Commercial Loans and Fun Blog

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?

The following article has immensely helpful information for anyone in the commercial real estate business - be she a commercial loan broker, a commercial broker (you sell real estate), or an investor.  The article is short, but it hits you with great tool after great tool (all free), bam-bam-bam.  Prepare to be wowed:

Every broker or loan representative should know that timing is everything.  In an effort to get a deal off the streets, a loan approval letter needs to be issued quickly.  (George's comment:  I just love that expression, "Get the deal off the street".  That is so important!)

But what do you do when the borrower can’t get you every needed document in a timely manner?  Do you have to wait until you get everything?  Of course not.  But it does involves work on your part.

Nowadays information is readily available at our fingertips. We just need to make the effort to get it, and we need to be creative about it. The internet is an amazing tool (Thanks Al Gore) that can pretty much get you anything you need.

One of the most important items needed for an underwriter is pictures of the property. There is no reason to wait until a borrower gets you property pictures. You can find property pictures on your own just by using Google Earth.  Here, you are able to get not only street views of the property, but you also can get aerial views.  In just a few minutes you can have those pictures ready.  We also like to see the neighborhood, and Google Earth allows you to look down the street or across the street to see what is surrounding the property.

But be sure to watch out for the date of the picture.  Most are recent, but we have found that sometimes the picture may be a year or two old, and since then the borrower maybe updated, remolded, painted or made other improvements to the property.  If that is the case, be sure to explain that when you submit your deal (to a lender).  You can always get updated pictures later - once the deal is off the street.

Another important item is property details.  The borrower tells you he has an industrial building, but he doesn’t know the square footage or parcel size.  He needs to dig up that information in his records (hopefully he is keeping them).  Again, don’t wait if you can find it yourself. There are a few ways we have found to get this information. Our favorite is LoopNet.  Did you know LoopNet has entire reports on property history, tenants, sq. footage, parcel size, unit mix, tax history and more? Better yet, it is free to use. All you have to do is log on to loopnet.com, enter the location address and before you know it you will have a plethora of information. This is also a great tool that can help you filter out good deals from bad deals. Maybe your borrower hasn’t been completely honest with you.  LoopNet can provide you with history of mortgage defaults, unpaid property taxes and even tenant rental amounts.

In our office we also use Chicago Title Premier Services, another free service. Just go to https://premier.ctic.com/.  On this site you can search title records by name, address, APN’s and even street names. You can pull title reports that show mortgage history, defaults, property tax status, sq. footage, lien holders, etc. You can also get photos and plat maps on this site.  The reports also include comparable sales data, something an underwriter would greatly appreciate.

What else can you get online? Credit reports. Well, you can’t get one for someone else, but you can provide your borrower with different options to get a self-pulled credit report free of charge. Some sites that offer this are creditkarama.com, freecreditreport.com, Experian.com, Equifax.com and transunion.com. While the lender will still want to pull a tri-merge credit report in the future, providing one of these free reports will at least get the ball rolling and provide an idea of the credit worthiness of a borrower.

Last, but certainly not least is PACER, Public Access to Court Electronic Records. On Pacer you have to set up an account, but it is a relatively easy process.  We use pacer often.  On pacer you can get copies of any court documents needed.  Is your borrower in Bankruptcy?  If so, there is no need to wait for the borrower to request bankruptcy documents ffrom his attorney.  You can go online, search their name and find those documents on your own.  You can also find out about any law suit or even divorce proceedings. This is just another way to get needed documents quickly, so that you can get the deal off the street.

These are just a few tools to use to get what you need.  There are many options available, you just have to put in the effort.  If you are hungry to get your deals moving, this is how you do it.

I would love to take credit for this wonderful blog article; but it was written by the lovely and smart Angelica Gardner, the Executive Vice President of Blackburne & Sons, the head of our Loan Committee, and since I live in Indiana 2,000 miles away, arguably the de facto CEO of our company.

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.  To encourage you to pre-register, we are giving away a free Commercial Mortgage Underwriting Manual, a manual we sell separately for $199.

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

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?

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.

Are you a commercial broker; i.e., you sell commercial real estate?  What I am about to tell you is the most important thing you will ever learn in commercial brokerage!  There is no easier way to meet high-net-worth real estate investors than to be a commercial mortgage broker.  Every commercial brokerage office needs to have a small commercial loan brokerage operation.  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.

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?

This whole subject of mezzanine loans, preferred equity, venture equity, capital stacks, senior stretch financing, A/B Notes, and syndicated loans is called structured financing.  Relax.  I am going to give you a quick refresher course about each of these fancy terms.

Most of us human (as opposed to god-like) commercial mortgage brokers will seldom dwell in the lofty palaces of structured financing; but we don't want to look like complete newbies if the subject ever comes up at a commercial lending conference or in a conversation with a very wealthy commercial borrower.

Think of a mezzanine loan as sort of like a second mortgage, but its a type of second mortgage that a lender can foreclose in six weeks rather than six months.  A mezzanine loan is always junior to some huge first mortgage (typically $10+ million), and a mezzanine loan is secured, not by a mortgage, but rather by the stock of the corporation* that owns some trophy office building or huge shopping center.  If you foreclose on the stock, you then own the corporation as well as the property!  And since stock in a corporation is personal property (pay attention - this is on the test), normal mortgage laws don't apply.  Just like a finance company can repossess your car in just a few days if you miss a payment, so can a mezzanine lender foreclose on a billion dollar office tower in New York City.

