Commercial Loans and Fun Blog

Title to Many Commercial Properties are Held by Subchapter S Corporations

About 25 years ago some thief was climbing on the roof of a commercial building in New York. He was trying to break into the store to steal stuff, and he had no business being on the roof. The roof was near the end of its useful life, and the thief fell through the roof and severely injured himself.

The thief must have had unbelievable audacity because he actually sued the owner of the commercial building for negligence for failing to maintain the roof. To the shock and awe of commercial property owners everywhere, this miserable thief won his lawsuit and was awarded over a million dollars in damages.

The property owner held title to the building personally, and he was personally wiped out when the judgment debtor took virtually everything the poor man owned.

From that moment on, commercial property owners across the country desperately sought a way to insulate themselves from liability. They could not hold title as a regular "C-corp" because they would be taxed twice - once as a corporation and another time when the owners drew out their profits as dividends. Limited liability companies had not yet been invented.

The solution was the subchapter-S corporation. A subchapter-S corporation can only be used for new business ventures, and there is a limit of 35 shareholders. You can therefore never take a subchapter-S corporation public.

The big advantage of the subchapter-S corporation, however, was that it was not taxed twice. The net income of a subchapter-S corporation passes directly through to the owners of the corporation without taxation. The shareholders only pay taxes once on the profits, as they are added to their personal income on their 1040's.

As a result, for about 15 years, title to a great many commercial properties was held by a subchapter-S corporation.

Modernly, subchapter-S corporations have been replaced by limited liability companies (LLC's). LLC's do not have to be new ventures, and ownership is not limited to 35 shareholders.

As a commercial mortgage broker, however, you will still occasionally see subchapter-S corporations. You will need to gather Articles of Incorporation (summary of the key organizational facts - like the name of the corporation, address, etc. - that is filed with the state), the Bylaws (detailed instructions on how to run the corporation), and a Corporate Resolution to Borrow (the minutes of the Board meeting authorizing the president to borrow money on behalf of the corporation).

Need a commercial loan? You can apply to 750 commercial lenders in just found minutes using C-Loans.com. And C-Loans is free.

Includes George's Famous Pooh-Pooh Soup Story

You're a commercial mortgage broker. You've just quoted a commercial real estate loan to a borrower over the phone. The borrower appears interested, and you want to convince the borrower to send his commercial real estate loan application to you, as opposed to a competing mortgage broker or bank.

The key thing to remember is the Theory of Momentum. A body at rest tends to stay at rest. A body in motion tends to stay in motion.  A potential commercial real estate borrower is therefore going to want to keep sitting on his hands.

To convince a potential commercial borrower to send his loan package to you, never ask for too many documents at one time.

If you ask for a huge checklist of documents, the borrower will surely procrastinate, during which time he'll speak with a competing commercial lender or mortgage broker, and you'll lose the deal. Instead, ask for just two or three documents at a time. Gather the six-inch-thick stack of required documents slowly over a period of weeks.

"But George, it will take months to close a commercial loan at that pace."

We've all heard the story about the young bull and the old bull standing at the top on the hill and looking down over a herd of beautiful heifers. The young bull turns to the old bull and says, "Hey, Pops, let's run down and kiss one of those cows." The wise old bull replies, "Son, let's walk down and kiss them all."

The point of the story is that if you rush things, your success rate is often much lower. If you ask for a huge checklist of documents, you'll only close one deal in fifty. If you gather the required documents in small, easy waves, you might be able to convince all fifty borrowers to send you a package.

But you have to give the borrower reassurance that his commercial loan application is looking good ... and this leads us to my famous Pooh-Pooh Soup Story:

Have you ever noticed that whenever you order anything to eat at an expensive French restaurant that the snooty waiter always says, "Ah, good choice. The duck a la orange is delicious!" And when you order dessert, "Wonderful choice, sir. The Crepes Suzette are
delicious!"

I've therefore often wondered that if I ever asked for Pooh-Pooh Soup (you guessed it, a log floating is broth ..... eeuuuuu!) whether the French waiter would say, "Ah, the Pooh-Pooh Soup is delicious!"

Now back to our training. We've pointed out that you absolutely need to ask for the documents in five or six waves of three or four easy documents to fetch. But the borrower will need reassurance, before fetching a whole new wave of documents, that at least so far his commercial real estate loan application looks good.

So when you get the first wave of documents - his current schedule of leases (rent roll) and his last year's actual operating expenses - quickly scribble out a pro forma operating statement and do a debt service coverage ratio calculation. Then, assuming the numbers look good, you can tell him, "I've crunched the numbers, and so far your deal looks very do-able!"  (The pooh-pooh soup is delicious!) "Now all I need is a financial statement and two years tax returns."

