Commercial Loans and Fun Blog

In our last lesson I wrote that much of your success as a commercial loan broker depends on you hooking up with the right loan officers at the right banks.  But who are the right loan officers?  Who are the loan officers who are closing most of the commercial loans for the bank?

Below are some techniques and clues that might help you spot a “hot loan officer”.   I’m not talking about looks here, but rather who has the highest closing ratio.

1. Ask the bank’s receptionist or the commercial loan department's secretary.  “Ma’am, I’m just a starving mortgage broker here on straight commission.  Would you please-please tell me who closes the most commercial real estate loans for your bank?”  It’s been my experience that if you are really good at sounding pathetic, the clerk will direct you to the right loan officer.  “They’re all good,” she’s likely to say, “But you probably want to work with Bill Bradley.  Do you want me to transfer you?”
   
   
2. Pay attention to tombstones.  Tombstones are announcements about commercial loan closings.  In the old days tombstones were little display advertisements placed in financial newspapers; but modernly most tombstones go out by email.  Which loan officer for the bank closed that deal?
   
   
3. Stay close to the speakers at commercial real estate finance conventions.  These guys and ladies are usually the “big guns” at their banks or lending firms, and they have lots of buddies at other firms who are also big guns.
   
   
4. Look for the younger male loan officers who are, at least partially, on commission.  The ideal loan officer will be a man in his late 30’s who is either on commission or a salary-plus-bonus compensation system.
   
   
5. Avoid the sleepy old men.  It’s been my experience that most of the old men working as commercial loan officers for banks are on straight salary.  Too often these sleepy old guys couldn’t give a flip if they ever make another commercial real estate loan.  Often these older guys are just counting the days until retirement.  They certainly aren’t going to risk their retirements by fighting hard for you in Loan Committee.
   
   
6. As a general rule, I am also not crazy about submitting my commercial deals to women bankers who are on straight salary.  If you find yourself a little outraged by the above comment, please keep in mind that if she would get my deals closed, I would be happy to do business with a green-haired lesbian from Lapland.  What do I care?  I am just reporting my very painful observation that my closing rate with salaried female loan officers is about 1/10^th my closing ratio with salaried male loan officers.  (Please read that last sentence again.  This closing rate differential is too important to ignore simply because the subject is politically sensitive.)  Too often, it seems, these women loan officers are just out to prove that they are strong enough to say no.  Since every commercial loan has at least a few black hairs on it, these women bankers merely glance at the package until they find a black hair.  Then they kill the deal.  I have tried to figure out why the closing rate of women bankers is so pitifully low.  Perhaps it is because these ladies are often the sole breadwinners for their families, so they dare not risk their jobs by arguing too passionately for my deals in Loan Committee.  Women loan officers also seldom go out to nudie bars with the “good ‘ole boys” on Loan Committee, so women in banking really are the subject of a little discrimination.  Hey, I’m not sayin'...  I’m just sayin’...  All that being said, I have to confess that my very last deal was closed for me by … a salaried, divorced, female banker with children.  She was excellent.  LOL.  Still want to scratch my eyes out?  I'm really not prejudiced against women.  The top three executives at Blackburne & Sons are all ladies, and their abilities are miles above our men.  All I'm saying here is that I have had a miserable record of geting salaried women bankers to close my deals.  After 33 years, its hard to ignore the reality of the statistics.
   
   
7. But if a woman banker is on straight COMMISSION, she may be my first choice, especially if she is attractive.  It’s been my personal observation that women on straight commission can be very powerful business animals, like a mama bear protecting her cubs.  Don’t get in this woman’s way.  She’s on a mission to get deals closed.

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This may shock you, but most commercial loan officers will NOT read the commercial loan packages that you send to them.  This is especially true for bankers working on salary.

Your commercial loan package will sit on their desks (or will rot in their email boxes) for weeks – until you call to “confirm receipt of the package.”

Why?  Most commercial loan officers will assume that you, the commercial mortgage broker, have shot-gunned the package out to dozens and dozens of different banks.  They are not going to waste their time slogging through some great, big, thick commercial loan package until you signal that you really want to hear from them.

Question:  So how do you send “the signal” to the loan officer that you actually need him to read the package?  Answer:  By calling to “confirm receipt of the package.”

The call should go as follows:

“Hey Jim, this is George Blackburne from C-Loans.  I realize that you could not possibly have reviewed the package by now, but I sent you an email a few hours ago containing a very short PDF of a commercial loan package.  I think it’s a great one!  All I’m doing right now is calling to confirm that you received my package.”