*  More precisely, everyone uses LLC's these days, and the stock equivalent in LLC's is a membership interest. If you foreclose on 100% of the membership interests, you own the LLC and the $500 million shopping center.

Think of preferred equity as if it was a second mortgage as well, but technically preferred equity is not a loan.  It does not have regular monthly payments.  It's an investment in the ownership of the property; however, the most a preferred equity investor can earn is some agreed upon yield - typically 12% to 14%.  The bad news is that the preferred equity investor is not guaranteed to earn, say, 13%; but the good news is that if the owners of the property earn anything, those earnings go first to pay the preferred equity investors.  They're preferred.  Mother always loved them best.  As the Church Lady might say, they're special.

In my last blog article, I explained venture equity.  It's joint venture money.  The bank wants the developer to have invested 20% of the total cost of the project; but on the really huge deals, no one has $10 million in cash to put into a single deal.  Opportunity funds (think of them as go-go funds or the play money of the super rich)  will contribute 70% to 90% of the required equity in return for a preferred yield of, say, 8%, and 50% of the profit in the deal.

"Geez, George, my eyes are glazing over.  Do I really need to know this stuff?  I'm just doing $500,000 to $5 million commercial loans."

If you don't completely understand everything today, don't freak out.  I will try to review structured finance every few months; but yes, eventually you will want to master this stuff.  If not, then you will always lack confidence when negotiating larger commercial loans.

This verbal proof story will help you to understand.  My hard money mortgage company once made a loan on an office building in New York.  It tooks 18 months to foreclose!  That's how slow the courts were there.  Arghh!  Now, can you imagine if my loan had been a $200,000 second mortgage behind a $1 million first mortgage with monthly payments of $10,000 per month?  In order to keep my $200,000 second mortgage from being cut off by a foreclosure of the first mortgage, I would have needed to advance a whopping $180,000 to cover the first mortgage payments during that 18-month foreclosure process.  

Now think about a $50 million first mortgage on some office tower with payments of $290,000 per month.  If you made a $5 million second mortgage on this building worth $1 billion, and the borrower defaulted, you might have to make $290,000 monthly payments for 18 months while you foreclosed! In other words, you would have been required to advance another $5.2 million in order to protect your original $5MM loan.  Ouch!!!

This is why smart investment bankers invented the mezzanine loan.  They needed a way to foreclose FAST!  Some first mortgage documents forbid mezzanine loans.  This is why preferred equity was created.

Almost done for the day.  You may recall that I blogged last year on senior stretch financing.  It's when a single lender blends the rate of a conventional first mortgage with the rate of a mezzanine loan to come up with a single first mortgage loan with a higher blended rate and a higher LTV.  

The next to the last subject is A/B notes.  To prepare to write today's article, I had to go onto Google and search for "A/B notes and C-Loans".  I found a great blog article on A/B notes written by... me!  Remember this trick.  Suppose you wanted to understand hypothecations, but you like the way that I explain things.  You could simply go onto Google and type, "hypothecations and C-Loans".  [Sons, when I move on to that great party boat in the sky, remember this trick.]

An A/B note is when a lender spits up a giant first mortgage into a larger "A" portion and a smaller "B" portion.  The "A" portion has priority.  The "A" portion gets paid first.  The two different portions are then sold off to different investors. 

Last subject:  When fancy New York investment bankers finance the huge office towers, you might have a capital stack that looks like this in terms of priority:

$200 million first mortgage at 4.75%
$50 million mezzanine loan Piece A at 8.2%
$20 million mezzanine loan Piece B at 9.5%
$12 million preferred equity Piece A yielding 12.0%
$8 million preferred equity Piece B yielding 14.0%
$18 million venture equity investment with a yield expectation of 20%
$4 million buyer's downpayment

And all I want is a lousy 2 points of the entire $312 million in financing.  Am I asking so much?  :-)

Get a free directory of 2,000 commercial real estate lenders.

Get a free $199 commercial mortgage underwriting manual just for registering on C-Loans.  

Need an A-quality commercial loan, suitable for a life company, conduit, commercial bank, or credit union:

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?

Want to learn commercial real estate finance?  Better yet, if you are a commercial broker (you sell commercial real estate), let me share a very interesting observation.  There is no easier way to meet high-net-worth investors than to be a commercial mortgage broker.

Did you learn something today?  Reeceive regular free training lessons in commercial real estate finance by merely subscribing to my blog.

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

Final funny:  Many pessimists got that way by financing optimists.

A gorgeous $50+ million commercial construction loan was entered into C-Loans.com today, and I personally brought it to the attention of the largest commercial mortgage company in the country.  These are the guys who close 40% to 50% of all of the commercial loans over $30 million.

I seldom personally place the commercial loans entered into C-Loans.com, but there are green flags that really get my greed gland - an ugly goider on the right side of my neck - pulsating and glowing with a florescent internet green.  "This deal smells like a BIG fee!"

Okay, so what did I spot?  What triggered my ugly but reliable greed gland?  I called my son, Tom, today, and I asked him, "Hey son, a big commercial construction loan request was just entered into C-Loans, and I am all hot and bothered.  What did I spot?"

Answer:  The developer attached an architect's rendering!

Guys, every commercial construction loan request larger than $10 million absolutely needs an architect's rendering if the developer really expects to ever get the deal funded.