With these documents you can pull a credit report and report back to the borrower, "I've looked at your financial statement, tax returns and credit report, and everything continues to look very favorable!" (The pooh-pooh soup is delicious.") "Now all I need is a copy of the leases and a financial statement and two years' tax returns on the LLC that actually owns the property." And so on, being sure to reassure the borrower that his loan package looks good (the pooh-pooh soup is delicious) after receiving each wave of documents.

So, to summarize, the object of the game is to convert a telephone lead into a loan package. To get your commercial loan borrower finally moving in your direction, you must not ask for a huge checklist of documents. Instead, ask for a very short list of easy documents to gather. After receiving each wave of documents, be sure to tell the borrower that his deal looks great (the pooh-pooh soup is delicious!). It will take you slightly longer to close a commercial loan this way, but you'll close far, far more deals (you'll kiss them all!).

Do you need to place a commercial real estate loan right now? You can submit your commercial deal to 750 different commercial real estate lenders in just four minutes using C-Loans.com. And C-Loans is free!

Perhaps as many as 10% of all of the practicing commercial mortgage brokers in the industry are my former trainees. If you would like to really learn how to broker commercial real estate loans like a pro, please click here.

C-Loans Just Introduced a Free, New Tool to Create PDF's

Let's start from the basic proposition that commercial lenders are picky and unpredictable. A commercial mortgage broker often has to shop his commercial real estate loan package to a dozen different commercial lenders before he finds a good home for the deal.

If you, as a commercial mortgage broker, have to pay Fed Ex charges to a dozen different lenders, your package delivery charges will cut deeply into your profits. In addition, shuttling your commercial loan package between a dozen different lenders will take weeks, during which time your commercial borrower may find a cheaper bank on his own. Wouldn't it be great to be able to submit your commercial loan package by email?

If you create your commercial loan package as a PDF, you can submit your deal instantly to a dozen different commercial lenders across the country by email. The problem is, however, is that you don't have the $350 version of Adobe software to create the PDF's. Even if you did have the software, you really don't know how to use it.

C-Loans.com has just added a feature that will allow you to create a gorgeous PDF presentation of your commercial loan for free. Just come to C-Loans.com and enter your commercial deal as usual. Go ahead and submit your commercial loan to six lenders.

On the departure page you will find a new button that will allow you, with one click, to "Create a PDF". Be sure to save the PDF of your commercial loan package on your desktop. You can then attach this gorgeous PDF to an email to a dozen of your best commercial lenders.

What does one of these PDF commercial loan packages look like? Simply click here to see a sample commercial loan package as a PDF.

Do you need a commercial real estate loan right now? You can submit your commercial real estate loan request to 750 different commercial real estate lenders in just four minutes using C-Loans. And C-Loans is free!

Are you the owner of a commercial property? Do you want to hire George Blackburne personally to place your commercial loan? George charges one point upon closing, regardless of the loan size, to serve as your mortgage broker. Please click here if you would like to contact him directly.

Free Online Demographics Tools Warn You When Your Loan is in a War Zone

Your commercial lender will be pretty sore at you if he spends two hours to drive out to inspect your client's commercial property, only to find out that his life is in danger because the area is a war zone, with hookers and drug dealers on every corner. That's your fault - the commercial mortgage broker - for not warning him in advance.

It's pretty easy these days to determine online whether or not a commercial property is located in a tough area. Just go to City-Data.com and read the free demographic information they provide. The income levels, the education levels, and the crime statistics will all help paint a fairly accurate picture of the neighborhood.

The wise commercial mortgage broker will turn down commercial deals in low-income, high-crime, high-drug-use areas. These loans are almost impossible to place. Instead, he'll use his precious time to work on his marketing and his mailing lists.

Need a commercial real estate loan right now? You can apply to 750 different commercial lenders for free in just four minutes using C-Loans.com.

Where to Invest Your Money for the Next Upturn in Commercial Real Estate

The Urban Land Institute recently asked 700 real estate professionals to name the best (and worst) places to invest in commercial real estate in the coming year. Those surveyed included private developers, real estate brokers and Real Estate Investment Trust (REIT) executives. Their answers also apply to the residential market, since the single-family-home sector typically follows the economy. As wages go up and there are more jobs, more people can buy homes, pushing prices up.

The best cities in which to invest are those that are considered gateways to international investment, have vital downtowns where people can forgo cars, and don't have a glut of condos or office space.

