Commercial Loans and Fun Blog

As the operators of C-Loans.com - the most popular of the commercial mortgage portals - we constantly have to be on guard against advance fee scammers.  Therefore, last night I was teaching my son, Tom, how to spot these crooks.

There are other ways to spot advance fee scammers, but you'll know right away that a guy is just an advance fee scammer if he uses one of the following three phrases:

1. "We are merchant bankers."  Hogwash!  Use of the phrase, "merchant banker", is a dead giveaway that the guy is an advance fee scammer.  There are probably fewer than 400 true merchant bankers in the whole world.  Merchant banks are typically a subsidiary of a commercial bank (fancy word for a garden variety bank) or an insurance company.  If a bank or a life insurance company is making money hand-over-fist, the holding company will sometimes open a tiny subsidiary to invest the profits into go-go investments, like high-yield bridge loans, mezzanine loans, preferred equity, and direct equity investments into operating companies and real estate development deals.  Folks, there are probably fewer than 400 true merchant bankers in the whole world.  And mere mortals, like you and me, don't ever get to talk to these guys.  So if the guy on the other end of the line is claiming that he is a merchant banker, he's a liar and a fraud.  Run away!
   
   
2. "We make international loans."  In your dreams!  Every country in the world wants to protect its small local banks against huge foreign competitors, like Bank of America, Credit Suisse, and Deutsche Bank.  Therefore every country imposes a 30% withholding tax on all interest earned by foreign lenders.  Even if a bank could earn 10% lending in Mexico, for example, it would only get to keep 7%.  Folks, that's a deal killer.  There are no true international commercial real estate lenders.  Anyone who claims to make international loans is either some idiot rookie mortgage broker or an advance fee scammer.
   
   
3. "We represent a number of hedge funds."  What a load of manure!  I challenge any of you mortgage brokers out there to prove to me that you have actually ever closed a commercial real estate loan through a hedge fund.  Remember, offshore hedge funds can't make commercial loans directly without running afoul of the 30% withholding tax described above.  They can buy existing loans, but they cannot make new ones.  In theory domestic (American) hedge funds could make commercial real estate loans, but they lack the licensing and the expertise.  They do not originate commercial real estate loans.  If some clown is claiming that he represents hedge funds, he is a liar and very likely a con man out to steal your advance fee.

So the next time you run into someone who boasts that he is a merchant banker, he makes international commercial real estate loans, or he represents a hedge fund, you can chuckle to yourself and walk away quickly.

I recently received a well-written email newsletter from a hard money lender that will make construction loans to complete partially-constructed commercial buildings.  The loan officer did a brilliant job in describing the issues and difficulties facing a lender that wants to fund the completion of construction of a partially completed building.

Here is what he wrote:

We Do Partially Complete Construction
 
One of the most difficult loans to place for brokers is a loan on a partially complete structure. Traditional lenders avoid this property type because of the many complications involved. These complications have largely to do with the possibility of a mechanics lien from an unpaid contractor or contractors. As you may or may not know, a mechanics lien takes precedent on the property’s title, even over a first position lender. Having another entity in front of a lender is a nightmare scenario and it’s a situation they avoid at all cost. Fortunately we have the experience to deal with this and we’re comfortable lending on most partially complete properties.
 
The bulk of the work to underwrite such a loan is to contact the contractors on the project to determine the status of monies owed to them. It’s critical that we know every contractor who worked on the project, if they are owed a balance on their work and when the work was completed (contractors have a limited time to file a lien against a property and sometimes forget to do so in the time allowed). We also need to verify by inspection that the claimed work has been completed. If it has, we can include funds to pay the contractor in the construction budget going forward or obtain a lien waiver from the contractor who may be willing to wait to get paid.
 
All of this requires a great deal of legwork. It also requires that your borrower have the information on hand to provide to us (and that it’s complete and organized). A list of all the contractors who worked on the job (including sub-contractors) would be on the checklist we would send you. If you can provide that information, we can offer you a potential way to fund a class of loans few other brokers can.

If you have a commercial loan request to finish a partially completed construction project, and you would like to contact this lender (it is NOT Blackburne & Sons), please email me, George Blackburne III, at george@blackburne.com , and I'll arrange an introduction.  Please type, "Partially Completed Construction" in the subject line.  I charge a 50 bps (a half-point) fee, if the deal closes, for hooking you up with this lender.

If you are a commercial mortgage broker trying to convince a lender to make a commercial loan in one of the cities, or if you are a commercial real estate broker trying to sell a commercial property in one of these cities, being on this list is a BIG deal!  Be sure to stress it to your investor.

Forbes' List is based on the Milken Institute's Best-Performing Cities Index.  This index measures U.S. metropolitan areas based on growth in jobs, wages and salaries, as well as technology output. It weighs these factors over a five-year span, to account for varying business cycles.  It stirs in the latest year’s performance, and it then adds each city's 12-month job growth performance to account for recent momentum.

