball of snow, broken skis, broken bones, and blood.

Therefore, if you have recently tried CommercialMortgage.com, viewed the Lender List for your particular deal, and went, "Meh", I don't blame you.  But this wonderful commercial loan portal is fixed now.  I urge you (heck, I beg you) to come back and try it again.  Because our 500 latest banks will now show up, you will love-love-love the repaired version of CommercialMortgage.com.  

 

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Back to the Syndication of Large Commercial Construction Loans:

Commercial construction loans over $10 million are often made by a syndicate of community banks and mid-sized commercial banks.  A community bank is one with less than $2 billion in assets (cash, bonds, and loans outstanding).  A mid-sized bank is one with $2 billion to $20 billion in assets.

A regional bank is a depository institution, i.e. a bank, savings and loan, or credit union, which is larger than a community bank, which operates below the state level, but smaller than a money center bank, which operates either nationally or internationally.  The asset size of a regional bank is normally $20 billion to, say, $75 billion.  

Even larger than regional banks are money center banks.  Did you know that there are approximately 5,000 commercial banks in the US?  The word "commercial" simply means "business", as opposed to investment banks and merchant banks.  When you and I think of a bank, you are thinking of a commercial bank.

 

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Therefore, when I train you to submit your "A" quality commercial loan to at least 15 different commercial banks, you will only be scratching the surface of available banks.  There are also approximately 6,000 credit unions in the U.S.

You may recall that I sent you an announcement about a syndicate I was putting together to build a Marriott Fairfield Inn in Oregon.  Well, you may be shocked to hear that the lender making the $15 million construction loan is a credit union!  By the way, that $2 million syndicate is fully-subscribed; but if you are a very wealthy, accredited investor interested in earning a yield of over 25%, you should call Angela Vannucci at 916-338-3232 and get on the backup list, just in case anyone cancels.

 

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Now Back to Our Syndication Discussion:

Typically these commercial construction loan syndicates will consist of three or four community banks located reasonably close to the subject property, and often the bank presidents are golfing buddies.

Here is how these syndicated commercial construction loans get originated.  Suppose a commercial bank gets a $15 million commercial construction loan request from a commercial property developer who is important to the bank.  Fifteen million dollars, however, is a pretty large commercial construction loan for a community bank with just $2 billion in assets, but let's say the commercial construction loan request is a good one.

What might happen is that our first community bank might lead a small syndicate of friendly competitors to make the $15 million commercial construction loan.  Most commercial construction loans are priced at WSJ Prime plus 1%, and the bank would charge a one-point loan origination fee.  The Wall Street Journal Prime Rate today is 5.5%, so if a larger bank were to make the entire $15 million loan itself, the interest rate to the developer would be 6.5%.

 

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The interest rate on a syndicated loan, however, may be priced at WSJ Prime plus 1.5% floating (one-half of a percent higher), with a 7.0% floor and a loan origination fee of 1.5 points (an extra half-point). The lead bank might then sell off participations to other banks at prime plus 1% floating with a 6.5% floor and a loan fee of 1 point.  

The lead bank might take a $3 million piece of the $15 million deal.  The lead bank would then earn prime plus 1% floating and 1 point on its $3 million portion, and it would also earn a lead lender's fee of 1/2% interest and 1/2 point on the entire $15 million.  The lead lender would then be responsible for making the progress inspections, disbursing the progress payments, and handling any foreclosure on the commercial construction loan.

 

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Attention Developers.  Do You Need More Equity?

We have largely finished our money raise on the Oregon Marriott Fairfield Inn, so we are looking for the next deal.  Our sweet spot is raising between $750,000 to $2 million in equity for experienced developers of apartment buildings, retail properties, office buildings, industrial buildings, and hospitality properties nationwide.  We are not going to raise more than 40% of the total equity required by the bank because we want our developer to have tons of skin in the game.  

Need equity?  Please do NOT send me some huge package.  Please instead - to see if we have a fit - call me at 574-360-2486 (mobile) or just send me, George Blackburne III, a one-paragraph summary of what you are trying to do.  Please make the subject line exactly, "Equity Contribution Request."  Thanks!

