Commercial Loans and Fun Blog

Today's marketing lessons will also be helpful for commercial brokers (commercial real estate salesmen), not just for commercial loan brokers.  I built a $50 million commercial loan company using these simple marketing lessons.  They should work for you as well.

In my prior commercial loan blog articles, I stressed that list advertising - snail mail, fax, and email - is the most effective form of marketing for real estate sales and commercial loan brokerage.  One reason is because  you can crank out a commercial loan newsletter today, rather than waiting for weeks until the next magazine is published.

Your newsletters do NOT have to be fancy.  For 15 years I personally marketed by snail mail using a plain, legal-sized sheet of copy machine paper.  I didn't bother with a logo or with typesetting.  I just typed my company name, address, and phone number at the top.

So why would my commercial loan clients even bother to read such an obviously unprofessional newsletter?  Because it was unprofessional!  Huh?  What???

Have you ever gotten a "professional newsletter" from a CPA?  Have you ever read anything so boring?  Boooooring!  Nobody reads professional newsletters.  Do you know what real people do read?  They read jokes and funny pics sent to them by their buddies.  My first piece of advice, therefore, is to stop trying to be professional.  Instead, be fun.

Now every commercial loan newsletter (or realty investment newsletter) needs these four ingredients:

1. Lots of funny jokes.
2. A training lesson about commercial loans (or commercial-investment real estate).
3. Some brief words from our sponsor; i.e., you pitching your services.
4. One or more funny pictures or cool videos.

I call my jokes, funny pics, cool videos, and training lessons Rat Goodies.  In fact, I invented my own theory of marketing that I call the Rat Goody Theory of Marketing.  It basically says that if I have to bug my buddies and clients with a sales pitch, then I at least owe them some Crackerjack Treats for opening up the box.

"Gee, George, that all sounds great and everything, but where do I get fresh material for my newsletter every ten days?  Your own newsletters contain six to eight jokes, two to three funny pictures, and at least one cool video.  That doesn't even include the training lesson.  Where do you find all of this stuff?"

Here is where you find the Rat Goodies and the content for your own newsletters:

1. You can easily find over 400 cute, clean jokes here.  Feel free to plagerize my materials.
2. Pinterest has a wonderful collection of funny pictures.
3. As for interesting videos, your buddies will send you some.  Just be on the lookout.
4. As for training lessons in your field (commercial loan brokerage, commercial real estate brokerage, etc.), we all learn things every week.  Just be sure to make a note of anything new you learn - like this brand new commercial loan underwriting ratio, the Debt Yield Ratio - and share it with your buddies and clients.

Here is one final thing that I do that has served me very well in marketing over the years.  Any time I meet a high-net-worth investor, be it from a commercial loan lead call, at a conference, or on the golf course, I am religious about adding this investor to my mailing lists.  This may surprise you but I found the wealthy investors that I needed to fund $50 million in hard money commercial loans when they first called my office in search of a commercial loan.  In other words, I turned commercial loan borrowers into commercial loan investors.  Huh.  Go figure.

My thanks go out to Dan Morris of Summit Finance, one of our lead buyers, for closing a $6 million commercial loan for C-Loans on Friday!  If he closes just four more deals, he gets listed permanently on C-Loans as a Proven Broker.  From then on, he no longer has to buy leads.  He will be set for life.

Hey, did you enjoy listening to my audio and Powerpoint training lesson on the Rat Goody Theory of Marketing.  To move between PowerPoint pages, be sure to hit the Play button.  This lesson is just one of about 35 lessons in my wildly popular training course, How To Market For Commercial Loans.

Ninety percent of bankers are downright slothful when it comes to working commercial loans.  Ten percent of them, however, are real go-getters.  That's the thing that C-Loans.com does best - it indentifies those bankers and those Proven Brokers who are ravenous to close commercial loans.  Don't poo-poo using our Proven Brokers because they close a hugely disproportionate share of the commercial loans closed on C-Loans.  Proven Brokers close commercial loans because they have personal relationships with their lenders.  True story:  I had a buddy 30 years ago who made a fortune one year because he brought two hookers and some cocaine to his lender's office, whenever he brought him a new commercial loan package.  (My buddy eventually ended up on Skid Row in San Francisco, a washed out drug addict.)

The real money in commercial real estate finance is in loan servicing fees.  I charge our investors almost 2% per year for servicing their commercial loans.   On a modest-sized deal of $1 million, that's $20,000 per year, just for collecting 12 payments and sending them on to our investors.

Today I am going to share with you an easy way to quickly estimate the value of a commercial property.  It's going to involve a tiny bit of math, but please don't freak out or tune out.  You remember how to divide, right?  Fourth grade math?  You can handle it.  And being able to quickly value commercial property is essential to both commercial brokerage and commercial mortgage banking.