Here are the Top Ten Best Performing Cities in America:

1. San Antonio, TX
2. El Paso, TX
3. Fort Collins-Loveland, CO
4. Austin-Round Rock, TX
5. Killeen-Temple-Fort Hood, TX
6. Salt Lake City, UT
7. Anchorage, AK
8. Huntsville, AL
9. Provo-Orem, UT
10. Kennewick-Richland-Pasco, WA

Be sure to note that four out of the top five best performing cities in the country are located in Texas!

To see the complete list of the 25 best performing cities in America, please click here.

Every day our commercial mortgage portal, C-Loans.com, generates between 50 to 100 commercial mortgage leads.  Mortgage brokers can buy most of these leads for just $1 to $3 apiece, plus a closing fee of 37.5 bps. (a little more than one-third of a point), if the deal closes.

What do our commercial leads look like?  Please click here to view a sample lead.

Are our leads any good?  C-Loans has closed over 1,000 different commercial real estate loans totaling over $1 billion.  This is probably more closings than most of our competitors combined.  It is interesting to note that two out of every three commercial loans closed by C-Loans in the past three years were closed by our lead buyers and commercial mortgage brokers, owners of small commercial mortgage companies just like yours, who took our deals to their own pocket commercial lenders.

Did you inquire into buying our commercial mortgage leads in the past?  Were you discouraged at your chances of qualifying to buy our leads?  In the past, C-Loans required substantial commercial loan experience and a credit score of 700 or higher in order to qualify to buy our commercial leads.  We here at C-Loans have come to realize that most mortgage brokers were chewed up financialy by the Great Recession, and their personal credit suffered greatly.

C-Loans has therefore greatly relaxed its credit, financial, and experience standards required to buy our commercial leads.  Most brokers will now qualify to buy our leads, even if their credit is significantly damaged.

Interested in more details about buying our commercial leads?  Please click below:

C-Loans.com once paid a guy a referral fee of $21,250 for referring us a commercial loan.  The really funny thing is that the guy was asleep when he referred us that loan.  Really.  How is that even possible?

There are lots of tricks and techniques you can use to find more commercial mortgage referrals to send to Blackburne & Sons and/or C-Loans, Inc.  For example, where do you find commercial loans to refer?  Is there a way to automate the process so you can earn $5,000 referral fees in your sleep, just like that lucky guy described above?

You'll find the answers in our wonderful free whitepaper, The Inside Secrets of Earning Huge Referral Fees.

From time to time you probably run across business owners and investors who are looking for a commercial real estate loan.  Blackburne & Sons will happily pay you a 20% referral fee for that lead.

All you have to do is visit our Commercial Lead Input Form.  Then just fill in the name of the borrower.  Voila!  You're done.  When the deal closes, we'll send you a big referral fee.  We once paid a $21,250 referral fee to a guy named Alan Dunn from a company named Spydercube.  Wow.  As you can imagine, he was pretty happy to get that call.

Why don't you please go to our Commercial Lead Input Page and bookmark it right now?

If you are a commercial mortgage broker and you're struggling, you should probably only work on small commercial loans.  Large commercial loans rarely close these days.  Here's why:

To close a large commercial loan today, you will pretty much have to work with a bank.  There are no large hard money bridge loan funds anymore.  I am talking about subprime (hard money) mortgage funds of $150 million or larger.  They all kaput, wiped out by commercial real estate depression that started in 2007.  (If anyone knows of a large commercial morgtgage fund that is still doing deals, please write to me at george@blackburne.com.)

Now a number of smaller commercial mortgage funds have started up since the real estate depression began, but most of them are still fairly small.  Remember, most funds have operating agreements whereby the sponsor of the fund is not allowed to add any loan to the fund that is larger than 5% of the total fund balance.  This means that if you were trying to place a $15 million bridge loan, you would have to place it with a fund of at least $300 million.  I am not sure there are any surviving mortgage funds that large.

This means that you will have to try to place your $15 million deal with a bank.  Yikes.  Good luck on that.  You could easily shop the deal to 40 banks and not find a single one in the mood to make a $15 million loan today.  And if you can't place your deal with a bank, you're stuck.  You have no reliable hard money lender waiting in the wings.

But if you work on small commercial loans, and 40 banks turn your deal down, you can always take your $750,000 deal to a hard money commercial lender like Blackburne & Sons.  All of your effort trying to place the deal with a bank will not have been in vain.  At least you will still close the deal and get paid.

Did you find this article helpful?  I try to write a new blog article about commercial real estate finance every other day.  To be notified of new articles, please fill in your email address on the right in the box that says, "Subscribe via E-Mail."

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The CMBS industry is picking up again.  This is the industry that originates large, fairly standard commercial real estate loans and then securitizes them.

Earlier in the year, when it appeared that we were headed for a double-dip recession, investor appetite declined sharply for commercial mortgage-backed securities.  Investors would only buy these bonds if the rates were much higher.  In the parlance of the industry, the spreads or margins over corresponding Treasuries spiked sharply.