 

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Training Tips:

  1. Whenever you are trying to place a commercial construction loan request, you should immediately think of either a commercial bank or a credit union.  Banks and credit unions make 99% of all commercial construction loans.
  2. You are NOT going to be able to get a New York bank to make a commercial construction loan in Virginia.  Commercial construction loans are almost always made by a local lender, a bank or credit union located within 15 or so miles from the property.  The reason why is that the construction lender has to make numerous progress inspections to check on the progress of the construction.

  3. Generally you should match the size of your commercial construction loan request to the size of the bank.  Need a loan of just $1.5 million?  You should take this small deal to the nearest community bank.  Need a $15 million loan?  Take it to a nearby regional bank.  Need a $50 million commercial construction loan?  Take your loan to a money center bank, a bank with more than $75 billion in assets - one of the "Big Boys."

  4. Notwithstanding the above, a community bank located close to the property may sometimes lead a syndicate of other nearby community banks to make the loan.

 

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Do you need a commercial construction loan?  My first recommendation is to enter your loan into C-Loans.com.  The advantage of C-Loans.com is that you create a simple mini-app, and then you can actually submit your deal to bank after bank, six at a time, until you find one in the mood to lend.  C-Loans.com is also free!

If you just don't find a ravenous lender on C-Loans.com, then you should move onto CommercialMortgage.com (CMDC").   Now CMDC is just a list of suitable potential lenders, along with their contact information.  You cannot actually submit an executive summary of your commercial loan to the lender.  You have to do that by hand. However, there are close to 4,000 commercial lenders on CommercialMortgage.com, far more than on C-Loans.com.  And like C-Loans, CMDC is also 100% free!  (Plus our 500 newest banks will finally now appear.  Arghhh.)

 

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The secret to success in commercial mortgage brokerage is to present your loan to bank after bank until you find a hungry one.  Fifteen banks is the magic number.  If all fifteen banks turn your deal down, your loan may not be do-able; but until you have submitted your commercial loan to fifteen banks, you are still in the early innings.

Using commercial mortgage portals like C-Loans.com and CommercialMortgage.com, finding 15 banks is easy-peasy.

 

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Topics: syndicated construction loans

The Single Best Way to Market For Commercial Loans

Posted by George Blackburne on Mon, Feb 25, 2019

I am going to teach you a cool Google trick today.  I'll use a commercial loan broker as our example, but this Google trick can be used in all walks of life.

BankIf a commercial loan broker needs leads, his single best source - by far - is bankers.  The first place that a commercial loan applicant calls is his own bank.  As a result, the typical commercial real estate loan officer working for a bank receives calls for at least ten commercial loans every week.

The good news is that this commercial loan officer is going to turn down nine out of ten of these commercial loan applications.  Why?  The loan may be too small or too large.  The property might be located too far away from any of the bank's branches.  The property might be a restaurant, and maybe the bank doesn't like commercial loans on restaurants.

 

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Perhaps the property is located in a poorer side of town.  Perhaps the borrower lacks sufficient liquidity to qualify for a commercial loan from this bank.  Perhaps the borrower's net worth is not larger than his requested commercial loan amount.  See the Net-Worth-to-Loan-Size Ratio.  Maybe the bank has just taken a loss on a self storage project, and they have no desire to add another self storage commercial loan to their portfolio.  

There are hundreds of reasons why banks turn down commercial loans, and the banks invent new reasons every day.  This is wonderful news!  The banker has to refer these commercial loan applicants somewhere, so why not to you?

The wise commercial loan broker will therefore build a list of bankers located close to his office, and he will solicit these bankers regularly for their commercial loan turndowns.  He should strive to eventual build a list of 1,000 bankers.  This sounds impossible, but if he adds just five bankers per day, he will soon reach his goal.

 

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But where does a hard-working commercial loan broker find these bankers?  Remember, he doesn't just want any 'ole banker.  He specifically wants only  commercial real estate loan officers working for banks or credit unions.  

Don't forget about credit unions!  Modernly, credit unions make commercial loans just like banks, and they are often loose-goosier.   Remember, banks only want to make commercial loans to borrowers who have the potential to become a good bank customer.  

This is an important point.  A good bank customer is someone who maintains large cash balances at the bank.  Remember this term of art from the banking world - good bank customer.  This is the game that banks play.  They make short term loans to wealthy depositors in hopes that the depositor maintains lots of cash in the long run at the bank.