In my prior blog articles about commercial financing, I described a Cap Rate as the return on your money that you would enjoy if you bought a commercial property for all cash.  In other words, what "interest rate" would you earn on your money if you bought an office building or strip center for all cash; i.e., you whipped out hundreds of thousands of dollars from your hidden stash under the floorboards, and you eschewed using any mortgage.  By the way, eschew is just a fancy verb that means to "deliberately avoid using or abstain from."

The formula to compute a Cap Rate is Net Operating Income / Purchase Price = Cap Rate.  If you do the caculation shown in the image above, you actually get 0.0711.  You have to multiply the answer by 100% to get a Cap Rate properly expressed as a percentage.

The following funny pic is a tiny bit naughty.  Read on at your own risk.  :-)

That's enough of a review of Cap Rates.  Remember, the object of todays' training article is to teach you how to quickly value commercial property.

Let's suppose that you are thinking about buying or financing a commercial property, and you want to know what the property is probably worth.   You ask the selling commercial broker for a marketing flier, which usually contains a Pro Forma Operating Statement and the property's net operating income (NOI).

You next make some calls to some local commercial brokers (commercial realtors), and you ask them, "I have a 25-year-old office building in the Kings Town district of Valencia.  What's your best guess at a reasonable cap rate?"  The commercial broker might come back and say, "Depending on the strength of the tenants and the length of the leases, you're probably looking at a cap rate of between 7.25% and 7.75%."  For a quick, desktop valuation, you decide to use a cap rate of 7.5%.

So you now know the property's net operating income (NOI) and the cap rate at which similar buildings are selling.  You can now roughly value the building.  The formula is shown below:

Let's use a NOI on the building we want to value of $237,000 (remember, we got this off the marketng flier) and a 7.5% suitable cap rate (this is the cap rate that the local commercial brokers told us to use).  Plugging and chugging, we have:

$237,000 / 7.5% = $3,160,000

So this commercial building is worth around $3.16 million.

Okay, let's do one more example.  The commercial mortgage borrower submits a commercial financing package that contains a Pro Forma Operating Statement.  You pluck off a NOI  of $657,000.  Local commercial brokers suggest a cap rate of 6.75%.  Now we plug and chug:

$657,000 / 6.75% = $9,733,000

Remember, we started off today to learn a quick and easy way to value commercial buildings.  This was it.

A lof of commercial mortgage brokers starved during the Great Recession because banks were making very few commercial loans.  Today the commercial mortgage market is on fire because of seven years' worth of pent-up demand.  It's a very good time to get in the commercial mortgage brokerage business.

We are now including - at not extra charge - my Intermediate Commercial Mortgage Finance course when you buy for just $549 my famous nine-hour course on commercial mortgage brokerage.

You'll need to know some commercial mortgage lenders.  If you know even one bank that is making commercial loans, you can parlay the contents of that business card into a free directory of 2,000 commercial lenders.

My hard money commercial mortgage company, Blackburne & Sons, was one of the few commercial hard money shops to survive the Great Recession.  You know how we did it?  Loan servicing fees!  I earn $60,000 per month (not per year but rather per month) for collecting the payments on fewer than 250 commercial loans.  Imagine earning $60,000 every month, even if you failed to close a single new loan.  The money in commercial mortgage banking is in loan servicing fees!

Show me any commercial mortgage company in the U.S., and I'll increase their bottom line by at least $200,000 per year.

This morning I received a commercial loan solicitation flier (email) from an old friend of mine.  My buddy, Paul, also owns a hard money commercial loan company, and I have realized that he is one of the wisest guru's in the commercial loan business.

This flier contained so much wisdom about investing in commercial real estate and about commercial mortgage underwriting that I am sharing it with you almost in its entirety.  It is definitely worth a read.

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HOW TO FALL IN LOVE WITH AND FUND
AN ABSOLUTELY IMPOSSIBLE APARTMENT PURCHASE DEAL

The scenario:

• Purchase of 60 run-down, low-rent apartments in South Carolina
• 70% vacant!
• Major deferred maintenance!

We (Paul's company) closed the loan and funded 97% of the purchase price !!!!!

Why would we make a 97% loan on such difficult property?   Simple: We have incredible faith in the borrowers.   We identified one factor in particular that our “maverick” underwriting found compelling.

The borrowers aren’t extraordinarily wealthy, but they earned every dime themselves, and they have superb credit.   They also have an admirable “self-made” business and investment history.   They had previously bought low-rent apartments and personally, “hands-on”, did all the renovation and property management.  All their other income properties are now 100% occupied, and they pledged these properties as additional security for our 97% loan.