In recent weeks, however, spreads have leveled off, so many CMBS lenders are eager to close new loans in order to meet their year-end loan production targets.  This is a very good time to submit your commercial real estate loan to a CMBS lender.  You can do so by using C-Loans.com.

CMBS lenders are once again making loans on hotels, as long as the loan is larger than $5 million.  In the future it is anticipated that this loan minimum will come down, as CMBS lenders hire more staff.  In the meantime, hotel owners needing loans of less than $5 million should apply for an SBA loan.  You can apply for both CMBS loans and SBA loans using C-Loans.com.

The SBA is now, for the first time, issuing loan guarantees on self-storage projects.  In the past such projects did not qualify because they did not create a lot of jobs.  You can apply to scores of SBA lenders using C-Loans.com.

The SBA has been very disappointed by the volume of new SBA 504 loans originated this year.  Therefore, in order to encourage more lending, they are now allowing the SBA 504 program to be used to refinance maturing loans (this change was made about a year ago) AND if a 504 borrower is refinancing a ballooning loan, he can now pull extra cash out of his owner-used commercial property - up to 90% LTV - to reduce his paybles, to pay salaries, or even to use for operating capital!  You ca apply to scores of hungry SBA lenders by clicking here.

I have been in commercial real estate finance for more than 31 years.  During that time I have never seen an international commercial real estate loan ever close!

Every day I run across developers seeking commercial construction loans in Mexico or Poland or some other far-off locale.  To the best of my knowledge, none of them ever get funded by American lenders.

The problem is one of taxation.  If a Chinese bank based in Hong Kong were to make a big loan here in the states, the US government would levy a foreign lender tax of 30% of it's interest income!   Most countries do the same to foreign banks trying to lend in their own country.  (The way this problem is solved is that the Chinese bank starts a subsidiary bank here in the US and the subsidiary makes loans in the US.)

So if you are seeking a loan in Mexico, go to a Mexican bank.  Go local.  It's generally the right way to go.

But now I have a confession to make.  I actually do know of an international loan that closed.  A hard money lender on C-Loans.com at the time made a $3 million loan on a $20 million free-and-clear golf course and residential subdivision in Mexico.  The loan was guaranteed by three pro atheletes, with a combined net worth in the range of $100 million.  The hard money lender charged 15% and 15 points for an 18 month interest-only loan.  I know the deal closed because C-Loans.com actually got paid on it.

So how did this hard money lender get around the taxation issue?  Shhhh.  They didn't tell anybody they were making the loan.

But as you can see, getting a U.S. lender to make a commercial real estate loan offshore is phenomenally expensive and has about the same chance of closing as the lovely Jackyln Smith (the original Charlie's Angel) has of falling in love with rump-ugly 'ole George Blackburne III.  It ain't likely to happen, folks.

If you need a commercial mortgage loan here in the United States, you can find 750 different and hungry commercial mortgage lenders on C-Loans.com.

Suppose your client is trying to buy a commercial property with a down payment of just 10%.  His plan is to have the seller carry back a second mortgage on the commercial property equal to 15% of the purchase price.  He will then try to get a loan from a commercial bank for 75% of the purchase price.

Unfortunately the plan will not work.  Most banks and all CMBS lenders forbid second mortgages on the property at the time of the purchase.  (Many CMBS lenders WILL allow a mezzanine loan, however.)

So why are second mortgages forbidden on the sale of commercial properties.  The reason is because commercial lenders fear that the property owner, if cash gets tight, will use the repair money to make the payments on the second mortgage rather than to maintain the property.

A good solution is to have the seller carry back the second mortgage on another property owned by the buyer, say a rental duplex or a different office building.

When you apply for a commercial mortgage loan using C-Loans, we have a special section called "Special Issues" where you can describe the junior financing that you hope the bank will alllow the seller to carry.  C-Loans is a great way to quickly present your deal to 30 lenders to find the one lender aggressive enough to help your client.

My own private money commercial mortgage company, Blackburne & Sons, will, in many cases allow, the seller to carry back a second mortgage.

Here's a common situation.  An investor buys a commercial building for $1 million in 2005, before the Great Recession.  He puts 40% down, and a bank makes him a $600,000 new first mortgage.  The Great Recession hits.  The property falls to just $600,000 in value.  Now the property is 100% financed. 

Then, to add insult to injury, the bank's 5-year loan balloons.  The borrower applies all over town for a new first mortgage, but no one will make a loan larger than $375,000.  Everyone is demanding that the borrower bring $225,000 in cash to the closing table to pay off the ballooning loan.  He doesn't have it.

Therefore the borrower goes to he first mortgage holder, the bank, and begs them to take a $225,000 discount.  They refuse, BUT they save they would take $375,000 now and would subordinate their remaining $225,000 balance to a new first mortgage.  Hooray.

But when the borrower goes back and tells the new potential first mortgage lenders about his new plan, they all say, "Sorry, but we do not allow secondary financing."  Every banks says the same thing.

Blackburne & Sons would make that deal.  Blackburne & Sons allows secondary financing!