Commercial Loans and Fun Blog

In addition to owning C-Loans.com, I also own Blackburne & Sons, a $50 million private money commercial mortgage company that makes hard money permanent loans, as well as just bridge loans.  This reduces the APR to your borrowers considerably.

Our best loan officer is Alicia Gandy, a lovely lady who has been with us now for 17 wonderful years.  Alicia is such a big producer and such a diligent go-getter that we call her the Loan Goddess.  Alicia taught me a clever marketing technique this week, a virtually cost-free technique that could be used by a commercial real estate salesman, a leasing agent, a property manager, as well as any commercial mortgage broker.

It's summer time.  Many people are out hiking, biking, boating, or doing some other fun outdoor activity.  The last thing most of us want to do is to work really hard during the final few weeks of the summer.   Therefore business here at Blackburne & Sons is pretty slow.

Instead of goofing off, however, Alicia went out and killed something this week.  Alicia called her twelve best brokers and complained, "Hey, I'm dying here!  I have no business.  If you bring me a commercial loan right now, your deal will be at the top of my stack, and I'll work my tail off on it."  Each of her best brokers complained that they didn't have anything for her... and yet within 24 hours, Alicia had three new deals in the door!

"Gee, George, this is so obvious that its like the moron with the headphones repeating, "Breath in, breath out."  Yeah, yeah... but when was the last time that you made twelve outgoing calls to your best brokers?  That's what I thought.

Here's an idea:  (1) Pull out a file folder right now and label it, "Best Brokers."  (2)  Take out a yellow legal pad and write down the names and phone numbers of your twelve best repeat customers.  (3)  Then, whenever you are slow, maybe you call these twelve special customers and petition for deals.

I have been using the term, "best brokers".  As a lender, commercial loan brokers are one of the best repeat sources for commercial real estate loans.  But if you are a commercial real estate salesman (properly called a commercial broker, even if you are only a salesman and not a broker), your twelve best repeat customers will probably be wealthy commercial real estate investors.  If you are a leasing agent, your best repeat customers may be the owners of rapidly growing companies.  But you get the concept.  All of us have a dozen or so repeat customers who make up a big part of our annual sales, so get off the dime and dial them for dollars.  (How about that for staying consistent with my metaphor - dime and dollar?  Get it?  Ha-ha!)

Have you created a link (or 20 links) to C-Loans.com on your real estate web site yet?  The links should say "Commercial Loans" or "Commercial Mortgages" or "Commercial Real Estate Loans" or "Need a Commercial Mortgage?"

Remember, the home page of C-Loans.com is programmed to automatically capture the referring URL (the address of your web site) and to print it at the bottom of the corresponding C-Loans application.  When the deal closes, we look up the lucky guy who put the link (or - even smarter - 20 links) to C-Loans.com on his website and notify him of the big referral fee check waiting for him.  We once paid Alan Dunn of Spydercube.com a $21,250 referral fee on a $17 million land loan application that came from his site.

Now be sure to note:  You do not need any special partner number.  You do not need to notify us.  You could create this link at 3:00 a.m. tonight, or better yet, create 20 links.  By the way, Alan Dunn was asleep when this $17 million loan application was sent over from his site to C-Loans.com!  "Asleep?  How could you possibly know this, George?"  In truth, I don't; but he certainly could have been asleep, and it makes for a great story.  Ha-ha!  These 20 links work automatically while you're sleeping, playing golf, or cuddled up with your honey.  Notice the subtle upsell to 20 links rather than just one?  Hey Dad, can I have $50?  Twenty dollars???  What do you need $10 for?

Keep looking for the contact information (the contents of a business card) of any banker making commercial real estate loans.  We'll trade you that information for a free directory of 2,000 commercial real estate lenders.

Do you need a lender who will allow the seller to carry back a second mortgage? Does your client have a balloon payment coming due on his commercial property? Has your bank offered him a discounted pay-off? Does your borrower have less-than-stellar credit? Is your client's company losing money? Is your borrower a foreign national? Do you need a non-recourse loan? Do you need a commercial loan with no prepayment penalty? Is your client's commercial property partially vacant? Do all of your commercial leases run out in the next 18 months? Do you need a lender who will allow a negative cash flow?  Do you need a lender who will also look at the borrower's global income - income from salaries, other investments, etc.?

Do you have a squeeky clean commercial mortgage loan that deserves to be financed by a life company, conduit, or a commercial bank?

If you are a commercial real estate broker (you sell commercial-investment real estate), and your company does not have a small commercial mortgage brokerage operation (desk and phone), you are missing out on a huge opportunity.  There is no easier way to meet high-net-worth investors than to be a commercial mortgage broker.  Just about every borrower responding to your ads will be a high-net-worth commercial real estate investor.

Want to receive free training in commercial real estate finance?

Got a buddy or a co-worker who would benefit from learning commercial real estate finance?  I write this blog to train my two sons, George IV and Tom, in commercial real estate finance.  Long after I have gone to that huge commercial real estate loan closing in the sky, my sons will be able to review my training on any commercial real estate finance (CREF) subject by going to a search engine and typing, "C-Loans mezzanine loans." 

Today I am going to remind you of a marketing principle that is applicable to many fields of business, not just to commercial real estate finance (CREF).  If you are looking for leads, advertise to the guys who are advertising.