BUT HERE IS WHAT WE FOUND IRRESISTIBLY COMPELLING:  

They have a history of consistently pre-paying their mortgage loans.

In fact, they now own several properties free and clear, having paid down the purchase mortgages on an accelerated basis.  Instead of continually leveraging and over-leveraging and insanely taking on more debt, they took things slowly.

They did all their own work.  They paid down their mortgages aggressively and have no personal debt.   When I did our lender’s inspection of their current assets, I was impressed to find that all their tenants knew them on a first name basis – and smiled at them.  Our borrowers are young, hungry, possess great judgment . . . and energy.  What rare judgment, skill and self-discipline!

These are the kind of young (immigrant [are you listening, Washington?]) borrowers with whom you instinctively want to build a relationship.   I wouldn’t be surprised if we wind up “partnering” with them one of these days.

Do you now understand why I respect Paul so much?  (That's his picture above. Ha-ha!)  He has the flexibility to blanket additional collateral, even if it means making a loan of 97% loan-to-value on a horrible property.  He has the wisdom to appreciate the importance of the character of the sponsor (borrower/developer).  He spotted and admired the fact that these sponsors use debt cautiously and pay it off quickly.  He saw value in the work ethic and ambition of these young immigrant sponsors.  (Studies have repeatedly shown that, around seven years after a big wave of immigration, the U.S. economy soars.)

"Gee, George, I might have a deal for your friend Paul.  Where can I find him?"

Paul is one of the 750 commercial lenders listed on C-Loans.com.  When you enter your commercial loan into the C-Loans System, you will find Paul listed as one of the very first lenders on the Suggested Lender List.  He ranks near the very top of the Suggested Lender List because he has closed a TON of commercial loans for C-Loans.

Do you guys understand the Lender Diligence Score listed next to the name of each lender on C-Loans?  The hotter the commercial lender - the more deals he closes for C-Loans - the higher his score.  You definitely want to work with the loan officers near the top of the Suggested Lender List.  They are the guys and ladies who are actually closing loans.

Get a free list of 2,000 commercial mortgage lenders.

Are you a commercial mortgage broker?  Does it just kill you when a flakey borrower simply cancels on you after months of work?  Wish there was an economically feasible way to collect your fee without hiring an attorney?

The real money in commercial mortgage banking is in loan servicing fees.  For example, I earn about $60,000 per month for collecting the payments on less than 250 commercial loans - even if I don't close a single new loan that month.  Become a hard money lender yourself.

Wish you understood commercial mortgage underwriting better?  Several thousand successful commercial mortgage brokers owe their success to this course:

You are about to learn that the future of American manufacturing is so bright that you better put on shades.

Training moment:  You will recall that a commercial bank is just a garden variety bank that accepts deposits and makes loans, as opposed to a merchant bank or an investment bank.

Therefore we had millions of extra tenants seeking apartments at the exact same time that new apartment construction hit a brick wall.  It was the perfect recipe for a squeeze.  Rents soared, and apartment owners and apartment lenders made a killing.

Today tens of thousands of new apartment units are under construction.  Always remember this economic principle:  Outrageous profit breeds competition.  Apartment owners have been making outrageous profits, so developers are going to keep building new apartments until there is a glut.  This is as predictable as the sun rising tomorrow.

But there is a new class of real estate that is about to have another day in the sun - industrial.  Why?  First of all, there has been essentially no new commercial construction (other than apartments) since 2007.  In the meantime the U.S. manufacturing sector has been gaining tremendous momentum.

Why is American manufacturing rebounding so strongly?  Here are just four reasons:  (1) Robotics and computers; (2) the trend towards in-sourcing; (3) the productivity of U.S. workers; and (4) low energy costs.

The use of modern robots and computers by American manufacturers has greatly reduced the need for labor.  Cheap but uneducated Chinese workers would find little to do in many modern American manufacturing plants.

You know all of the American manufacturers who moved their plants overseas?  We called the process out-sourcing.   Well, a lot of them now wish they hadn't.  Tens of thousands of formerly out-sourced manufacturing jobs are returning to the U.S. in a process called in-sourcing.

Huh?  What about cheap Chinese labor?  That all sounds great on paper, but having a supply chain that is 4,000 miles long makes it almost impossible to control quality.  Chinese quality is not as good as American quality.  In addition, a 4,000 mile long supply chain makes short production runs very difficult.  A plant in China is great for cranking out 100,000 identical products; but what if you only need 2,000?  And what if you want to make a design change once the run has started?  It's a nightmare.  And this doesn't even take into consideration that the Chinese are stealing American designs, and the Chinese government turns a blind eye.  Manufacturing in China?  Forget about it (said in a New Jersey accent)!