The fact that this developer included an architect's rendering meant:

1.  This developer is experienced.

2.  The developer is not trying to pinch pennies; i.e., he has enough dough to pay $2,000 to $3,000 for an architect's rendering.

Then I asked my son, as a review, what four elements are included in Total Construction Cost?

Answer:  Land Cost, Hard Costs, Soft Costs, and a Contingency Reserve.

Okay, but how do you compute the Contingency Reserve?

Answer:  The Contingency Reserve should be 5% of hard and soft costs.  It's a special line item in the Construction Loan Budget designed to cover cost overruns.

But why only 5% of hard costs and soft costs?  What about 5% of the land costs?

Answer: By this point, the cost of the land has already been fixed.  It has either already been purchased, or it is already in contract.  There shouldn't be any overruns on the cost of the land.

Okay, Mr. Smarty Pants, what percentage of the Total Construction Cost do most banks expects a developer to contribute to the deal?  In other words, how much skin in the deal is the developer typically required to contribute?

Answer:  Typically the developer is required to cover 20% of the total cost of the project.  Usually this takes the form of equity / downpayment in the land, architect's fees and engineering fees.

The general rule is that construction lenders expect the developer to contribute the land to the deal free and clear.  After all, in most cases, the land cost equals about 20% of the total cost of the project.

In real life, this seldom happens; however, between the developer's equity in the land, his prepaid architect's fees, and his prepaid engineering fees, the successful developer does indeed contribute 20% of the total cost of the project.

Pop quiz:  A developer comes to you for a land loan.  He paid $1 million in cash for the land.  He needs a $400,000 land loan for the architect's fees and engineering fees.  He promises that he will pay off the land loan when he gets a construction loan.  (Angelica, my precious head of Loan Committee, this lesson is for you.)  Is this a good land loan?

Well, we said that the land cost is usually 20% of the total cost of a commercial construction project.  If the land cost is $1 million (20%), then the total project cost is probably around $5 million.  If the developer spends $400,000 on architect's fees and engineering fees (the real number will probably be less), then the developer is contributing $600,000 in equity in the land, $200,000 in prepaid architect's fees, and $200,000 for prepaid engineering fees.  The developer is therefore contributing $1 million or 20% of the total cost of the project!  This is a good land loan!  Yeah!!  :-)

By the way, the Great Recession is over.  Blackburne & Sons made very few land loans leading up to the Great Recession, but we are very bullish on land loans right now.

Okay, we are now going back to the $50 million commercial commercial loan request that just entered C-Loans.  The developer wrote that he had $5 million in cash to contribute to the project.

"Hey, wait a minute, George.  I thought you just said that the developer is required to contribute 20% of the total cost of a construction project?  This is a $50 million project.  The developer should be required to contribute $10 million, right?"

Well, on the really large commercial construction loans ($30MM+), most developers lack the cash required to cover a full 20% of the cost of the project.  C'mon, really, who has $10 million to contribute to a commercial real estate construction project?  I doubt that even Donald Trump contributes $10 million in cash to any of his commercial construction deals.

Okay, so what happens in real life on these huge commercial construction loan requests?  The developer will typically be required to cover 7% to 10% of the total cost of any $30+ million commercial construction project. The rest will typically be covered by venture equity.

Venture equity is like venture capital, except it is for real estate projects.  Venture equity investors provide the equity shortfalls to developers on large commercial construction deals.  Venture equity investors typically expect total returns of 16% to 20%.  A typical venture equity investor might require a 10% preferred return, plus 50% of the total profit in a construction deal.

Okay, I have my son, Tom , pinned against the ropes.  He has been reading my blogs for years.  He can't run.

So what is a capital stack?

Answer by Tom (that clever little devil):  A capital stack is the sum, on a huge commercial mortgage deal, of the first mortgage, plus the mezzanine loan, plus the preferred equity, plus the venture equity, plus the the developer's position in the deal.

Got a commercial mortgage deal that has the tiniest black hair (flaw)?

Keep looking for the business card of any banker who is making commercial loans.  You can parlay the contents of that one business card for a list of over 2,000 commercial real estate lenders.  We solicit these bankers for their commercial mortgage turndowns.

Are you a commercial real estate broker?  In other words, you sell commercial real estate.  What I am about to tell you is the most important thing that you will EVER learn about commercial real estate.  Are you ready?  The easiest way to meet high-net-worth real estate investors is to become - on the side - a commercial motgage broker.  After all, who owns $5 million shopping centers?  Poor folks?

Did you learn a lot today about about commercial real estate finance?  You can receive similar training articles about commercial real estte finance several times per week for free.

Do you have a buddy - perhaps a co-worker in your office - who would benefit from free training in commercial real estate finance?

Blackburne & Sons gets its dough to make small, sub-prime commercial loans nationwide by assembling small syndicates of accredited, California investors.  Every month I enclosed an Investor Letter with their interest checks.  Although today's Investor Letter has nothing to do with commercial real estate finance, I hope you will still enjoy it:

“Those who cannot remember the past are condemned to repeat it.” -- George Santayana

George Santayana (1863 in Madrid, Spain – 1952 in Rome, Italy) was a philosopher, essayist, poet and novelist.

To those of you who are fellow history buffs, I have a great recommendation. You can now download inexpensive but fascinating podcasts about history right onto your iPhone. I listen to them when I am working out or driving. These podcasts are produced by a gentleman named Dan Carlin (dancarlin.com), under the label of Hardcore History.