 

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My own commercial bank loves Blackburne & Sons because we maintain large loan servicing trust accounts.  The bank pays no interest on these deposits, and because we are servicing around $45 million in private money loans, our loan servicing trust accounts have an average daily balance of $250,000.

But credit unions are different when it comes to commercial loans.  Credit unions are very flush with cash these days, so they make commercial loans because they simply need the interest income.  Your commercial borrower does NOT have to be rich.  He does NOT have to maintain large cash balances at the credit union.  He just has to be a good, potential borrower.  As a result, it's fair to say that it's easier to get a commercial loan from a credit union than from a bank.

 

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Okay, so you have to build a huge list of commercial real estate loan officers working at banks or credit unions.  But where do you find 1,000 of these bankers?

Cool Google Trick:

Go to Google Maps and type in the address of your office.  Then click on the Nearby icon.  Type in Banks and voila!  Banks galore.  Need more?  Just zoom out.

This cool Google trick works for thousands of different businesses - contractors, title companies, etc.

Example:

You are a commercial loan broker, and you just found a bank that is ravenous for construction loans.  You therefore want to contact all of the real estate developers in your town.  Simply go to Google Maps and enter your office address.  Then press the "Nearby" icon.  Instantly, dozens of nearby real estate developers will appear on your map, complete with telephone numbers.

 

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But remember, you don't want just any bank employee.  You specifically want the commercial real estate loan officer at the bank for your area.  In the old days, bank loan officers were taught to be experts on all sorts of loans - personal loans, car loans, equipment leasing, home loans, construction loans, and commercial real estate loans.  

Nowadays bank loan officers have become specialized.  The commercial real estate loan officer at the bank will only handle commercial real estate lending and no other type of lending.  There will usually be just one commercial real estate loan officer handling all of the commercial loans for five or six bank branches.  When I tell you to market to bankers for commercial loans, this is the guy - and only this guy - should be the target of your marketing.

 

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Starving Commercial Loan Broker Campaign:

Now if I were a starving commercial mortgage broker, I would build a list of 200 of these commercial loan officers located near my office.  Just 200.  Before I started this Starving Broker Campaign, I would have some cheap business cards printed up with the words, "Commercial Loans" (and only commercial loans) PROMINENTLY displayed across the cards.  

Then I would send a snail mail envelope to these 200 (and only 200) commercial loan officers, along with THREE of my cheap business cards that scream "Commercial Loans".  In the envelope I would enclose a meme - which is just a funny picture with a caption - printed on cheap copy machine paper.  Then I would write by hand in red ink the following, "Sure would appreciate any commercial loan referrals."

Why did I limit you to just 200 commercial loan officers?  Answer:  The banker will ignore your first three or four envelopes.  [Sob]  But around the 6th mailing, you will get some nice referrals.  I limited you to just 200 bankers because you can't afford SIX mailings to 500 bankers.

 

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Trade Your Bankers For Some Goodies:

You're going to be calling and identifying commercial real estate loan officers at banks.  You might as well parley them for some training materials.  If you provide me with a commercial real estate loan officer working at a FDIC-insured bank or a NCUIF-insured credit union, I will trade you for ONE of the following:

1.  Income Property Underwriting Manual

2.  Commercial Mortgage Marketing Course

3.  Regional copy of The Blackburne List (750 commercial lenders near you)

4.  Copy of my famous Mortgage Broker Fee Agreement

For 20 bankers, I will send you a copy of my famous 9-hour video course, How To Broker Commercial Loans.  Just last week, a commercial loan broker named Greg Rice made this trade with me.  Helluva deal.

 

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Make Sure You Use CommercialMortgage.com:

CommercialMortgage.com is totally free, and we have almost 4,000 commercial banks located all across the country.  We add ten to fifteen new banks per week.  Helloooo?  It's free!!  We make our dough when my hard money shop cherry-picks a few leads.

Developers, we have been adding hungry construction lenders like crazy this month.