Did you know that American workers - because they use robots, computers, and the latest in industrial equipment - are four times more productive than Chinese workers?  A Chinese worker might work for just 20% of the wage that an American might work, but if the American worker is four times more productive, the wage gap is far less pronounced.

Okay, hold onto your hat.  I am about to hit you with the pièce de résistance - energy costs.  You know all of those new oil wells that they are digging in the U.S. using horizontal drilling and fracking?  These new wells are throwing off enormous amounts of natural gas, almost as a by-product.  The U.S. is ballooning with cheap-cheap-cheap natural gas.

This natural gas is being used to power heavy U.S. manufacturing plants, like steel plants, auto plants, truck plants, tractor plants, aircraft plants, railroad car plants, etc.  Big stuff.  Heavy stuff.  And you know what is the single largest line item cost for most heavy manufacturers? 

You guessed it!  Energy costs.  How cheap is our natural gas?  Would you believe about one-fifth of the cost of Europe, Japan, or China?  The Boston Consulting Group did an important study last year in which they predicted that heavy manufacturers from all over the world will be economically forced to open new plants in America.  We are talking about millions and millions of new job migrating to America.

Folks, this is truly the Golden Age of U.S. Manufacturing.  I live in a tiny town in the cornfields of Northern Indiana, and even here - in the former Rust Belt - a huge percentage of our residents work for small manufacturers who supply parts to the automakers in Detroit.  In other words, wherever you have some large industrial plants, lots and lots of small manufacturing suppliers sprout up around them.

The wise commercial real estate investor will therefore turn his attention to multi-tenant, multi-use industrial buildings, anywhere in a safe, large city in America.  I'm not a big fan of industrial buildings, custom built for some defunct owner-user, in the middle of Bum Flowers, Egypt.  You need to located in, or near, some very large city.  The more well-educated working people in the city, the better.  It is when 27-year-olds from different fields exchange, over lunch, their ideas, experiences, and tales of new products hitting the market that new industries are conceived and created.  (Please re-read that last sentence.)  Therefore you want to invest - or lend - in the largest and most educated cities possible.

The hot investment product for the next seven years (until developers over-build again) is industrial, specifically multi-tenant, multi-use industrial centers.

If you are trying to buy a multi-tenant, multi-use industrial center, Blackburne & Sons would be interested in helping you raise part of the downpayment.

Do you need an "A" quality commercial lender for your "A" quality deal?

Want to deal directly with the bank with no one else's grubby little hands in the pie?

Need a commercial bridge loan for just one point?

In June C-Loans.com closed a sweet $18.5 million commercial construction loan on a mixed use project in Wisconsin.  It's kind of an interesting story.  

This large commercial construction loan was actually made by a syndicate of small commercial banks.  Commercial construction loans have been greatly out of favor since the real estate market crash in 2008, and syndicates of banks are always somewhat rare.  The commercial loan broker who used C-Loans.com to find the lead lender of this syndicate earned a whopping $92,500 commercial loan fee. (A $92,500 commission?!  Wow.  Note to self:  Submit my commercial construction loan requests through C-Loans.com.)

The lead lender of a syndicate is the bank that services the commercial construction loan for the other banks in the syndicate.  The lead lender makes the progress inspections - periodic visits to the property and inspections of the work performed - to make sure that the project is being built according to plans and specifications and to make sure that there is always enough money remaining in the construction budget to complete the project.  For serving as the lead lender, the lead bank usually earns a higher (1/4% to 1/2%) interest rate and a larger loan fee (about 0.5 point on the entire loan amount) than the rest of the banks in the syndicate.

I am convinced that this large commercial construction loan closed because the mortgage broker who used C-Loans.com included the gorgeous architect's rendering shown above. (Please re-read this last sentence.)  This leads us to the whole point of today's article.

Last week a mortgage broker approached me to help him place a $90 million commercial construction loan on a residential condominium project.  The first thing I asked him for was a copy of the architect's rendering (like the picture above).  He didn't have one, so I declined to help him.

Huh?  Just because he didn't have an architect's rendering?  My request for a copy of the architect's rendering was an experience test for the sponsor.  Any sponsor experienced at building large commercial construction projects should know that he will need an architect's rending for any commercial construction loan larger than around $10 million.  The fact that this sponsor or developer did not already have an archtect's rendering suggests that he has never constructed a project of this size; i.e., he lacks the required level of experience.

In addition, an architect cannot draw a rendering of a project with no plans.  If the plans are not yet completed - or at least close to being done - then the time is not yet ripe to seek financing.  The project may still be just a pipedream.

Lastly, architect's renderings are expensive - my best guess is on the order of $5,000 to $10,000.  (Anyone out there have a better idea of the typical cost?)  If the developer is trying to get by without paying for an architect's rendering, he is probably undercapitalized.  That's not a good sign for the chances of the deal closing.