In prior training articles about marketing for commercial loans, I have made the following points:

1. Advertising directly to the public for commercial real estate loans does not work.  It's cheap to refinance your home, so many borrowers do it every few years.  In stark contrast, obtaining a new commercial real estate loan is very, very expensive.  There is the cost of the appraisal, the cost of the toxic report, the loan points, and the legal fees.  Commercial real estate investors therefore refinance their buildings as seldom as possible.  The net result is that the chances of your advertising postcard or snail mail newsletter arriving at the exact moment when a commercial mortgage borrower is looking for a new commercial is less than one in a one hundred thousand (1/100,000).  Be smart.  Read this last paragraph again.
   
   

1. The smart commercial loan marketer therefore advertises to those guys and ladies who, because of their job, are in a position to send you referrals of their turndowns.  Examples includes commercial bankers, commercial real estate brokers, property management companies, other commercial real estate lenders like conduits, credit unions, and hard money lenders; attorneys, accountants, estate planners (life insurance salesmen), residential real estate agents, etc.
   
   
2.  But not every referral source is the same.  Some are better than others.  If your advertising costs money (as opposed to email newsletters), focus your advertising dollars on those guys who are seeing a lot of commercial loan requests.  Makes sense, huh?  As a general rule, I would say that (#1) commercial bankers and (#2) other commercial real estate lenders probably see the most commercial loan requests on a weekly basis.

Now we are getting to the point of today's training session.  The more commercial loans that a referral source has crossing his desk, the more turndowns he can refer your way.  At any given moment, who is seeing the most commercial loan requests?  The company with the most commercial loan turndowns to refer you will usually be the company paying the most for commercial loan advertising at the moment.  Therefore if you see a bank or a commercial mortgage company advertising for commercial loans, be sure to contact them and beg them for their turndowns.

In the old days such commercial loan advertising would appear as a display advertisement in the newspaper or in some glossy real estate magazine, like the National Real Estate Investor.  Modernly, you will see the most commercial loan advertising on Google.  If you do a search for "commercial real estate loans" on Google, you will see four Sponsored Ads at the top of the results page, lead off by an ad from LendingTree.  These are the guys you want to chase for their commercial mortgage turndowns.  There are also commercial real estate e-zines.  If you see an advertisement for commercial loans in one of them, be sure to hit them up for their commercial mortgage turndowns.

But how do you do it?  How do you advertise to some strange loan officer at some strange commercial lender?  (1) Call the lender, introduce yourself and your commercial mortgage brokerage company; and (2) Follow up with a snail mail letter, including two business cards, thanking him for his time and asking for his commercial loan turndowns; and (3) Every week send him a funny joke, an entertaining picture or cartoon, an interesting business article, or a cool random story, along with a hand-written note asking for his commercial loan turndowns, as well as three business cards every time.  Don't expect him to keep your business cards around for more than a couple of days.  The hope here is that he will hand your card out to declined commercial loan applicants.

Bottom line:  Advertise to the guys who are advertising.

Qualified commercial mortgage brokers can now buy commercial mortgage leads for just $1 to $9 apiece upfront, plus a 37.5 basis points if the deal closes.

C-Loans, Inc. once paid Alan Dunn a referral fee of $21,250 for a $17 million commercial loan application that came from his site to C-Loans while Alan was asleep!  All he did was create a "Commercial Loans" link and point it to C-Loans.com.  That's it.  There was no fancy computer code to write or special partnership numbers to imbed.  C-Loans.com is programmed to automatically capture the URL of the last site visited by the borrower before coming to C-Loans.  That URL is printed at the bottom of every loan application.  If the deal closes, we look up who owns that referring site and give them the good news.

Keep looking for the contact information of a commercial banker making commercial real estate loans.  You can trade that information for a database of over 2,000 commercial real estate lenders.

For just $549 you can buy our famous 9-hour video course, How to Broker Commercial Loans.  I say "famous" because a sizeable percentage of all practicing commercial mortgage brokers learned the business from this course.  We also now throw in our 5-hour audio course, Intermediate Commercial Mortgage Finance.  Finally you will understand all of the strange terminology and financial ratios.  Your confidence will soar.

Is your client's company losing money?  Does your commercial mortgage borrower have less-than-stellar credit?  Is your borrower a foreign national? Do you need a non-recourse loan? Do you need a commercial loan with no prepayment penalty? Is your client's commercial property partially vacant? Do all of your commercial leases run out in the next 18 months? Do you need a lender who will allow a negative cash flow? Do you need a lender who will also look at the borrower's global income - income from salaries, other investments, etc.? Do you need a lender who will allow the seller to carry back a second mortgage? Does your client have a balloon payment coming due on his commercial property? Has your bank offered him a discounted pay-off?

Do you have an excellent commercial loan request that deserves to be financed by a life company, conduit, or commercial bank?

Are you a commercial loan officer for a bank or other commercial lender?  Want custom-fitted commercial loan requests delivered directly to your email box?

Want to receive free training in commercial real estate finance?

Got a buddy or a co-worker who would benefit from learning commercial real estate finance?

Below you will find my latest Investor Letter, our monthly newsletter to our 1,000+ private commercial mortgage investors, somewhat similar to Warren Buffet's annual letter to his shareholders.  I hope you enjoy it.

INVESTOR LETTER

July 22, 2016

Nobel Prize-winning economist, Milton Friedman, is known to be the one who coined the term, “helicopter money”, in the now famous paper, “The Optimum Quantity of Money”, where he included the following parable:

“Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event, which will never be repeated.” -- Milton Friedman

The reason that I am talking about helicopter money today is because I have heard this term, “helicopter money”, used more often by financial commentators in the past thirty days than in the past five years.