Today I listened to Dan’s two-hour story about the Spanish American War. The war took place in 1898, and it was a very one-sided affair. Just five days after the Declaration of War by the U.S., an American fleet under Admiral George Dewey sailed into Manila Harbor in the Philippines – then a Spanish possession - and sank the entire Spanish fleet. The Spanish suffered over 500 dead and wounded. The U.S. did not lose a man. Okay, one American died of a heart attack, and seven others were wounded. (Interesting note: The American gunners were so inaccurate that less than 3% of our shells hit a Spanish ship; but obviously the Spanish were even more inaccurate.)

If you were awake during history class, you probably remember that Lt. Colonel (and later President) Teddy Roosevelt lead a regiment of dismounted cavalry called the Rough Riders up San Juan Hill. To his credit, Teddy showed great courage during that difficult, but successful, uphill infantry attack. It was the one big battle of the war.

The American fleet bottled up a second Spanish fleet in Havana, Cuba. When they attempted a breakout, despite the amazing courage of the Spanish, it was another one-sided rout. When the Spanish admiral finally surrendered, the American sailors cheered and saluted to show their admiration of the courage shown by the Spanish.

But the actual conduct of the war is not my point today. The issue is the cause. Dan Carlin, the historian, spent the entire first hour of his program on the cause of the war. Now ostensibly the cause of the war was the sinking of the Maine, an American cruiser docked in Havana Harbor. At 10:30 at night, while the rest of Havana was enjoying the extensive nightlife in the city, the cruiser suddenly suffered an ear-shattering explosion. The ammunition magazine had exploded, sending an enormous fireball into the sky. Observers reported that the sky was blackened with falling steel and body parts.   The ship quickly sank, with very few survivors.

To this day there is no consensus as to what really happened, but America chose to believe that the Spanish had detonated a mine under the Maine. “Remember the Maine!” In truth that theory makes little sense. The Spanish were already battling a fierce insurgency in Cuba, and they were losing. Why start a war with a rising regional power (the U.S.)?

Another theory was that this brand new cruiser suffered from a design flaw. The coal bin was built right next to the ammunition magazine, and spontaneous flash fires in coal heaps were common. Okay, so the war had started. Another one of these fancy new coal-powered, armored cruisers was stationed off of Hawaii, and it was ordered to the Caribbean. As it was sailing around the Cape of Magellan, it too suffered a spontaneous flash fire in its coal bin that took several days to subdue. Yikes.

Another reason for the war was yellow journalism, the name for sensational, scandal-filled, and often-inaccurate newspaper articles that stoked the passions of the American people (and sold newspapers). William Randolph Hearst later bragged that his newspaper, the New York Journal, forced the U.S. to go to war. The Spanish were fighting a counterinsurgency in Cuba. The Journal had reported that the Spanish had rounded up the population and forced them into concentration camps, so they could not give food, shelter, and aid to the insurgents. The problem was that the Spanish were not providing enough food, and 400,000 confined Cubans had died of starvation. Okay, that’s a much better reason to go to war – to free the Cuban people.

But the trouble is that we really went to the war because America was looking to pick a fight with someone. Jingos – a fiercely nationalistic and militarist segment of 1898 society – were promoting the idea that Americans needed a war to hone their military skills and to prevent the population from going soft. Remember, the Civil War had ended in 1865, and much of the bloody horrors of the war – the deaths, maiming’s, and misery - were starting to be forgotten.   “Those who cannot remember the past are condemned to repeat it.”

Now we are finally getting to the point of this month’s Investor Letter. Fascism didn’t just arise in Germany. The movement started first in Italy under Mussolini, then it arose in Germany under Hitler, and next it arose in Spain under Franco.

Folks, don’t get me wrong. I will probably vote for Donald Trump, if only because he has the Teflon coating needed to declare that the king is actually naked. There is a lot of anger, however, among his core supporters, and that anger is now also being found in Europe.

“The larger forces that have propelled Trump to the brink of the Republican Party’s Presidential nomination—nationalism, nativism, disillusionment with the economic results of globalization, fear of terrorism, cynicism about career politicians—are just as strong in Europe, perhaps stronger… The rise of right-wing politicians in Europe, like Norbert Hofer, a member of Austria’s Freedom Party, reflects the same forces that have fuelled the candidacy of Donald Trump… In recent weeks, Nigel Farage, the beer-swilling leader of the anti-immigrant, anti-E.U. U.K. Independence Party, has been joined in arguing for a (Brexit) by Boris Johnson, the mayor of London.” (A Europe of Donald Trumps, The New Yorker)

Trump has promised to rein in the military encroachments of Vladimir Putin and to strongly renegotiate trade deals with China. “We are going to make America great again!” Okay, Mr. Trump, I’ll bite. I’ll vote for you; but hey, please don’t go picking another war. A missile exchange with China or a land invasion by North Korea could go badly for the U.S. Nuclear weapons are not a 100%-guaranteed deterrent against war. In World War II, for example, the warring parties simply chose not to use gas warfare.

Carol Conman was a beauty.  When she would sashay into a room, in her tight skirt and her push-up bra, every man in the room would ache with desire.  Carol was also a crook.  Now she didn't rob and steal.  She was a white-collar criminal, and sadly state authorities rarely have the resources or the will to pursue white collar criminals.  (The gorgeous model in this picture is not Carol, but you guys get the picture.)