Large commercial construction projects should also include an aerial photograph of the building site, with the outline of the property labeled with a yellow line.  Important landmarks should be marked with an arrow and labeled.

Early in my career I remember taking a helicopter ride over a building site with my boss and mentor, the brilliant and charismatic Bill Oldenburg, to take our aerial photographs.  The doors had been removed from the helicopter, and Bill insisted on leaning far over the edge of the helicopter to take his photo's.  The only thing keeping him alive was me holding onto his belt!  Right now, as I remember this incident twenty-five years later, my hands are dripping with sweat.  OMG!

You also need attractive pictures if you are trying to place a commercial loan on a standing commercial property.  A standing commercial property is merely one that is completely built.  Every commercial loan application should include at least one color photograph of the subject property taken on a sunny day.

Folks, blue sky sells.  In the old days unscrupulous investment promoters would promise unsuspecting investors nothing but sunny days and blue skies.  As a result, each state has its own set of Blue Sky Laws that regulate the sale of investments.  

Make sure that every commercial loan you try to place includes at least one color photograph of the subject property, taken on a sunny day with blue sky.  Good luck trying to place a commercial loan armed only with a dreary, overcast picture like the following:

Got a commercial loan that you want to place?  Want to earn a $92,500 commission?  Just enter your commercial loan into the C-Loans System - NOT using one of the many gray buttons on the site but rather using the six-step process.  Based on the type of loan, the size of the loan, the location of the property, the type of property, and the borrower's credit, the C-Loans System will suggest 20 to 30 commercial lenders.  Put a checkmark next to six lenders at a time and then press submit.  And C-Loans is free!

I never offer a satisfaction guarantee on any of my training courses.  Lazy bums will order the course, open the wrappers, make the package unsaleable to anyone else, and then try to return it when they never get off their fat bums to actually study the course.  We have literally hundreds of thank you e-mails from satisfied students, so there is no question that my commercial real estate finance ("CREF") training courses really are great.

However, I sell one CREF training course that is soooo good that I actually offer a one-year, 100% money back satisfaction guarantee.  This course is entitled, The Practice of Commercial Mortgage Brokerage.  It is designed for both newbies and veterans who want to become one of the top 20% of commercial mortgage brokers who make 80% of the dough.  I guarantee - literally - that you will double your net income as a commercial mortgage broker.

My job at both Blackburne & Sons and C-Loans, Inc. is to bring in the commercial loan applications, and I have been the rainmaker at my companies for over 34 years now.  Imagine soliciting commercial loans for a whopping 34 years.  I have tried everything, including exhibiting at trade shows, newspaper ads (back in the day), magazine ads, ads on Google, direct mail, and countless other strategies.  I have found the Fountain of Commercial Leads.  It's in the courtyard of the Hyatt Hotel in Miami, and you just dip your red solo cup into the water and ... 

I tell a story in my commercial loan brokerage training classes that goes as follows:  I get hit by a bus.  I'm quickly bleeding out on the street.  With my dying breath, I say to my two beloved sons, "Always remember, sons, the most important lesson in all of commercial loan brokerage is this, 'Commercial lenders close loans for their friends.'"  Please pay attention to those final words.  They are so important that I utter them with my dying breath.  "Commercial lenders close loans for their friends."

In other words, its not how good your commercial loan application is, but rather whether or not the commercial loan officer at the bank likes you.  Why?  Because every commercial loan ever made had at least one black hair.  A black hair is a flaw.  Maybe the commecial loan didn't cash flow perfectly.  Maybe the building was a little old.  Maybe the leases were all short term.  Every commercial loan application has at least one serious black hair, and whether or not the commercial loan officer at the bank chooses to overlook it depends on whether or not he likes you.

C-Loans.com is a commercial mortgage portal that boasts of 750 participating commercial mortgage lenders; but it also displays a small handful of Proven Brokers.  A Proven Broker is a C-Loans lead buyer who has closed at least five commercial loans for us.

I get emails all of the time from commercial loan brokers saying, "C-Loans.com is a stinky site.  So-and-so is not a real lender.  He's just a broker."

These nay-sayers couldn't be more wrong.  First of all, we never represented the broker as a direct lender.  He was clearly labeled as a Proven Broker.

Secondly, you will learn over time that most bankers are extremely lazy.  They are usually on straight salary.  While their small bonus may depend on their personal commercial loan production, most bank commercial loan officers couldn't give a flip whether they closed another commercial loan or not.