Now I have been blessed – truly blessed (thank you sooo much!) – by loyal investors who have stuck with Blackburne & Sons for more than twenty to twenty-five years. If you happen to be one of these old-time investors, I have three comments: (1) God bless you for your loyalty and your trust. The Great Recession was pretty awful, but together we limped through it; and (2) darn, we’re getting old, ha-ha; and (3) you may faintly remember that, long before Ben Bernanke was ever appointed Fed Chairman, I pointed out in one of our Investor Letters perhaps the most important economic speech given in our lifetimes, a speech made by then Fed Governor (but not yet Fed Chairman) Ben Bernanke, in November of 2002 to the National Economist Club in Washington, D.C., entitled “Making Sure ‘It’ Doesn’t Happen Here”:

“… the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation...” -- Ben Bernanke

The “It” in the name of the above speech is deflation, and back in 2002, Japan had recently completed the first of its two Lost Decades. Let me state, for the record, that there are times when I am an absolute idiot. There has also been a few times, however, when I have accidently stumbled upon an observation that, in hindsight, looked pretty prescient. Making a special note of the above speech by a then obscure Fed governor was one of my luckier moments.

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“Politicians are people who, when they see light at the end of the tunnel, go out and buy some more tunnel.” -- John Quinton

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Okay, so why is everyone - especially commentators on the European economy - talking so much these days about “helicopter money”?

The answer is because quantitative easing and negative interest rates have not been enough to jumpstart the economy of the European Union. The economy in Europe is sluggish. The money supply refuses to grow, even with the European Central Bank (“ECB”) buying up trillions of Euros worth of sovereign bonds (a fancy word for bonds issue by a country, like Italy) and even with the ECB buying up trillions of Euros worth AAA and AA-rated corporate bonds. Inflation just won’t stay lit.

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When we take our dog on a car journey, we carry his drinking water in a gin bottle. On one occasion we stopped for lunch and let him out of the car. Pouring some water from the bottle into his bowl, I noticed a man watching with fascination. He came over to me and whispered, "I hope that you're not going to let him drive!"

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Why won’t inflation ignite in Europe? In school we were all taught that when the Fed (or the ECB in the case of Europe) pumps money into the system that inflation was the result. In truth, this lesson is an over-simplification. The money supply only grows if banks are willing to lend and borrowers are willing to borrow.

In the United States, we recapitalized our banks - gave them cash to rebuild their loan loss reserves and their capital (the dough left in the bank to act as a further cushion against losses). Do you remember TARP? That was a $700 billion bailout of U.S. banks. It was pretty controversial at the time, but in hindsight, it was the right move. Most of that money was eventually paid back to the Treasury by the banks and by AIG Life Insurance Company.

Bam! Oh, my goodness, what was that??? That’s the teacher’s yardstick slapping the desktop. “Pay attention,” my professors used to say, “This is on the test.” The European Union did not recapitalize its banks. Hundreds of billions of Euros worth of loan losses from the Great Recession have still not been written off by European banks. Many of the largest banks in Europe – including names like Deutsche Bank and Credit Suisse – are very weak. Weak banks tend not to lend money out like crazy.

In order for inflation to ignite, banks need to be willing to lend.

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Q: What's the difference between a poorly dressed man on a tricycle and a well-dressed man on a bicycle?

A: Attire.

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According to my favorite economist, Ben Bernanke, “The U.S. government has a technology called a printing press… (and) under a paper-money system, a determined government can always generate higher spending and hence positive inflation.” If banks just won’t lend and borrowers just won’t borrow, the ECB can always drop one-hundred Euro bills from a helicopter.

If I were the head of the ECB, I would distribute one-trillion Euros between all of the countries of the European Union and insist that they use this dough to put a solar panel on the roof of every home and every commercial building in the union. This move would be considered a helicopter drop.

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You have a real estate or mortgage web site, right?  Open up your home page, create a link that says, "Commercial Mortgages" or "Commercial Loans", point this link to http://www.C-Loans.com, and Voila, you're done.  Now forget about it.  It may be one year or two years or three years, but if your site enjoys some good traffic from wealthy real estate investors, you might get a call like this (true story!):

"Are you Mr. Alan Dunn?  Guess what, Alan, I have some very good news for you.  I have here a referral fee check for $21,250.  An investor visited your web site while you were sleeping and clicked on your "Commercial Loans" link.  He came to C-Loans.com and filled out a loan application for a $17 million land development loan.  The deal closed!"

Our software is programmed to automatically capture the referring URL (the address of your website), and that URL is printed at the bottom of every C-Loans application that came from your site.  When the deal closes, we look up the owner of the referring URL and pay him a nice fee.

There is nothing more to the process.  You do NOT have to notify us that you have created the link. You do NOT need any special partner code.  Just create the link and point it to C-Loans.com.

"But George, how do I know that you won't cheat me out of my fee?"

There are times - especially after a big loan payoff - when there is over $3 million sitting in our loan servicing trust accounts.  We literally make our living based on trust, and this is the start of our 37th year in business.

And folks, if you are going to the trouble of adding a link to C-Loans.com on your website, why add just one?  If it were me, I would add a "Commercial Financing" tab at the top of the page, a "Commercial Loans" link on the left or right side, and a "Apply For a Commercial Real Estate Loan" link in the footer.  Any new page I added after this first one, I would make sure that it had the same links.  Why not?  Why not increase your chances of catching the idea of a commercial real estate borrower?

Keep looking for the contact information of a banker making commercial real estate loans.  You can trade his contact information for a free directory of 2,000 commercial real estate investors.