Here is how her confidence game would go down:  She would buy a home for all cash.  Then, using fake ID and a dummy financial statement, she would apply to two different private money lenders for a refinance.

Now both mortgage companies would pull a preliminary title report (known East of the Mississippi as a title commitment), and these title reports correctly showed that the property was free and clear of any mortgages and judgment liens.  Thrilled to provide financing to such a hot woman with enough money to buy real estate with all cash, both mortgage companies gladly approves her refinance.

Funny note:  I started out after college working for a personal finance company called Dial Finance. My manager once sent me into the field to collect an ill-conceived personal loan from this beautiful bombshell.  This babe had come into my boss' office, batted her beautiful eyes, and he had melted. Such bad loans were called leg loans, and they were always complete write-off's.  Looking back, I think this honey was offering me "kisses" that night at her home to go away and stop my collection actions, but I had my girlfriend at the time in my car outside.  Probably - no, absolutely certainly - it was best that I had to play dumb to the offer.  And yeah, my boss had to reimburse Dial Finance for this leg loan.

Anyway, back to Carol Conman...

Using charm and by batting her fake eyelashes, Carol convinces both mortgage companies to schedule their sign-off on the same day.  This is the key step!  In the morning, she signs off with Patsy Capital.  In the afternoon, she signs off with Droolingboy Mortgage.  She paid $200,000 for the house.  Two different mortgage companies just gave her a $150,000 loan.  Carol Conman then walks away with her $300,000, moves to a different state, and disappears.  Patsy Capital and Droolingboy Mortgage are left to fight it out.

Okay, so what happens?  Even though Carol signed off with Patsy Capital first, let's suppose the title company runner met his girlfriend for lunch on his way to the County Recorder's office.  By the time the runner was done cuddling with his girlfriend, it was 4:00 p.m.  In the meantime, Droolingboy Mortgage had blotted up its drool (boys are sooo stupid) and recorded its mortgage at 3:17 pm.  So who has priority?

The answer depends on the state. Different states have different priority rules.  There are three kinds of jurisdictions: 

1. Race Statutes
2. Notice Statutes
3. Race/Notice Statutes

Under a race statute, whoever records first wins. Thus, if Oscar purports to sell a piece of land to Al for $100,000, and the next day purports to sell exactly the same piece of land to Bob for another $100,000, then whichever of the two buyers is the first to reach the recording office and have the sale recorded will be deemed the owner of the property. Thus, if Bob is the first to record the conveyance, he will be the owner - even if he knew about the prior conveyance to Al. Race statutes are extremely rare because it is generally viewed as unfair to protect a party who had actual notice of a prior conveyance. Currently, Delaware, North Carolina, and Louisiana are the only jurisdictions where a race statute is in effect.

Under a notice statute, a subsequent purchaser for value wins if, at the time of conveyance, that subsequent purchaser had no actual or constructive notice of the prior conveyance. In short, a subsequent bona fide purchaser wins. Thus, if Oscar purports to sell a piece of land to Al for $100,000, and the next day purports to sell exactly the same piece of land to Bob for another $100,000, then Bob will own the land so long as he was not aware of the prior sale to Al. However, note that if Al records his interest before Bob's purchase, this recordation will be deemed to give Bob constructive notice. If Bob purchases the land without notice, and Al then records his prior purchase before Bob records his own purchase, then Bob will still prevail in ownership of the land.

Under a race/notice statute, a subsequent purchaser for value wins if (1) at the time of conveyance, that subsequent purchaser had no actual or constructive notice of the prior conveyance, and (2) the subsequent purchaser records before the prior purchaser. In short, a subsequent purchaser in good faith wins only if he records before the prior purchaser does. In this type of system, if Oscar purports to sell a piece of land to Al for $100,000, and the next day purports to sell exactly the same piece of land to Bob for another $100,000, then Bob will own the land only if he was not aware of the prior sale to Al, and if Bob actually records his interest before Al does.

Okay, so who has priority, Patsy Capital or Droolingboy Mortgage?  Well, both mortgage companies are bona fide purchasers for value.  In other words, neither company was in on the con, neither was aware of the other, and they both gave cold, hard cash for their mortgages.

Okay, who recorded their mortgage first?  Well, even though Carol Conman signed off with Patsy Capital first, it was actually Droolingboy Mortgage who won the race to the courthouse.  Droolingboy Mortgage has the first mortgage.

"But George, wait a moment.  What if Patsy Capital labeled their mortgage, "First Mortgage?"  It doesn't matter, even if Droolingboy Mortgage labeled their mortgage, "Seventh Mortgage."  If Droolingboy Mortgage beat Patsy Capital to the County Recorder's Office, then Droolingboy Mortgage wins.

"Yeah, George, I'm sure what you have just told me is right; but all Patsy Capital has to do is to submit its claim to the title insurance company."

Title insurance companies do not issue casualty insurance policies (policies that pay upon the happening of the car crash or the tree falling on the house).  Instead, title insurance companies issue indemnity policies.  Such policies only pay when an opposing party wipes out the policyholder's position, which could be a dozen years later, as long as Carol Conman is making her monthly payments.  (Carol just met and married Sammy Software, a wealthy dot-com owner.  Neither Sammy nor Carol want Carol to go to prison.)  In the meantime, the title insurance company could go bankrupt.  Yikes!

I have been in real estate finance for more than 40 years now.  I have never known a title company to pay without being sued by the claimant first.