 

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Topics: Marketing to Bankers

Commercial Loans and the Profit Ratio

Posted by George Blackburne on Sat, Feb 16, 2019

Fairfield Inn-3You may recall from an earlier blog article that I am putting together a $2,000,000 syndicate of equity investors to help a developer build a brand new Marriott Fairfield Inn in Roseburg, Oregon.  Our investors are projected to earn a 25.4% annual simple interest return.  Are you an accredited investor?  Here is a one page summary of the offering.

Now I made a mistake.  I have been marketing this deal to stress that it is only 60% of cost.  Dumb.  I should have been marketing it as an opportunity to own a beautiful, brand new hotel whose takeout loan is only about 50% loan-to-value.

 

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So how did I jump from a deal where the mortgage was just 60% of cost to one where the first mortgage was just 50% loan-to-value?  

Answer:  When a developer builds a commercial property, that property is almost always worth materially more than it costs to build; otherwise, why built it?  Why would you spend $15 million to build a hotel that was only worth $14 million?  That makes no sense.

In fact, the bank will insist that the deal have some profit built into it.  The bank does this by applying the Profit Ratio.  The Profit Ratio takes the increase in the value of the property upon completion and divides it by the Total Cost.  That profit over the cost of construction must usually be around 20% of the Total Cost.

 

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Example:

A hotel costs $15 million to build.  While the bank is underwriting the construction loan, it will hire an appraiser to estimate the value of the hotel upon completion and stabilization.  Stabilization means that the hotel has been operating awhile, and its  occupancy rate and average daily rate ("ADR") have leveled off.

Let's suppose the appraiser values there hotel at $17.5 million upon completion and stabilization.  What is the Profit Ratio?

Profit Ratio = (FMV - Total Cost) / Total Cost

Profit Ratio = ($17.5 million - $15 million) / $15 million

Profit Ratio = $2.5 million / $15 million

Profit Ratio = .167 x 100% = 16.7%

 

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Now a Profit Ratio of 16.7% is slightly less than the desired 20% indicated above, but the bank is still likely to approve this construction loan.  Why?  Because the construction loan is only 60% of cost.  The developer has plenty of skin in the game.

Here is what happens when the Profit Ratio is not high enough:

Example:

Billy Bad-Timing is a real estate developer.  At the top of the market, he unwisely bought some land to serve as the site of his next apartment building.  He overpaid for the land.  By the time he got ready to develop the land, apartment rents had stopped climbing and construction costs had risen by 7%.

 

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When Billy the Developer applied to the bank for a $4 million construction loan, the bank looked at and used his actual cost of the land; i.e., $1 million in cash.  In truth, the apartment building site was now only worth $600,000; but neither the bank nor the appraiser caught it.

The appraiser did notice, however, that the apartment building was only going to be worth $5.1 million upon completion, but it would cost $5 million too build.  Loan Committee looked at the $1 million in cash that the developer had contributed to the project (the cost of the land) and figured that Billy would never walk away from a half-completed project when he had $1 million invested.  Loan Committee approved the $4 million construction loan request and construction got underway.

During construction Billy noticed his costs kept increasing over budget.  Finally Billy took a step back and asked himself, “Why am I busting my chops every day to finish this apartment building?  I am not going to make a penny of profit.  With the recent cost overruns, my total cost is going to be $5.8 million, not the $5 million that I had projected. 

 

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"That means," Billy thought, "I am going to have to contribute another $800,000 of my own dough just to finish the project.  The most I can get for the building upon completion is $5.1 million, and after selling costs of 6% and closing costs of 2%, the most I can walk away with is just $692,000 after paying off the bank."

"I have to work hard every day for another six months, contribute another $800,000 of my own cash, and then I have to walk away from my $1.8 million investment with just $692,000???  Forget this!  I’m outa here.  I’m going to take my last $800,000 down to Texas, where the construction business is booming.  If the bank wants to sue me, they’ll have to come chase me there, where the bankruptcy laws are very favorable to debtors.”

Now the bank really has a problem.  The project is half-completed, and the developer has left the state hauling away much of the construction supplies.  No one can find the latest copy of the plans, and the subcontractors are screaming to get paid.  The rainy season is coming soon too.  Looks like big trouble in River City.

 

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The bank should have caught this dangerous situation in underwriting.  Remember, the Profit Ratio is supposed to exceed 20%.  What was Billy Bad-Timing’s Profit Ratio?  Remember, his projected profit was only $100,000 -- $5.1MM value upon completion minus his $5 million projected Total Construction Cost.