And if they are going to close a commercial loan, its not going to be for some stranger.  It's going to be for one of their friends, a very competent commercial loan broker who has already underwritten the deal and who knows that this particular commercial loan is a good one.  Ideally you are that friendly commercial loan broker; but if you're not, it sure helps to have that friendly commercial loan broker presenting your deal to the bank.  Think of him as your advocate, your attorney, or your union representative.

Here's a statistic that will open your eyes.  C-Loans.com has around 750 participating banks and other commercial lenders, and the portal has just 40 Proven Brokers.  Our Proven Brokers close about 45% of all of the commercial loans closed by C-Loans!

The truth is that our Proven Brokers are some of the best commercial loan closers on earth.  We have three different Proven Brokers who have each closed more than 40 different commercial loans for C-Loans.

So what do these Proven Brokers have in common?  What are they doing right?  What makes them the Best Commercial Loan Closers in the World?

1. First of all, they are all very likeable people.  Let's face it, some people are grumpy.  Some people are wall flowers, who say little and blend in well with the wallpaper.  But a few people are gregarious.  They are the life of the party.  They are just fun to be around.  Proven Brokers tend to be these likeable folks.
   
   
2. They know how to underwrite commercial loans, and they don't waste their banker's time bringing them deals that don't qualify.
   
   
3. They are good friends with a half-dozen to a dozen bank commercial loan officers, who close 80% of the deals closed by that Proven Broker.

So when you submit a commercial loan to one of the Proven Brokers on C-Loans.com, you are associating in a gregarious salesman with a proven track record of closings and with a stable of a dozen different banker-buddies anxious to close your commercial loan.

Folks, I didn't set out to write a plug for C-Loans when I started this article.  The whole point of today's article is that the world's best commercial loan brokers are friends with their bank loan officers.  Commercial real estate lenders close loans for their friends.

Don't you wish you were a Proven Broker listed on C-Loans.com?  You would get a half-dozen to a dozen good commercial loan applications delivered to your email box every day for free.  All you have to do to get listed on C-Loans is to close five commercial loans for us.

To submit a commercial loan using C-Loans:

This next section I personally think of as an intelligence test.  Trade one banker for 2,000?  Helloooo?  If you have to think about this offer for longer than about three seconds, maybe ...

Do you remember that buyer who lied to us (told us she was current when she was 10+ months down on her mortgage payments)?  She agreed this week to pay us $5,000 up-front and $1,000 per month for a year.  I could have been hard-nosed, but a bird in hand ...

This is the BEST training course I have ever written.  The Practice of Commercial Mortgage Brokerage has 67 lessons on how to fix your commercial mortgage brokerage business.  This dirt-cheap ($199) audio course is sooooo good that I offer a 100% money-back guarantee of satisfaction - on this magnificent course only.  It is my masterpiece.

Do you REALLY feel comfortable underwriting commercial loans?

Commercial brokers (the correct term for commercial real estate salesmen and brokers) are no longer just listing their commercial property on LoopNet and sticking a sign on the property.  They aren't just sitting there, patiently waiting for the phone to ring.

Instead, commercial brokers are taking a more proactive approach these days.  They are pushing their marketing brochures out to both commercial real estate investors and other commercial brokers using mass email services.  Quite a number of these commercial real estate marketing services now exist.  Here are just a few:

1. BigBoysBlast.com
   
   
2. PropertySend.com
   
   
3. PropertyCampaign.com
   
   
4. PropertyLine.com

Each of these marketing services charges between $100 to $1,000 to blast out a mass email to tens of thousands of recipients.  Some of these services boast a commercial real estate circulation of over 120,000.  That's a lot of exposure for a marketing brochure for less than $200.  We have heard good things about BigBoysBlast.com.

Commercial loan companies are also successfully using these mass email marketing services.  I know they have been successful because at least one commercial mortgage company is re-using their services about once every 10 days.  If they weren't getting a lot of good commercial loan leads, they would have discontinued using the service.

If you own a commercial loan company, you can also buy leads from C-Loans.  Our leads are priced differently from every other commercial loan lead seller in the country because we know our leads are good.  C-Loans has closed over 1,000 different commercial loans totaling over $1 billion, including one in June that was $18.5 million.  The broker on that deal made a sweet $92,500 commission because he used C-Loans.com.

Instead of $40 per lead, the up-front cost of our leads is just $1 to $9 each.  However, when the commercial loan closes, our lead-buying commercial loan companies owe us an additional 37.5 bps.  But that probably works just fine for you because you have just earned a big commercial loan brokerage commission.

I have often commented that, "No one gets cheated in business more often than the typical commercial loan broker."  Borrowers outright lie to us all the time, and based on that lie, we waste countless working hours chasing a commercial loan that has no chance in heck of ever closing.  It's why I went back to law school at age 32, with two kids in diapers.