Do you have a commercial real estate or mortgage website?  If so, you would be nuts not to add a link to C-Loans.com.  As long as you point your "Commercial Loans" or "Finance This Property" link to our home page (C-Loans.com), our computer program grabs your URL and prints it at the bottom of our loan application.  When the deal closes, we pay you a referral fee of 12.5 basis points (one-third of 25 basis points on loan larger than $5 million) when the deal closes.  We once paid Alan Dunn of Spydercube.com a referral fee of $21,250.  Can you imagine getting that call, "Hey, Alan, I have some good news for you..."

Did you learn something today?  Get two to three free training lessons in commercial real estate finance every week by subscribing to our blog.  Guys, here is what is happening.  I have two wonderful sons, and my heart is failing.  I am rushing to teach my two sons everything I have learned in my 36 years in commercial real estate finance before I stroke out (the traditional way for Blackburne's to croak).  By subscribing to my blog, you get to watch for free this training that I am rushing to teach my boys.

Do you have a friend or co-worker who would benefit from free training in commercial real estate finance?

Are you a commercial real estate salesman?  Why on earth are you not brokering commercial loans on the side?  As I have often told my sons, "There is no easier way to meet high-net-worth real estate investors than to be a commercial mortgage broker."  Bam!  You were nodding off, and the teacher just SMACKED his desk with his yardstick!  The sound was so loud that Shakespeare just sat up in his grave.  "This is going to be on the test!  There is no easier way to meet high-net-worth real estate investors than to be a commercial mortgage broker."

This is how I built Blackburne & Sons, my $50 million hard money commercial mortgage company.  I started out as a desk-and-phone commercial mortgage broker, but I was motivated.  I knew that I wanted to become a hard money lender.

Every time I talked to a high-net-worth commercial mortgage borrower, I saved my notes of the conversation.  "My goodness, George, you're quoting 2 points!  My own bank will give me the same loan at 1 point."  But three years later, that very same borrower got a word-processed letter from me, "Dear Dr. Smith, back in June of of 1982 I had the pleasure of working on a $450,000 refinance of your 16-unit apartment building in San Jose.  Today I want to talk with you about 10% first mortgage investments."  I raised 100% of my first hundred trust deed investments from former borrowers.  Former borrowers?  Hey, an investor is an investor!

Now I service a $50 million portfolio of hard money loans at an average loan servicing fee of 2% per year.  Do the math.

There is no easier way to meet high-net-worth real estate investors than to be a commercial mortgage broker."

You don't have to be a commercial loan broker to benefit from today's lesson.  You could be a commercial broker (commercial real estate salesman) or even a property owner looking for tenants.  This is the marketing program that I would adopt if a giant earthquake wiped out my entire business, and I was starting over from scratch, as poor as a churchmouse.

1. We are going to use newsletters because (a) newsletters put your name and contact information right into the "hands" of the recipient; and (b) if you send out a newsletter every 10 to 21 days, and you never miss a newsletter, by the sixth to eighth newsletter, your recipients will have bonded with you - especially if you share a little bit of your life each time.  I call this tendency to bond with a pen pal, "The Newsletter Effect."  Those of you who have received newsletters from Blackburne & Sons, my hard money commercial mortgage company, may remember the section in each newsletter called, "On a Personal Note ..."
   
   
2. We are actually going to use a snail mail campaign, rather than email, for this poor man's marketing program.  Why?  I want you to enclose two business cards in each envelope.  "But George, snail mail costs soooo much more than email!"  True, but we are only going to send out a small handful of letters.  This is not mass mailing.  This is very targeted marketing.
   
   
3. What do you send them?  Answer:  Something fun or fascinating, along with a brief pitch for your services. For example, if you are a landlord trying to find a tenant, your pitch might just say something as simple as, "Please don't forget that our popular strip center at the corner of Main and 4th Street has a 1,600 sf retail space available for lease for only $30 per square foot."  Keep it short and sweet.  Training note:  The rent for commercial or industrial space is traditionally expressed by professionals as so many dollars per square foot per year.
   
   
4. By something fun I usually mean a joke or two, a funny cartoon, a fascinating story, or a juicy bit of gossip.  An example of juicy gossip might be something like, "Donald Trump appears to be flip-flopping on a number of issues since he became the presumptive nominee.  The move may be a conscious part of a brilliant political manuever that was once used in ancient Rome 123 years BCE.  Here is how the technique might work.  Mr. Trump now says that he would have to consider raising the minimum wage.  Such an increase is hardly a pro-business, conservative position.  Nevertheless, if Hillary Clinton proposes a $15 minimum wage, the suggested move for Mr. Trump would be to propose a $16 per hour minimum wage.  If Hillary proposes two months paid maternity leave, Mr. Trump would propose two-and-a-half months of paid maternity leave.  In other words, Donald Trump would pivot even further to the left than Hillary Clinton, thereby stealing her thunder and her votes.  True story:  For centuries the Roman Senate stacked the deck in favor of the rich and powerful, making it virtually impossible for the plebes to improve their lot financially.  Most of the farmland was held by a small handful of super-rich patricians, and it was farmed by slaves.  Family farmers could not compete.  Then a reformer named Gaius Gracchus was up for re-election to the position Tribune of the Plebes, and he was promising agrarian reform (limiting the number of acres that one man could own).  The Senate therefore nominated their own candidate for Tribune of the Plebes, and the Senate's paid candidate promised even more than than Gracchus!  Gracchus was defeated, and he was soon murdered (beaten to death with legs torn off a wooden table) by a crowd hired by the Senate, just like his older reformer brother had been murdered by the Senate ten years earlier.  Of course, once the Senate's candidate was elected Tribune, he immediately recanted on all of his promises; but the point is that Donald Trump's recent policy reversals sound oddly familiar to students of history."  See, you don't have to use jokes or funny pictures.  Juicy gossip can be fun too.  (Guys, let's not trade angry emails about politics, okay?  Just because I recognize this diabolical but effective political technique does not necessarily mean that I approve or that I am a Trump supporter.) 
   