“You don’t remember receiving it?  Your email address is james.t.kirk@mybank.com, right?  The subject line reads, “Jim, Here’s a Sweet Commercial Deal in Your Backyard”  You still don’t see it?  Huh.  Would you mind checking your junk mail filter?  Sure, I’ll be happy to hold.  You found it?  Hallelujah, Jim!  Okay, I’ll leave you to do your thing.  I think you’ll love this deal.”

If you found this article to be instructive, I strongly encourage you to subscribe to our blog via email.  To get a copy of each new training blog article as it comes out, without having to remember to come back, please fill in your email address in the space provided on the right.

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The reason why you want to inspect the commercial properties that you are trying to finance is because you don’t want to waste a lot of time trying to finance a commercial property in a low-income, high-crime-rate, high-drug-use area.

But some commercial properties are located just too far away to personally inspect.  If your commercial deal is simply too far away to personally inspect, you can do a pretty decent job of pre-screening it by using a few of the wonderful tools on the internet.

My personal favorite site for demographic information is City-Data.com.  (Don’t forget the dash between City and Data!)  City-Data will give you a FREE demographics report containing the income level of the nearby residents, their educational level, the crime rate statistics, and the racial make-up of the neighborhood.  

After studying this free demographics report, you should be able to get a feel for whether or not this is an area that you would allow your mother to walk around in at night.  City-Data.com works great for small-to-medium-sized towns

Suppose, however, you’re trying to finance a commercial property in Chicago, llinois.  Chicago has some very nice neighborhoods … and some very dangerous ones.  How do you know whether your particular neighborhood is a safe and affluent one if you are located in Boston and cannot personally inspect the site?

The best site for this is NeighborhoodScout.com.  This is not a free site; but we have figured out how to use it for free.

Start by going to NeighborhoodScout.com.  Click on the state in question; in this case, Illinois.  Next click on the gold Crime Rate tab.  In the upper-right-hand corner of the map of Illinois, you’ll see two white buttons that allow you to choose between a Satellite view or a Map view.  Choose the Map View.

Then locate the neighborhood in question on the map by either zooming in and out or dragging the map to the left or right.   Once you’ve centered the neighborhood in question, you’ll be able to tell by the shade of blue that the neighborhood is colored whether this area is a good one or not.

Lastly, it’s always a good idea to use Google Maps (http://maps.google.com) to look at your property from a satellite.  Start by typing in the property address and then hitting the “Search” button.  By placing your cursor over the Map button, another button will pop out that says, “Satellite”.  Check on the Satellite button.  Then move the slider on the left to zoom in on your property.

There is also a chain link button that allows you to create a hyperlink to your satellite view that you can place right into your loan package.  Lenders will appreciate this extra touch.

If you found this article to be instructive, I strongly encourage you to subscribe to our blog via email.  To get a copy of each new training blog article as it comes out, without having to remember to come back, please fill in your email address in the space provided on the right.

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The USDA Business and Industry Loan Program is very similar to the SBA 7a Loan Program.  What's the difference?  When should you go with a USDA B&I loan, rather than an SBA 7a loan?

You will recall that the USDA Business and Industry Loan program was developed to help foster employment in rural areas, defined as communities of less than 50,000 people.  Some of the lowest wage rates and the highest unemployment rates in America can be found in rural areas.  The Federal government is therefore trying to encourage companies to build factories in these underdeveloped areas.

Therefore it should not surprise you a company does NOT have to be a small business in order to qualify for a USDA B&I loan. The company could have 10,000 employees and still qualify.

Secondly, the property does not have to 51% owner-occupied in order to to qualify for a USDA loan.  Suppose a company wanted to move into a large, vacant industrial building; but they only intended to occupy 25% of the space.  They would still qualify.

In fact, investors can even qualify for a USDA B&I loan, even if they intend to lease out 100% of the space to others!

Non-profit organizations do not qualify for an SBA loan.  In contrast, the USDA will gurantee commercial loans to non-profit organizations.

While an SBA 7a commercial loan can be used to refinance existing debt, there must be a 20% reduction in the debt service.  In contrast, USDA Business and Industry Loans can also be used to refinance existing debt, but there is no requirement of a 20% reduction in debt service.

Lastly, the USDA will regularly guarantee commercial loans up to $10 million, as opposed to just $5 million for the SBA 7a loan program.  On a case-by-case basis, the USDA will guarantee commercial loans as large as $25 million.