Do all of your commercial leases run out in the next 18 months? Do you need a lender who will allow a negative cash flow? Do you need a lender who will also look at the borrower's global income - income from salaries, other investments, etc.? Do you need a lender who will allow the seller to carry back a second mortgage? Does your client have a balloon payment coming due on his commercial property? Has your bank offered him a discounted pay-off? Does your borrower have less-than-stellar credit? Is your client's company losing money? Is your borrower a foreign national? Do you need a non-recourse loan? Do you need a commercial loan with no prepayment penalty? Is your client's commercial property partially vacant?

Got a commercial loan request that deserves a low-rate loan from a life company, commercial bank or conduit?

Are you finally ready to add a commercial mortgage brokerage division to your existing commercial realty brokerage?  All you need is a desk and a phone, and there is no easier way to meet wealthy commercial real estate investors than to be a commercial mortgage broker.  After all, poor people do not own shopping centers.

Want to receive free training lessons in commercial real estate finance ("CREF")?

Got a buddy or a co-worker who would benefit from learning commercial real estate finance?

To many of you, Blackburne & Sons is an ancient commercial mortgage company; but we're "only" 36-years-old.  There are some commercial mortgage banking companies that make us look like wet-behind-the-ears youngsters, companies like Holiday, Fenoglio and Fowler, George Elkins Company, or George Smith Partners.

What is the difference between a commercial mortgage brokerage company and a commercial mortgage banking company?  A commercial mortgage banker is defined as a company that services its loans (collects the payments every month) for its investors.  Typically commercial mortgage bankers are correspondents for life companies; although Blackburne & Sons is arguably also a commercial mortgage banker because we collect the payments for our private investors and for our various mortgage pools.

Okay, but what is a correspondent?  A correspondent is a commercial loan origination company that acts as the branch office of a commercial lender.  Typically a correspondent is the exclusive representative of a lender for a specific area or region, like Southern California.

An example will make this clear.  Suppose you're a small life insurance company out of Indianapolis, Indiana named Grant Life Insurance Company.  You've only got $4 billion in assets, so you can't afford a branch office in every gateway city, where you greatly prefer to invest (make large permanent loans).  Therefore you set up seven or eight correspondents across the country to be your branch offices.

If a borrower calls the home office of Grant Life Insurance, the receptionist will ask him where the property is located.  If it is located in, say, San Francisco, the receptionist will look at her chart and see that George Smith Partners is the exclusive correspondent for Grant Life in the Bay Area.  The only way a borrower can get a commercial loan from Grant Life in the San Francisco Bay Area is through George Smith Partners.

Although there are older commercial mortgage companies than Blackburne & Sons, in truth there are not a whole lot of them.  Why?  Because every 12 years or so, commercial real estate is hit by horrible depression, where commercial real estate falls by almost exactly 45%.  Almost exactly 45%?  In each of the three horrible commercial real estate depressions that I have endured since founding this company in 1980, commercial real estate fell by almost exactly 45%.

A good colonic is good for the industry.  Those commercial mortgage companies without loan servicing income are nuked off the face of the planet.  It's the loan servicing income, silly!  With 90% of the competition gone, the commercial mortgage bankers (they've got servicing income to tide them over) really mop up in the recovery years.

Okay, we're finally getting to the point of today's training article.  Even after 36 years in the commercial real estate finance ("CREF") business, I still learn new stuff from the "Big Boys" almost every day.

Funny story:  So I am at the Western States Commercial Real Estate Finance Conference, the biggest trade show of the year for the CREF industry, in late 2007.  I am boasting to an attendee that C-Loans.com had placed $206 million in commercial real estate loans in 2006.  He was very polite and surprisingly humble, but then he informed me that the last commercial loan he closed (just one loan!) was for $250 million.  I felt like George Constanza coming out of a cold pool in that famous Seinfeld episode.  Humbled!  Ha-ha!  Yeah, the Big Boys.

Anyway, I subscribe to FinFacts, a wonderful newsletter published by George Smith Partners.  I religiously read these newsletters because they use lingo that I often have to research just to understand.  Remember, I write this blog to train my two sons and my wonderful staff in commercial real estate finance ("CREF").

In a recent FinFacts newsletter, the author deservedly boasted:  "Fixed for five years at SWAPs+225, the non-recourse loan was sized to 65% of current appraised value from a California Portfolio capital provider."

Note the expression, "sized to 65%".  That's the way the Big Boys say it.

Okay, so let's make some money together.  Do you have real estate web site?  This should be a no-brainer.  We once paid Alan Dunn a referral fee of $21,250, and he was sleeping when he send the lead to us!

Surely you know at least one banker who is in the market to make commercial real estate loans.  We solicit these guys to send their turndowns to C-Loans.com.

Attention Commercial Real Estate Brokers:  Poor folks do NOT own shopping centers.  Want to meet a half-dozen wealthy commercial real estate investors every day? Open a commercial mortgage company!  All you need is a desk and a phone.

Do you need a lender who will allow a negative cash flow?  Do you need a lender who will also look at the borrower's global income - income from salaries, other investments, etc.?  Do you need a lender who will allow the seller to carry back a second mortgage?  Does your client have a balloon payment coming due on his commercial property?  Has your bank offered him a discounted pay-off?  Does your borrower have less-than-stellar credit?  Is your client's company losing money?  Is your borrower a foreign national?  Do you need a non-recourse loan?  Do you need a commercial loan with no prepayment penalty?  Is your client's commercial property partially vacant?  Do all of your commercial leases run out in the next 18 months?

Do you need an "A" quality commercial real estate loan?

Are you just browsing today?

I write this blog to train my two wonderful sons in commercial real estate finance ("CREF"), and you get to peek in and learn as well for free!  I try to write at least two training articles in CREF very week.

Got a buddy or a co-worker who would benefit from learning CREF?