Profit Ratio = ($100,000 / $5,000,000 ) x 100% = 2%  (Just 2%!!!)

Oops.  Somebody at the bank goofed up.

 

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Now I am hoping to catch with this article a few more wealthy investors who are attracted to the idea of earning 25.4% and owning a brand new Marriott Fairfield Inn with a mortgage that is only around 50% loan-to-value.  For a development equity deal, this is a fairly low-leveraged deal, which greatly reduces the risk.  Remember, our developer on this deal is a general contractor who has specialized over the past 23 years in building franchise hotels.  He has already completed 60 hotels.

Once again, here is the deal.

 

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Topics: Profit Ratio

Pretty Cool Syndicate That I Am Assembling

Posted by George Blackburne on Mon, Feb 11, 2019

Fairfield InnThis month I am syndicating a fantastic deal.  Please do not interpret my enthusiasm as any sort of guaranty of success or safety; however, let's face it.  Some investment deals are better than others.  

I predict that this syndication will be the single best investment offering we have ever made in almost 40 years.  The projected return to our accredited investors, over seven years, is projected to be 25.4% annually.  Here is a link to the offering.

 

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Here is what is happening.  A very experienced hotel builder is building a Marriott Fairfield Inn in Roseburg, Oregon.  The Fairfield Inn is a very popular hotel franchise, with over 900 of these hotels worldwide.  The proposed hotel is adjacent to Interstate 5, which runs from the Canadian border to the Mexican border, through central Washington, central Oregon, and Central California.

The reason this opportunity is so promising is because our builder-developer has built sixty (60!!) hotels over the past 23 years.  Wow.

This is also a low-leverage investment.  The construction and takeout loan will only cover 60% of the total cost of the project.  This helps to assure that there will be plenty of cash flow left over after making the mortgage payment.  Obviously numbers like this assume that the hotel gets built on-time and on-budget, and that the hotel will meet its projections for occupancy and average daily rate.

 

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If this was a newbie builder, the construction cost issue would be a source of serious concern; but after building sixty hotels, most of them flagged hotels, it's reasonable to believe that our builder knows what he is doing.  In addition, Fairfield Inns are proven franchises with large followings.  For example, when I used to travel with Culver Military Academy's fencing team, we always stayed in Fairfield Inn's.  They were everywhere.  

In the old days, banks would provide construction loans of 80% loan-to-cost to finance flagged hotels.  Then the Great Recession hit, and commercial construction lenders got slaughtered.  Nowadays, most banks limit their commercial construction loans on hotels to just 60% of cost.

Since the total cost of the project is around $15 million, this means that the developer has to raise almost $6 million in equity.  Our investors will be contributing about $2 million of this required equity.

 

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The 25.4% deal is about half-subscribed as of today.  If you happen to be an accredited investor, and the idea of earning 25.4% annually sounds interesting, please contact Angela Vannucci at 916-338-3232.  You may be reassured to know that Blackburne & Sons has been in business since 1980.

The above deal will soon be sold out, and we will be looking for our next equity investment deal.  Please be on the look-out for deals.

We are looking for development deals, and our maximum equity investment is $2 million.  We want the developer to have plenty of skin in the game, so we really don't want to contribute more than 40% of the required equity.  We like the four major food groups - multifamily, office, retail, and industrial - plus self storage and hospitality. 

 

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If you have a potential deal, please do NOT call or send me some huge package.  Just please send me three sentences.  "I am building a 46-unit apartment building in Des Moines, with a total cost of $12 million.  The bank will only make an $8 million construction loan.  I am short $1.6 million in equity."

Please make the subject line of this email to be exactly, "Equity Contribution Request".  The reason it has to be exact is that I get 1,200+ emails per day.  Please write to me at george@blackburne.com.

 

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You can still get our nine-hour video training course, How to Broker Commercial Loans, for free by assembling a list for me of 20 commercial loan officers making commercial real estate loans.  Each of these loan officers must work at a bank or a credit union.  Sorry, but we do NOT want anyone other than bank loan officers or credit union loan officers.  Here is how.

 

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Topics: development equity