   
5. So what should your newsletter look like?  Keep it simple!  Take a piece of copy machine paper and type your company name, address, phone number, and your cell phone number across the top.  Then, in large bold print, type:  Today's Joke.  The insert a joke or a cool story, a story that you might tell one of your buddies in a bar over a beer.  I want you to use improper English - that means contractions, sentences that end in prepositions, and sentences that start with "And" or "But".  Do not be professional.  Be fun!  Be sure to include at least two of your business cards in every newsletter.
   
   
6. Okay, to whom should you send these newsletters?  Your snail mail list must be tiny.  To start, you might only have 50 to 70 names on your snail mail list.  If you are a commercial mortgage broker, most of these 60 contacts should be bank loan officers.  After all, the first place a potential commercial mortgage borrower calls is his banker.  If you are a leasing broker or a property owner, your list should primarily contain the owners of nearby companies who have nibbled on your space and local leasing brokers who are active in your area.  Ideally you have met each one of these contacts!  Snail mail is much too expensive to cold call new contacts.
   
   
7. Now let's talk frequency.  The Newsletter Effect does not start to produce until the sixth to eighth mailing.  Please read that sentence again.  Sorry.  I wish I had a miracle wand that I could wave for you, but there is none.  Mass mailings, newspaper ads, and magazine ads do not work at all.  Google ads, while effective, are pretty expensive (several dollars per click).  But after the 6th to 8th mailing, a newsletter campaign works as effectively as turning on a faucet.  Therefore we want to get the first eight newsletters out of the way as soon as possible.  I recommend mailing every ten days for the first eight times.  After that you can dial back to your Jenny Craig maintence program of once every 21 days.  Now you can see why we have to keep your snail mail list very small; otherwise a poor church mouse could not afford to send out his eighth newsletter.  Even though you may only be mailing to 60 guys, you will still have to send out six to eight newsletters to each one before you start to get a return.  Verbal proof story:  At Blackburne &  Sons I required each of my loan officers to build an email list of commercial brokers (commercial realtors).  My loan officers grumbled bitterly at first.  "This isn't working."  Then the seventh or eighth newsletter hit, a wonderful flow of deals started to come in, and my loan officers stopped grumbling.
   
   
8. Where do you get fun material for your newsletter?  Go onto Google and type in, "Jokes."  You will see a dozen free joke newsletters to which you can subscribe.  Or you can just go onto C-Loans.com and find my past newsletters.  Feel free to steal them.  You'll find over 600 cute, clean jokes from which to choose.  Also be on the lookout for interesting stories.  The most successful newsletter that I ever wrote was 20 years ago, and it was entitled, "Ebola is Going To Kill Us All!"  It was based on the wonderful book, The Hot Zone.
   
   
9. Now let's talk about great additions to your mailing list.  Let's suppose you're a leasing agent, and you meet the owner of a local tool and die company who mentioned that he may want to someday expand into a larger space.  Make sure that you save an extra supply (30 to 40 copies) of every newsletter that you send out.  Now print out ten envelopes to this new contact.  Stuff each one with an old newsletter and two business cards.  Now, using a pencil, write in the upper-right-hand corner a date, ten days apart.  For example, today is May 10th.  The first newsletter would go out today, and then another on May 20th, May 30th, June 10th, June 20th, etc.  Keep these  pre-addressed, pre-stuffed, and pre-sealed envelopes in an old envelope box in chronological order.  Then when you come in the office in the morning, you pull today's envelopes and place a stamp over the small date written in the upper-right-hand corner.
   
   
10. Folks, I have been in marketing for almost 40 years.  It is much better to have a tiny list of hot prospects (50 to 70) and to hit them with a newsletter every ten to twenty-one days than it is to send bulk mail to a list of 10,000 strangers.  I have wasted $4,000 doing mass mailings at least a dozen times during my career, and I never closed a single deal from such a mailing.  "You peed away $4,000 a dozen times?  Geez, George, are you mentally challenged?  When are you finally going to learn?"  Like my beautiful but long-suffering wife often tells our daughter, "Boys are stupid."  Ha-ha!  :-)

Do you have a commercial loan that any bank would love?  Get them to compete using C-Loans.com.

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?

Be sure to save the business card of any banker you meet who makes commercial real estate loans.  We'll trade you a list of 2,000 commercial real estate lenders for that one banker.  We solict these guys to refer their commercial mortgage turndowns to C-Loans.com.

Have you registered on C-Loans.com ?  This just means filling in your name and contact information into Step One of Six.  We want you pre-registered so that if you get a a hot commercial real estate loan that you can quickly enter it into C-Loans.com.  In return, we'll give you a free Commercial Mortgage Underwriting Manual, a course that we sell on C-Loans for $199.