You can submit your USDA Business and Industry loans requests, as well as your SBA commercial loan requests, to scores of hungry lenders in just four minutes using C-Loans.com   And C-Loans is free!  Just please be sure to check the box that says, "I need an SBA loan" or "I need a USDA Business and Industry loan."

If you found this article to be instructive, I strongly encourage you to subscribe to our blog via email.  To get a copy of each new training blog article as it comes out, without having to remember to come back, please fill in your email address in the space provided on the right.

Lastly, if you're a buddy or a former student of mine, would you please do me the great kindness of hitting the Like button, the Google+1 button, and the Linked-In Share button above.  Thanks so much.  :-)

If you need a commercial real estate loan, to whom should you submit your deal?  What kinds of lenders are making commercial loans today? 

There is a pecking order in the commercial financing industry.  The lenders with the very best commercial mortgage rates cream the market.  If a commercial loan won't qualify with the very cheapest commercial lender, the commercial mortgage deal then goes to the commercial lender with the next best commercial mortgage rates - and so on.  The pecking order is as follows:  life insurance companies, conduits (CMBS lenders), banks, savings banks and S&L's (known as thrifts), credit unions, mortgage REIT's, and finally hard money lenders.

Most mortals will never qualify for a commercial loan from a life insurance company.  Life companies, as they are called in the language of commercial mortgage finance, will seldom make commercial mortgage loans of less than $5 million.  The property either has to be almost brand new or located in a fllthy-rich commercial area, like in the financial district of Downtown San Francisco.  Life companies usually limit their commercial loans to just 50% to 55% loan-to-value, and they will not allow second mortgages behind their loans.  This means that a commercial property buyer would have to put down a minimum of 45% of the purchase price.  Yikes.  Like I said, few mortals will ever qualify for a commercial loan from a life company.

Assuming you're a mortal like me, let's move on to the class of commercial lenders with the next best commercial mortgage rates - the conduits.  Conduits, also known as CMBS lenders, make large commercial first mortgages exclusively on very standard commercial properties - multifamily, office, retail, and industrial.  Conduits will also occasionally make loans on hospitality properties (hotels).  Like life companies, conduits prefer loans of larger than $5 million, although they will occasionally finance deals as small as $3 million.  Unlike the life companies, the commercial property does not have to be gorgeous or almost brand new.  Bread-and-butter commercial buildings will often qualify.  The typical conduit loan will have a terrific interest rate, just 30 to 50 basis points higher than that of a life company.  Loan-to-value ratios as high as 65% LTV are possible, and conduits will allow mezzanine financing behind their loans, as long as the "mezz piece" is arranged at the same time the permanent loan is arranged.

Commercial banks have the third-best commercial mortgage rates, and banks are making, by far, the largest number of new commercial real estate loans.  In fact, at least 75 out of every 100 new commercial loans originated in the last year were originated by a commercial bank.  Commercial banks will make commercial real estate loans as small as $150,000 to as large as $50 million or more.  The property needs to be functional and leased, but it does NOT have to be beautiful.  The borrower must be clean and strong, and it helps a lot if he has lots of cash in the bank.  Banks will even finance business properties, like motels, restaurants, and bowling alleys, as long as they are successful.

Savings banks and savings and loan associations (thrifts) are making very few commercial real estate loans today - so few that they are not even worth discussing.

I lied to you earlier.  I told you that commercial banks have the third-best commercial mortgage rates.  There is actually a class of commercial real estate lenders that has even better commercial mortgage rates than banks - credit unions.  Credit unions are brand new to the commercial real estate financing arena, and they have rates that are 30 to 40 basis points cheaper than commercial banks.  They will finance business properties, like self storage facilities and motels.  Credit unions have two important limitations - the property must be located close to the credit union and the maximum loan that you're likely to get from a credit union is around $1 million.  Credit unions only do small deals.

There are only two commercial mortgage REIT's actively making commercial real estate loans today, and their rates are no better than those of any other hard money lender.

Hard money lenders are making lots of commercial loans today.  Hard money lenders make one-to-three year bridge loans at high rates and high points.  Sometimes a borrower simply needs the money, perhaps to inject into his struggling company.  In such a case, hard money lenders, like Blackburne & Sons (my own company), can be very helpful.  Hard money commercial lenders will often make loans to borrowers with poor credit and/or struggling businesses, up to around 65% loan-to-value.

Bottom line:  Most commercial loans today are being written by either commercial banks or hard money lenders.  You can submit your commercial loan to 750 different commercial lenders in just four minutes using C-Loans.com   And C-Loans is free!