I am going to teach you a quick and easy way to get pictures taken of a commercial property that is more than 200 miles away - far beyond driving distance.

Today's training article was inspired by a real life commercial loan request on C-Loans.com.  The mortgage broker had a very do-able commercial mortgage deal in his hands.  It was a 44-unit office complex in Ohio, and the property was 100% occupied.  He was only looking for a $3.1MM permanent loan.  Just $3.1MM - wow!  This commercial loan request should have been a slam-dunk deal and a cool $31,000 commission to the mortgage broker.

The deal was turned down by over 30 different lenders.  Huh?

Yup.  And do you know why?  The mortgage broker attached the most butt-ugly picture I have ever seen on any C-Loans app.  Why was it ugly?  Let me count the ways:

1. The picture was horribly out of focus.  By the way, the picture above is NOT of the butt-ugly property, even though this picture is a little depressing.  Compared to the subject, however, the above office building is a supermodel.
   
   
2. The resolution was really low.  The picture looked liked a thumbnail that had been blown up 60 times.
   
   
3. The picture was taken on a dreary, overcast day.  Guys, blue sky sells.  Always make sure your property pictures are taken on a bright, shiny day with a beautiful blue sky.

Now this mortgage broker was not an idiot.  He had very competently completed his C-Loans app.  I'm sure he realized that his picture was atrocious.  His problem was that he was located in Michigan, and the property was located in Ohio - a six-hour drive away.  I'm sure this mortgage broker asked the borrower for better pictures, but the borrower just didn't appreciate the importance of the picture.

A good argument can be made that the single most important document in a commercial loan package is the picture(s) - even more important than the Pro Forma Operating Statement.

So what could this broker have done?  He should have hired a nearby real estate broker to take the pictures for $50 or so.  Here is how you do it:

1. Go to Google Maps -  http://maps.google.com
   
   
2. In the Search Google Maps field, insert the address of the property.
   
   
3. In many cases, Google has a nice front view of the property that you can download and use.
   
   
4. If not, click the Nearby button and a search field will appear.  Type in "Real Estate Broker".  There will usually be few within a five-minute radius.
   
   
5. Call the real estate office and offer one of the salesmen $25 to $50 to take a few pictures and send them to you by email.
   
   
6. Voila!

Yikes.  I'm a crazy cat lady.  We've got six of them.

Do you have a mortgage or real estate website?  We once paid a guy named Alan Dunn a referral fee of $21,250 for placing a Commercial Mortgages link on his website.

Keep looking for the contact information of a banker making commercial real estate loans.

Got a commercial loan that deserves a loan from either a life company, commercial bank, or conduit?

Do you need a lender who will allow the seller to carry back a second mortgage? Does your client have a balloon payment coming due on his commercial property? Has your bank offered him a discounted pay-off? Does your borrower have less-than-stellar credit? Is your client's company losing money? Is your borrower a foreign national? Do you need a non-recourse loan?  Do you need a commercial loan with no prepayment penalty? Is your client's commercial property partially vacant? Do all of your commercial leases run out in the next 18 months? Do you need a lender who will allow a negative cash flow? Do you need a lender who will also look at the borrower's global income - income from salaries, other investments, etc.?

Want to learn commercial real estate finance for free?

Got a friend or a co-worker who would benefit from learning commercial real estate finance?

The marketing trick that I will share with you today can be used to solicit commercial loans, find hungry commercial real estate buyers, find developers ready to order plans, identify bankers about to order a toxic report, or even real estate brokers ready to order a title commitment (called a preliminary report for those of you west of the Mississippi).

The trick:

Find another company - not a competitor - who advertises to the same potential customers and then split the cost of the advertisement with them.

Folks, product placement (when James Bond drives a BMW in the latest 007 movie) and cooperative advertising is the latest trend in marketing. Last night Cisca and I counted FIVE commercials in just two hours where two different advertisers shared the cost of a 30-second TV ad. Doritos shared an ad with the new Ice Age movie. Safeco shared an ad with Banana Republic. Now that I have pointed it out, you will see marketers from two different companies sharing the cost of marketing everywhere.

Another example:

I own 100% of both C-Loans, Inc. and Blackburne & Sons Realty Capital Corporation.  C-Loans, Inc. provides software to banks and other commercial lenders that allows them to receive commercial mortgage leads / mini-app's online.  The only twist is that our lenders only pay us if they actually close a deal.  That's fine with us because our lenders have closed more than 1,000 commercial real estate loans using our software.  Smart tip:  You make far more money if you are willing to work on a contingency (success only) basis.

Blackburne & Sons is a private money commercial lender - but with a twist.  We make long-term commercial loans (permanent loans), as opposed to bridge loans, and we make our dough, not from up-front points, but rather from a very profitable loan servicing fee (essentially an interest rate  spread).

My two companies are NOT competitors, yet they market to the exact same customer base:  commercial real estate brokers, mortgage brokers, lenders, and investors.

Therefore those of you who have received our fun newsletters have probably noticed that our C-Loans newsletters contain a lot of plugs for Blackburne & Sons and our Blackburne & Sons newsletters contain a lot of plugs for C-Loans.  Voila - a perfect example of co-op marketing!

And another example:

Bob and Steve are drinking buddies. Bob works for a sub-prime residential lender, and Steve brokers commercial loans. Bob gets 90% of his business by sending newsletters by snail mail to A-paper residential mortgage brokers, soliciting them for their turndowns. One day, between beers and ribald jokes, Steve complains to Bob, "I've got 500 residential mortgage brokers on my mailing list, but it costs me $1.50 per broker to send them a snail mail newsletter. As a result, I can only afford to mail to them once a month. If only I could get my cost down to $0.75 per newsletter. Then I could advertise twice per month, and I would make a lot more money."