Are you a commercial real estate broker?  Why aren't you brokering commercial mortgage loans on the side?  I have often told my sons, "There is no easier way to meet high-net-worth investors than to be a commercial mortgage broker."

Did you learn a few things today?  If so, subscribe to this blog and receive two training articles in commercial real estate finance every week for free.  We also try to have a little fun with it too.

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

The Church Lady on Saturday Night Live described the general election.  "It's a choice between a godless liberal democrat and Hillary Clinton."

Is one of Trump's political advisors a student of history?  I wonder... And Gaius Gracchus, didn't you learn from what happened to your older brother?  Geesch.  Maybe my wife is right.  "Boys are stupid."  :-)

Blackburne & Sons recently increased its loan-to-value ratios across the board.  Because we are in a recovery, Blackburne & Sons will now regularly make private money (hard money) commercial loans up to 70% LTV.  If the deal is a purchase money loan; i.e., the borrower is buying the property, and the buyer is putting 25% down in cash, we will even consider 75% LTV!

One of my loan officers complained, "But it seems like all of my loans are restaurants, and (because the failure rate of restaurants is enormous) we cut our loan-to-value ratios back to 60% to 65%.  I'll never get a restaurant loan approved at 70% loan-to-value."

That got me to thinking.  Hmmm, would I ever approve a 70% LTV loan on a restaurant?.  The answer is, "Yes, if the restaurant was not really a restaurant."  Huh?  In prime downtown locations, many row commercial buildings are leased out and improved as restaurants; but in reality that are just big empty boxes.

A row commercial building is just a general purpose commercial building where there is a zero lot line on both sides with the neighboring commercial buildings.  There is no side yard.  The buildings are squished together against each other, just like a townhouse is squished against the homes on either side of it.

So back to our restaurant.  If I was being asked to finance a row commercial building that was just currently leased to a restaurant, I would expect my loan officer to argue in Loan Committee, "Hey, this isn't really a restaurant building.  It's a garden variety row commercial building.  It's just a box.  Prior to the restaurant, it was leased out as an office supply store and then later as a dress store."

And now - finally - we get to the point of today's lesson.  Let's suppose the restaurant is called, The Sicilian Noodle.  Now remember, every commercial loan must have a name.  It might be Pine Haven Apartments, Tire City Building, or Charlotte Strip Center; but every commercial loan must have a name.  The reason why is because a great many commercial properties are owned by two or more couples or by an LLC.  You can't call the deal the Smith loan because the Jones and the Carpenters might also be on title.

Now back to my row commercial building.  Should my loan officer label this deal as, "Sicilian Noodle Restaurant Building"?  No-no-no!!!  My loan officer wants to make clear to Loan Committee that this is not a restaurant building but rather just an empty box.  He should call the deal, "Main Street Row Commercial Building."  Give your commercial loan a good name!

Let's look at a different scenario.  Suppose that Rosewood Boulevard is a long commercial strip that runs west to east through the entire city.  By the way, a commercial strip is a busy commercial thoroughfare whose sides are lined with businesses.  It is not a gentlemen's club.

Now the eastern stretch of Rosewood Boulevard runs through a middle-class, bustling neighborhood called the Triangle District.  Unfortunately the western stretch of Rosewood Boulevard runs through the Porkloin District, and the Porkloin District houses the lowest-income section of town.  Many commercial buildings are boarded up, and most of the commercial buildings in the area are protected by bars on the windows and they are covered in gang grafitti.  Drug sales are one of the single largest sources of income for the residents.  Gun battles are waged nightly, and the Nightly News often starts out their broadcasts with, "Another seven people were gunned down on Rosewood Boulevard last night in the infamous Porkloin District."

Okay, now a test of your understanding.  Are you going to name your next commercial loan, "Rosewood Boulevard Liquor Store?"  If you answered, "No," then you understood today's training lesson.  Does "Triangle District Strip Commercial Building" sound more appealing to a Loan Committee?  I think so.

Earlier in today's article I mentioned private money loans from Blackburne & Sons.  When does it make sense to use Blackburne & Sons as your commercial lender?

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 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?

These are all good reasons to apply to Blackburne & Sons.

"George, my commercial loan is a slam-dunk.  I just need a great rate.  I'm competing on the deal." In that case, you should submit your deal using C-Loans.com.  Our hungry life companies, conduits, and commercial banks will eat that A-quality deal right up.  You should also use C-Loans.com if the loan is larger than $3 million (too large for Blackburne & Sons) or if it is a construction loan, regardless of the credit.  The banks will quickly scarf up that construction loan, and our 150 hard money lenders will dine on that large hard money deal.

Many high-school-educated commercial mortgage brokers make more money than many college- educated professionals because they have the natural ability to sell, great English skills, and some great training in commercial real estate finance.  Our 9-hour commercial mortgage brokerage video training course - now coupled at no additional charge with our 6-hour audio training course in Intermediate Commercial Finance - is a cheap way ($549) to change your life.

Don't forget to snag the business card of any banker you meet who makes 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.  We solicit these guys to refer us their commercial mortgage turndowns.

Many mortgage brokers find C-Loans.com while browsing at night.  We want these guys pre-registered so that when they run across their next commercial loan, they can immediately enter it into C-Loans.  Registering is just a fancy way of filling out your name and contact information.  If you register on C-Loans.com, I'll send you a free Commercial Mortgage Underwriting Manual that I sell separately on C-Loans.com for $199.

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

Want to receive free, regular training in commercial real estate finance?