If you found this article to be instructive, I strongly encourage you to subscribe to our blog via email.  To get a copy of each new training blog article as it comes out, without having to remember to come back, please fill in your email address in the space provided on the right.

Lastly, if you're a buddy or a former student of mine, would you please do me the great kindness of hitting the Like button, the Google+1 button, and the Linked-In Share button above.  Thanks so much.  :-)

Before condominiums became popular, co-ops were often used to buy real estate collectively, especially in New York City and Florida.  A co-op is a corporation that owns a piece of real estate, usually an apartment building or a mobile home park.

The individual owner would not own the airspace (for apartments) or the land (under his mobile home) encompassing his residential unit.  Instead, the individual owner would own a share, or several shares, in the corporation that owns the apartment tower or the mobile home park.  Along with the share(s) comes the exclusive right to lease a particular apartment or mobile home park pad.

Each month the individual owner is responsible for paying his lease payment and his own mortgage payment, if the individual owner used bank financing to buy his shares in the co-op.  In addition, the individual owner must pay his pro rata share of the common operating expenses, such as the doorman, common area utlities, common area repairs, real estate taxes on the entire property, and insurance on the entire building.

There are special issues associated with financing a co-op.  One issue is that many co-op's still own a number of unsold shares (units), which are commonly rented out.  If the co-op still owns too many unsold units or has "foreclosed" on too many shares (units), such properties are difficult to finance.  As a general rule, if the co-op still owns more than 30% of the shares, few banks will finance the project.

So what happens if a balloon payment comes due at a time when the co-op has foreclosed on too many shares (units)?  It's fair to say that there is "big trouble in River City".

There are other issues associated with owning and financing co-ops.  One issue is that the Board of Directions of the corporation has the right to veto an owner's sale of his share (unit).  Madonna once tried to buy a co-op in New York City, but the Board of Directors rejected her application!  The Board of Directors can also forbid or limit a shareholder's ability to rent his unit out.

Another issue with co-ops is that if a number of shareholders are not paying their lease payments and assessments, the remaining shareholders have to come up with the extra money every month to cover the shortfall.  Remember, the corporation owns the building, not the individual occupants.  The mortgage is often huge, and the mortgage loan is in the name of the corporation.  If the bank financing the entire building forecloses, every shareholder is wiped out.  Yikes!

As a result, condominiums have become the preferred method of collective ownership of commercial real estate.  Nevertheless, tens of thousands of apartment buildings and mobile home parks are still owned by co-ops.

Does your co-op need a commercial loan?  if so, please write to me, George Blackburne, at george@blackburne.com.  In the subject line, please write the words, "Co-Op Loan".  Thanks!

If you found this article to be instructive, I strongly encourage you to subscribe to our blog via email.  To get a copy of each new training blog article as it comes out, without having to remember to come back, please fill in your email address in the space provided on the right.

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What do you think is the single most important item in a commercial loan package?  Is it the Pro Forma Operating Statement?  After all, whether or not the borrower will qualify for a commercial mortgage loan ultimately depends on the cash flow of the property, right?

Or is the most important document in a commercial loan package the personal financial  statement on the borrower?  After all, commercial banks are the only commercial lenders actively funding deals right now at reasonable terms.  If the borrower is not making lots of money and if the borrower does not have a lot of cash in the bank, a commercial bank probably won't do the deal.

No.  The most important document or item in any commercial loan package is the picture!  If you don't have at least one attractive color photograph of the property, don't bother submitting the deal.  It is the picture that sells the lender on taking the time to underwrite the deal.

That's why it drives me crazy when brokers and borrowers submit commercial loans to us without a beautiful color picture of the property. 

Not any picture will do either.  Many times we have received commercial loan packages with grainy, out-of-focus pictures taken on cloudy days.  Yuck!  C'mon, guys, this is Lesson One of commercial real estate finance.

Don't submit your commercial deal until you have at least one attractive color picture of the property, taken on a sunny day with lots of blue sky overhead.  Blue sky sells.

Remember, a commercial loan underwriter is not going to underwrite a commercial loan until you sell him on the attractiveness and desirability of the property.  You could have a filthy rich borrower and a great cash flow; but if the commercial lender never even bothers to open your commercial loan package, what have you accomplished?

If you found this article to be instructive, I strongly encourage you to subscribe to our blog via email.  To get a copy of each new training blog article as it comes out, without having to remember to come back, please fill in your email address in the space provided on the right.

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Blackburne & Sons may be the only hard money farm land lender in the country.  We love making hard money loans on farm land.