Through a beer fog, Steve still sees an opoportunity. "You know, Bob, you and I are not competitors. You're a residential guy, and I'm a commercial guy. We both advertise separately to residential mortgage brokers. Why don't we share the envelope? You stick in a one-page flyer about subprime residential mortgages, and I'll stick in a one-page flyer about commercial mortgages. Then we'll share the cost of the snail mail postage and envelope. It's a huge win-win."

Mary, a hot, 39-year-old, recent divorcee, notices Steve (who is sort of butt-ugly) through her own beer googles and thinks to herself, "Well, he's not that bad." Later Mary invites him home "for coffee". It was a great evening all around for Steve.  Mary chewed her arm off rather than wake Steve in the morning.

One final hypothetical example:

A title company, a toxic report company, and an appraisal company should share their contacts, split the ad costs, and - if each firm paid one-third - each reduce their cost of advertising by 67%.

Sorry guys, but you must be a commercial real estate loan officer working for either a commercial bank or a credit union to take advantage of the following offer:

A perfect example of cop-op marketing is when a commercial brokerage company (they sell commercial-investment real estate) opens a small commercial mortgage brokerage operation.  The dough they spend advertising for commercial loan clients will introduce them to a tons of wealthy investors - to whom they can later obtain listings or sell commercial-investment property.  Verbal proof story:  I now manage $50 million in commercial real estate loans for my investor clients.  The vast majority of my early investors were commercial loan clients (borrowers!) for whom I worked on a loan.

Got a commercial loan that is clean enough for a life company, a commercial bank, or a conduit?

Does your commercial mortgage borrower have less-than-stellar credit? Is your client's company losing money?  Is your borrower a foreign national?  Do you need a non-recourse loan?  Do you need a commercial loan with no prepayment penalty? Is your client's commercial property partially vacant? Do all of your commercial leases run out in the next 18 months? Do you need a lender who will allow a negative cash flow? Do you need a lender who will also look at the borrower's global income - income from salaries, other investments, etc.? Do you need a lender who will allow the seller to carry back a second mortgage? Does your client have a balloon payment coming due on his commercial property? Has your bank offered him a discounted pay-off?

Did you learn something today?  Want to receive free training in commercial real estate finance?  I try to write two training articles per week.

Got a buddy or a co-worker who would benefit from learning commercial real estate finance?

Lots of companies have created glossaries of commercial loan terminology where they define fancy terms like debt yield ratios, defeasance, lockout clauses, and standby takeout commitments.  Our new glossary strives to be different.

Our new commercial loan terms glossary strives to explain these sophisticated topics using easy-to-understand, everyday English and lots of real-life examples.  I have always been a little slow-witted myself, and examples help me a ton.  "Suppose you're the Chief Investment Officer with a life company, and you need to know exactly what yield you will earn on your mortgage investments..."

Here is our new glossary:  http://www.c-loans.com/knowledge-base/commercial-loan-terms-glossary  You should bookmark it right now because it will get larger and more complete every week.

This new glossary is part of the new Knowledge Base section (you'll find it under the Knowledge Base tab) in C-Loans.  My goal is to eventually have this glossary and this Knowledge Base compendium in C-Loans.com so complete that a starving newbie, someone too poor to even buy my basic training course, can learn the entire business of commercial real estate finance ("CREF") just by studying it.  I am pretty much there already.

Are you confused about about some fancy commercial loan term, like the difference between a permanent loan and a takeout loan, please write to me, George Blackburne III (the old man).  I'll try to blog on the subject so that not only will you learn this fancy lingo, but also so will future visitors to C-Loans.com.

Did you bookmark our new Glossary of Commercial Loan Terms?  As the hillbillies say, "Git 'er done!"  :-)

Are you finally ready to learn commercial real estate finance?  Those of you who are commercial real estate brokers who sell investment properties are crazy not to open a little commercial mortgage company in your office.  You just need one guy, a desk, and a phone.  In most states he doesn't even have to be licensed.  Why open a little commercial mortgage company?  There is no better way to meet high-net-worth real estate investors than to own a commercial mortgage company.   Po' folks don't own shopping centers.  Every day your little ads will introduce you to four or five wealthy investors.

Hey guys, please keep looking for commercial bank loan officers who make commercial real estate loans.  We'll trade you a free directory of 2,000 commercial real estate lenders for the contact information of that one banker.  We solict these bankers for their turndowns.

Got an "A" quality commercial loan that deserves financing from a life company, conduit, or commercial bank?

Is your borrower a foreign national?  Do you need a non-recourse loan?  Do you need a commercial loan with no prepayment penalty? Is your client's commercial property partially vacant? Do all of your commercial leases run out in the next 18 months? Do you need a lender who will allow a negative cash flow? Do you need a lender who will also look at the borrower's global income - income from salaries, other investments, etc.? Do you need a lender who will allow the seller to carry back a second mortgage? Does your client have a balloon payment coming due on his commercial property? Has your bank offered him a discounted pay-off? Does your borrower have less-than-stellar credit? Is your client's company losing money?

Just browsing today?

Did you learn something today?  Subscribe to our blog and get two free training lessons in commercial real estate finance every week.

Got a buddy or a co-worker who would benefit from learning commercial real estate finance?

I just completed a new training article on how commercial construction loans are underwritten.  It was the hardest subject that I have ever attempted because bankers use five different financial ratios when underwriting commercial construction loans.  The article took me two weeks to write.