Yesterday we received notice that we just won our case against another lying borrower.  Our award was on the order of $48,000.  "Yeah, George, but suing people is easy for you.  You're an attorney."  Folks, I had nothing to do with trying this case.  My wonderful E.V.P. (a non-attorney) filled out the one-page Demand for Arbitration in pen, and she handled the entire trial herself.

So stop being a victim of lying, cheating, fraudulent borrowers who think that because you are on commission that your time and effort have no value.  These "users" are horrible people.  We don't sue unfortunate people.  We sue the "users" and "evil actors".  Clearly the arbitrators have agreed with us over the years by consistently ruling in our favor.  These horrible "users" have no compassion for your family or the terrible economic stress under which you live (being on straight commission); so stop being a victim.

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I recently received a $300,000 commercial loan application that read as follows:

"I need a temporary bridge/start-up loan of $300,000 for about one month's time only for securing a project loan of $300 million. A lender has approved a loan of $300 million for my projects, and I need to provide an Insurance Bond Certificate covering $300 million in order to get the loan funds released. The Impressive-Sounding-Foreign-Name Insurance Company AG of the Netherlands has agreed to provide me with the required Insurance Bond Certificate, for which I need to pay $300,000 before we will receive the loan money."

Ha-ha!  This is a con.  This commercial loan request reminds of the old joke, "What do a tornado and a redneck divorce have in common?  Answer:  Somebody is gonna lose a trailer."  Or in the above case, somebody is gonna get conned out of $300,000.

Folks, I have been in commercial real estate finance now for 34 years, and I have never known a single borrower to ever successfully obtain commercial real estate financing using exotic instruments.  By exotic instruments, I mean certificates of deposit, foreign letters of credit, insurance bond certificates, indemnity bonds, or any deals involving foreign banks, offshore funds, or merchant bankers from anywhere.  

Show me a "foreign commercial lender" allegedly using "exotic instruments", and I'll show you a commercial loan confidence game in process.  Somebody is gonna lose a big advance fee.

And while we're on the subject, if you ever meet a financier who claims to make international loans, 95% of the time he is either a big story teller or an outright crook.  Maybe he genuinely tries to close international loans.  Maybe he thinks he can close international loans... but he can't.  I can just about guarantee you that he has never closed an international loan.  The issue is a 30% tax on foreign lenders.  See my earlier article on the subject of international loans.

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The elderly priest, speaking to the younger priest, said, "It was a good idea to replace the first four pews with plush bucket theater seats. It worked like a charm. The front of the church always fills first now."

The young priest nodded, and the old priest continued, "And you told me adding a little more beat to the music would bring young people back to church, so I supported you when you brought in that rock'n'roll gospel choir. Now our services are consistently packed to the balcony."

"Thank you, Father," answered the young priest. "I am pleased that you are open to the new ideas of youth."  "All of these ideas have been well and good," said the elderly priest, "but I'm afraid you've gone too far with the drive-thru confessional."  "But, Father," protested the young priest, "my confessions and the donations have nearly doubled since I began that!"

"Yes," replied the elderly priest, "and I appreciate that.  But the flashing neon sign, 'Toot 'n Tell or Go to Hell' cannot stay on the church roof."

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Another popular commercial loan "trick" is the owner's-estimate-of-value "trick".  Suppose you're a bona fide hard money commercial lender.  You really do close a few commercial loans every year.

Now let's also assume that you know that commercial loan borrowers almost always grossly exaggerate the value of their commercial property.

You could cunningly issue genuine, bona fide commercial loan commitment letters, subject to an MAI appraisal coming back at the owner's estimate of value or higher.  You could then charge a $100,000 to $200,000 up-front fee for your rush-rush commitment letter.  This huge, up-front commitment fee would be non-refundable if the appraisal came in too low to close any sort of new commercial loan.  

Well, heck, since virtually every commercial loan borrower is a big liar when it comes to the value of his property, and since the property will almost never appraise for enough money, you could pocket $100,000 to $200,000 commitment fees, one right after another.  What a racket!  You might have to fund 5% of the deals that you approve, but you could easily fund them using all of the huge, up-front commitment fees that you have pocketed.

But wait, this clever practice gets better.  In order to soothe any suspicious borrowers, you could add a provision allowing the borrower to get his own MAI appraisal if he wanted to challenge your own appraiser's valuation.  The problem for the borrower, however, is that your appraiser was instructed by you NOT to intentionally low-ball his valuation.  Therefore if your appraisal came in at $7 million, the property probably is worth no more than $7 million, not the $20 million initially "estimated" by the borrower.

The vast majority of all commercial loan borrowers, under this fact pattern, will not shell out another $6,000 for a new MAI appraisal to challenge your own fair and legitimate appraisal.  The borrower puffed up the value of his property, and he knows it.