Why farm land?  Farm land is the only class of real estate that has appreciated since the start of the Great Recession.  Blackburne & Sons is so bullish on farm land that we actually put together eleven little syndicates to buy farms here in Northern Indiana.  Those syndicates did well.  We have already sold seven of them for a handsome profit.

The typical loan is 12.9% to 13.9%, 3 to 5 points, 25 years amortized, due in two years, with no prepayment penalty.  We will lend between 40% and 65% of value, depending on the borrower's income and credit.  We might go as high as 70% LTV on a purchase, if the buyer was putting down 30%.

Mortgage brokers should prominently emphasize the availability of hard money farm loans in their flyers and newsletters because they will have very little competition.  This is a fast and  easy way to earn a large commission.

If you found this article to be instructive, I strongly encourage you to subscribe to our blog via email.  To get a copy of each new training blog article as it comes out, without having to remember to come back, please fill in your email address in the space provided on the right.

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I have been blogging recently about how credit unions are emerging as an excellent source for commercial loans. However, not every borrower is eligible for a loan from a credit union.

In the past, you had to work for a company (for example: Lockheed) that had a credit union.  Then the laws changed to allow a lot more people to join credit unions.  Nowadays, if you live in the same community as a community credit union, you can join the credit union and hence be a borrower.

Today we made a fascinating discovery.  We were working on a commercial loan for a dentist who owned a commercial building in Florida that was leased out.  But the dentist lived in California.

We submitted the deal to a Florida credit union located close to the property.  When we asked if this California resident could join and borrow from a Florida credit union, the loan officer replied, "Yes!"  Apparently just owning a commercial property in close proximity to a community credit union gives the borrower enough ties with the community to join the credit union, even if the borrower lives 2,000 miles away!  I was floored by this news.

Earlier in this article I wrote that "not everyone is eligble to borrow from a credit union."  That may not be true! 

So where can you find credit unions hungry for small commercial real estate loans.  C-Loans.com is an excellent place to start.  Dozens of credit unions have recently joined C-Loans in search of good small business loans.  You can submit your commercial loan to 750 different banks, credit unions, conduits, life companies and private commercial lenders in just four minutes using the C-Loans Commercial Mortgage Portal.  And C-Loans is free!

Lastly, if you're a buddy or a former student of mine, would you please do me the great kindness of hitting the Like button, the Google+1 button, and the Linked-In Share button above.  Thanks so much.  :-)

Credit unions are emerging as a very good source for small commercial loans.  As short as seven years ago, credit unions made less than 1% of all new commercial real estate loans in the country. 

The Credit Union National Association now estimates that its member institutions hold almost 6 percent of small business loans in the U.S., totaling $40 billion.  That is an enormous increase in such a short period of time.   Credit unions are actively filling the void left when commercial banks across the country sharply cut back their volume of new commercial real estate loans.

Credit unions are planning an even larger foray into small business lending.  Lending by credit unions to businesses is currently limited by law to 12.5 percent of total assets, a substantially more restrictive limit than that imposed upon commercial banks.  Legislation is pending in Congress to expand the limit to 27.5 percent of assets.

Credit unions offer lower rates for small commercial real estate loans than commercial banks.  The reason why is because credit unions are exempt from Federal taxation.

Credit unions will also lend more dollars.  We got a quote from a credit union today of 80% loan-to-value.  Eighty percent!!

So where can you find credit unions hungry for small commercial real estate loans.  C-Loans.com is an excellent place to start.  Dozens of credit unions have recently joined C-Loans in search of good small business loans.  You can submit your commercial loan to 750 different banks, credit unions, conduits, life companies and private commercial lenders in just four minutes using the C-Loans Commercial Mortgage Portal.  And C-Loans is free!

Another way to find hungry credit unions is to identify all of the credit unions located within a 30 mile radius of the subject property.  Credit unions are strictly local lenders, so you need to find nearby credit unions for your deal.

So how do you actually find these credit unions?  Simply go to maps.yahoo.com and type in the address of the subject property.  Then, in the "Find a Business" field, type in "banks".  All of the local banks and credit unions will appear plotted on the map.

If you found this article to be instructive, I strongly encourage you to subscribe to our blog via email.  To get a copy of each new training blog article as it comes out, without having to remember to come back, please fill in your email address in the space provided on the right.

Lastly, if you're a buddy or a former student of mine, would you please do me the great kindness of hitting the Like button, the Google+1 button, and the Linked-In Share button above.  Thanks so much.  :-)