If you are involved in commercial real estate construction, development, sales or finance, you will greatly benefit from mastering this subject.  The Loan-to-Cost Ratio, Total Construction Costs, Hard Costs, Soft Costs, Contingency Reserves, the Profit Ratio, and the Net-Worth-to-Loan-Size Ratio will suddenly because part of your daily lexicon.  After reading this article, commercial real estate finance will hold few remaining mysteries for you.

And folks, this stuff is not that hard.  If you paid attention in fifth grade math, you can master this stuff.  Prepare to be wowed.  Read this great article here:

http://www.c-loans.com/knowledge-base/underwriting-commercial-construction-loans

Keep looking for the business card or the contact information of any banker making commercial real estate loans.  We'll trade you the contents of that one business card for a free directory of 2,000 commercial real estate lenders.

Have you registered on C-Loans (filling in your name and address) and gotten your free $199 commercial mortgage underwriting manual?

Do you sell commercial real estate?  If so, then by all means open a commercial mortgage company (a desk, a phone, and a body)!  Why?  Because there is no better way to meet high-net-worth individuals than to own a comemrcial mortgage company.  Poor people don't own $5 million shopping centers.

Do you need a commercial loan with no prepayment penalty? Is your client's commercial property partially vacant? Do all of your commercial leases run out in the next 18 months? Do you need a lender who will allow a negative cash flow? Do you need a lender who will also look at the borrower's global income - income from salaries, other investments, etc.? Do you need a lender who will allow the seller to carry back a second mortgage? Does your client have a balloon payment coming due on his commercial property? Has your bank offered him a discounted pay-off? Does your borrower have less-than-stellar credit? Is your client's company losing money? Is your borrower a foreign national? Do you need a non-recourse loan?

Got a commercial mortgage deal that deserves a life company, conduit, or bank loan?

Did you learn something today?  Want to recieve two free training lessons in commercial real estate finance every week?

Got a buddy or a co-worker who would benefit from learning commercial real estate finance?

Today you will learn a new financial ratio, the New-Money-to-Old-Money Ratio.

Twenty-five years ago the commercial property second mortgage business was huuuuge.  Almost 100 private money (hard money) commercial mortgage companies nationwide would glady make you a second mortgage on your apartment building or office building.

Then a commercial real estate depression rolled across the country in the early 1990's.  It started with a bust in oil prices, and commercial real estate in Houston, Texas and in Denver, Colorado (the oil business was big business in Denver in those days) collapsed in value.  I use the expression, "depression", because commercial real estate in those days collapsed by a whopping 45%.  Interesting note:  I have survived three commercial real estate depressions in my career, and each time commercial real estate values collapsed by almost exactly 45%.  Forty-five percent.  Hmmmm.  I gotta remember that number.

This was the era of the see-through building.  A see-through building was a newly constructed commercial building, with no tenants and hence no tenant improvements.  It was just an empty shell, and if you looked through the windows, you could see all the way through to the other side.  Hundreds of huge, see-through, office towers could be found in Houston, Denver, and other large cities across the country.  Developers couldn't find any tenants for their beautiful new architectural monuments.  Commercial construction lenders - typically S&L's (savings and loan associations) - lost billions of dollars during the 1990-1991 recession, leading to the Savings and Loan Crisis, where almost 1,100 out of about 2,300 S&L's went bankrupt.

Anyway, in the early 1990's, everyone thought that the depression would be limited to just the Oil Patch states; but then the Eastern part of the country fell into a severe recession.  Everyone in California was sure that the rolling depression would never hit California because Silicon Valley was rocking and millions of people were moving to California.  "We are immune," said many Californians.  We weren't.  In 1991 the rolling commercial real estate depression hit California, and commercial real estate values fell by - you guessed it - 45%.

Now the thing about a second mortgage is that the second mortgage holder has to keep the first mortgage current; otherwise, the second mortgage holder will be wiped out when the first mortgage forecloses.  In most cases it doesn't even matter if the borrower has a ton of equity in the property, over and above the first and second mortgages.

The reason why is because no one ever bids at commercial mortgage foreclosure sales.  Lots of fix-and-flippers bid at residential foreclosures sales, but no one ever bids at foreclosures of commercial property.  Yeah, yeah, I am sure that over the years a few wealthy investors have actually bid at a commercial mortgage foreclosure sale, but such an event is extremely rare.  Why?  Any bids at a foreclosure sale have to be all-cash, and the numbers are just too big for bidders to show up with $3 million in cashier's checks.  The bottom line is that the commercial second mortgage holder absolutely must keep the first mortgage current while he forecloses on his second mortgage.

If a lender is actually going to make a commercial second mortgage, he needs to make sure that the first mortgage payments are not impossibly large.  Imagine if you made a $400,000 second mortgage behind a $10,000,000 first mortgage on an $18 million apartment building.  At first glance, this looks like a gorgeous deal.  It's only 57.8% loan-to-value.  Wow.

However, the monthly payments on a $10 million first mortgage, at 5.25% interest and amortized over 25 years, are $59,925.  If the second mortgage holder first learns that the borrower is delinquent when the borrower is five months behind on his first mortgage payments and then has to keep the first mortgage current for another 7 months while he foreloses, the second mortgage holder will have to advance almost $720,000 to protect his little $400,000 second mortgage investment.  Ouch!  In real life, no one has that kind of dough.

Therefore commercial second mortgage lenders developed a financial ratio to warn themselves away from making such a mistake.  It is called the New-Money-to-Old-Money Ratio.

The New-Money-to-Old-Money Ratio is defined as the size of the proposed second mortgage divided by the size of the first mortgage, the dividend (result) being multiplied by 100%.