Letters of complaint might be written to dozens of different state attorney generals, but the complaints would go nowhere.  You really do close commercial loans.  The only reason the complaining borrower's commercial loan didn't fund was because the borrower lied about the value of his property.  The loan commitment letter spelled out the terms of the deal in plain English.  (Note to self:  Carefully read contracts before signing them!)

Over time lenders using the owner's-estimate-of-value trick have added a new wrinkle.  Their commercial loan commitments obligate them to make a commercial loan at 60% of Quick Sale Value.  Wait a minute.  Did you just say Quick Sale Value?  Didn't you mean Fair Market Value?  Nope.  These lenders intentionally use Quick Sale Value in their commercial loan commitments.

What on earth is Quick Sale Value?  I dunno.  I have never seen a formal definition of Quick Sale Value.  The name, Quick Sale Value, suggests a value at which a seller could reasonably be sure of finding a buyer in, say, six weeks or so.

Let's say, for the sake of argument, that Quick Sale Value ("QSV") is around 60% of Fair Market Value ("FMV").  Let's also say that the FMV of an imaginary property is $10 million.  If the commitment letter reads that the commercial lender will lend up to just 60% of QSV, then the lender is only agreeing to finance 60% of 60% of Fair Market Value.  In other words, the commercial lender is only commiting to lend $3.6 million or 36% loan-to-value ("LTV").

In real life, most experienced investors, commercial brokers, and commercial mortgage bankers would agree that a commitment to lend just 36% LTV on an improved piece of commercial real estate would not be of much use to most borrowers.  And yet these clever lenders are regularly charging desperate, necessitous borrowers $100,000 to $200,000 commitment fees for these rush-rush commitment letters.

Isn't this a form of fraud?  Unfortunately not.  These clever lenders have repeatedly won in court.  After all, everything is spelled out in plain English in their commitment letters, and these lenders really do fund deals.    One year one of these clever lenders boasted of funding $100 million in commercial loans.  That's a very large and impressive number for a commercial hard money lender.

But what irks me is that this business plan is largely based on the reality that most commercial borrowers are big liars about the value of their property.  These clever lenders simply take advantage of that overwhelming tendency of commercial borrowers to grossly exaggerate the value of their property to retain unconscionably large commitment fees.

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Did you find today's article illuminating?  If so, how about giving your old pal, George, some Facebook Likes, some Linked-In follow-you's, some Twitter re-Tweets (am I saying that right?), and some Google-Plus plus-ones?  They mean a lot to me.  Thank you.

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You should also buy my wonderful course on the Practice of Commercial Mortgage Brokerage, which has 65+ audio lessons similar to this one.

Every day I have a C-Loans executive call at least five banks and solicit these bankers to join C-Loans.com.    Most of these bankers are scarety-cats (innovation is sinful), and they say no.  So we add them to a list of 2,000+ commercial real estate lenders that we sell for $39.95.  But why pay money when you can get this wonderful list for free?

The other day a mortgage broker just like you used C-Loans.com to place an $18.5 million commercial construction loan on a mixed-use project in Wisconsin.  His loan brokerage commission was $92,500.

My job in life is to solicit commercial mortgage loans and to play golf (not necessarily in that order).  After 34 years of soliciting commercial loans, I've gotten pretty good at it.  Whenever Blackburne & Sons or C-Loans.com needs commercial loans, I turn on the spigot.  Deals then flow in.

We once paid a guy a $21,250 referral fee to a guy, and he was asleep when he referred the commercial loan to us.  How is that even possible?

Are you telling me that every bank this year has been willing to loan your commercial mortgage borrower 100% of what he requested?  You never found yourself $100,000 to $1 million short?

When most mortgage brokers think about getting cheated out of their commission, they think of deals which closed and where they received a full or partial commision-dectomy.  But what about the borrowers who worked you for weeks and then cancelled altogther?  There is no right of recission on a commercial loan.

I have collected many hundreds of thousands of dollars over the years from cancelling or fraudulent commercial borrowers.  I don't even go to the arbitrations myself (think of a fairly casual, seated, Small Claims Court action in some attorney's conference room).  I just send one of my corporate officers.

You wouldn't hire an attorney either.  You would just show up and tell your story.  Who cares if you win or lose.  My agreement precludes the award of attorneys fees, and most cases (70%) settle before trial.  After your first case or two, you'll win 90% of your future cases.  Over a 25-year career in commercial mortgage brokerage, I'm talking about an extra half-million to $1 million in your pocket.  For real.  No BS.  No one gets screwed in business more than the typical commercial mortgage broker.  It's why I went back to law school at age 32.