New-Money-to-Old-Money Ratio = (Size of Second Mortgage / the Size of First Mortgage) x 100%

The New-Money-to-Old-Money Ratio should always be larger than 33%.

Let's plug in the numbers from the example above.

New-Money-to-Old-Money Ratio = (Size of Second Mortgage / the Size of First Mortgage) x 100%

New-Money-to-Old-Money Ratio = ($400,000 / $10,000,000) x 100%

New-Money-to-Old-Money Ratio = .04 x 100%

New-Money-to-Old-Money Ratio = 4%

Clearly 4% is way-way less than 33%.  It would be reckless to make such a second mortgage, even though the apartment building might be a very nice one and even though the loan-to-value ratio was less than 58%.

Okay, now back to our rolling commercial real estate depression.  In the early 1990's, most of the commercial second mortgage lenders were based in California.  When the depression finally rolled through California in 1991, commercial real estate fell by 45%.  Since most commercial second mortgage lenders were lending up to 65% to 70% LTV in the years leading up to the depression, they found themselves severely upside-down in most deals.  Faced with making the first mortgage payments for an uncertain amount of time, on a partially-vacant or vacant commercial building with very little remaining equity, most second mortgage lenders allowed themselves to be wiped out.

Poof!  Commercial second mortgage lenders lost billions of dollars and exited the business for good.  They have never come back.  To this day very few commercial lenders will therefore make second mortgages.

To make matters worse, a change in Federal law (the Garn-St. Germain Act) had recently clarified that the acceleration clause contained in the mortgages of virtually all bank first mortgages was enforceable.  An acceleration clause is the section in a mortgage that says if the borrower sells the property or places a second mortgage / mezzanine loan on the property that the bank can immediately demand to be paid in full.

Another huge reason why so few lenders will make commercial second mortgages is because the moment they place their mortgage on the property, the underlying first mortgage lender can accelerate his loan.  If that happens, the holder of a $400,000 second mortgage, for example, might suddenly have to come up with $1 million (or $10 million) to pay off an accelerated first mortgage.  Yikes.

So is it impossible to get a commercial second mortgage today?  No.  There is still a handful of rough-and-tumble commercial lenders willing to make a commercial second mortgage.  You can find these lenders by entering your deal into C-Loans.com.

"Gee, george, I get it.  I'm not going to find many lenders willing to make me a commercial second mortgage; but I don't need to find a lender willing to make me a commercial second mortgage.  I just need to find a lender who will allow the seller to carry back a second mortgage.  With banks being so conservative today, its hard to find a buyer capable of putting 35% down."

You would think that banks would be happy to have the seller carry back a second mortgage.  After all, if the borrower defaults, the seller would be motivated to bring the bank current and foreclose his second mortgage.

In real life, this doesn't happen.  Almost invariably the seller lacks the financial resources to keep the first mortgage current.  The bank ends up foreclosing and wipes out the seller's second mortgage.

But wait, it gets even worse.  When the bank does foreclose, almost invariably it finds that the property has been allowed to fall into a dilapidated condition.  How could this happen?  The borrower has been using the dough earmarked to keep the property maintained to make the second mortgage payments.

As a result, you will almost never find a commercial bank willing to allow the seller to carry back a second mortgage.  Banks always want cash-to-loan; i.e., no second mortgages.

This is one good reason to apply to Blackburne & Sons for your purchase money commercial loans.  While we will NOT make a commercial second mortgage, Blackburne & Sons will allow the seller to carry back a second mortgage behind our new first mortgage.

Are you a commercial broker; i.e., do you sell commercial real estate?  What I am about to tell you is the most important thing you will ever learn in commercial-investment real estate brokerage!  There is no easier way to meet high-net-worth real estate investors than to be a commercial mortgage broker.  After all, poor people don't own $5 million office buildings.  They are owned by the filthy rich.  Every commercial brokerage office needs to have a small commercial loan brokerage operation.  It could just be a desk and phone.  It doesn't even matter if you EVER close a loan.  Your ads for commercial loans will pull in hordes of wealthy investors to whom you can later sell commercial real estate.

Do you need a commercial loan with no prepayment penalty? Is your client's commercial property partially vacant? Do all of your commercial leases run out in the next 18 months? Do you need a lender who will allow a negative cash flow? Do you need a lender who will also look at the borrower's global income - income from salaries, other investments, etc.? Do you need a lender who will allow the seller to carry back a second mortgage? Does your client have a balloon payment coming due on his commercial property? Has your bank offered him a discounted pay-off? Does your borrower have less-than-stellar credit? Is your client's company losing money? Is your borrower a foreign national? Do you need a non-recourse loan?

Do you have a commercial loan that deserves to be financed by a life company, bank, or conduit?

Keep looking for bankers who make commercial loans.  You can parlay the contents of a single business card into a free directory of 2,000 commercial real estate lenders. 

We here at C-Loans, Inc. have a vested interest in getting you pre-registered on C-Loans.com.  Registration is just a fancy way of saying to give us your contact information, so future lenders can reach you.  We want you in a sprint start so that the next time you run across a commercial real estate loan, you can quickly enter it into C-Loans.com.  To encourage you to pre-register, we are giving away a free Commercial Mortgage Underwriting Manual, a manual we sell separately for $199.

Are you ready to finally learn commercial real estate finance?  It's a rare commercial lending conference when one of my former (video course) students doesn't come up to me and thank me for this course.

Did you learn something today?  Want to receive two free lessons in commercial real estate finance every week?

Got a buddy or a co-worker who would benefit from free training in commercial real estate finance?