According to this survey, the number one place to invest in commercial real estate right now is Seattle. Seattle is a diversified market, has a good base of business and is becoming a 24-hour city.

Although the city is suffering from the loss of Washington Mutual and the downsizing of Starbucks, Boeing and Microsoft are still relatively strong. Apartment vacancies are low and there aren't too many new buildings going up, meaning the market won't be oversupplied. The same is true in the retail space.

San Francisco comes in second in the survey as the best location to invest in commercial real estate.  San Francisco learned from the tech crash of 2001 not to overbuild. There is a reasonable supply of office and apartment space, which should limit vacancies. San Francisco's port is also expected to help the city during the downturn as Americans continue to rely on Asian imports.

Washington, D.C., New York and Los Angeles round out the top five.

The least attractive major city in America to commercial real estate investment is Detroit, Michigan. Detroit has been reliant on the car industry, which is rapidly shrinking. Other businesses are unlikely to fill the void in the next few years, which means the city will be hit hard by further economic struggles.

The second worst city was New Orleans. The city has been losing businesses to Houston, Dallas and Atlanta since Hurricane Katrina hit in 2005.

The other cities at the bottom of the list — Columbus, Ohio, Milwaukee, Wis., and Cleveland — suffer from dying industries and lack of tourist appeal.

Do you need a commercial real estate loan right now? You can apply to 750 different commercial real estate lenders in just four minutes for free using C-Loans.com.

Banks Are the Best Source for Commercial Loan Leads

If you are a commercial loan broker, your number one source for commercial real estate loan leads should be the local banks located close to your office. It's a great time to be trolling in these waters because commercial banks are turning down a lot of commercial real estate loan requests right now.

Start by going to maps.yahoo.com. Input your office address and then ask for a map. Then plot every commercial bank located close to your office. It's easy. In the Find a Business on the Map field, simply type in the word, "bank". Instantly every nearby bank will be plotted on the map.

After locating all of the bank branches close to your office, then drop in on one or two commercial banks every business day. Ask to speak to the loan officer who handles their commercial real estate loans.

Explain to the banker that you would like to provide commercial loan services to any of his customers who the banker has to turn down. Leave the banker a flyer, along with three or four of your business cards.

Follow up the visit with a handwritten thank-you note to the banker on your company stationary and in a hand-written company envelope. The idea here is to get the banker to recognize your logo and company name. Of course, be sure to include several more of your business cards. Make sure these business cards prominently display the words, "Commercial Real Estate Loans".

Then, every ten days, be sure to send the banker something. One time you might send a funny political cartoon, and the next you might send a folksy newsletter with lots of jokes. And, of course, always be sure to include three more of your business cards with every fun communication. Pretty soon the banker will look forward to your snail mail because you always send something fun.

Try to take each of your bankers out to lunch every couple of months. Invite them to play golf with you. If a banker sends you a referral, drop by the next day with a sleeve of golf balls or a gift certificate for a free lunch. Make these guys your friends. Remember, the typical bank loan officer probably turns down a half-dozen commercial loan requests every week. Often there is no real good reason for the turndown, other than the bank simply doesn't like motels loans or the loan is the wrong size (too large or too small).

If you religiously call on one or two bankers every business day, you will quickly develop a terrific flow of commercial real estate loan leads.

Even Small and Regional Commercial Banks Have Cut Back Sharply on Commercial Real Estate Loans

As the sponsor of the C-Loans Commercial Mortgage Lender Databank, we have our fingers on the pulse of the commercial real estate lending market. The CMBS lenders started to die late last year and now they are not lending at all.

Most of the mega commercial banks got crushed in the subprime residential lending debacle. Their balance sheets are so underwater that they are making at most 2% of their 2007 volume of commercial real estate loans. Essentially the mega-banks are out of the market.

Until this last week, however, the smaller banks were still making some commercial real estate loans.  We were greatly disturbed last week, however, when several smaller commercial banks - lenders with no exposure to the subprime crisis - contacted us and confided that their balance sheets were so troubled that they too had stopped making any commercial real estate loans.

We are pretty sure that this is a trend that will continue among the surviving small and regional commercial banks. As their commercial loans to local industrial companies start to go bad (sales of widgets and other industrial products are cratering), soon most commercial banks will stop making commercial real estate loans completely - even permanent loans on standing commercial properties.

If any of your "A" borrowers are delaying their plans to pull equity out of their commercial properties, tell them that this is the last call for commercial loans from banks. If they don't close their loans in the next 90 to 120 days, they may have to wait five to ten years before commercial loans with decent interest rates reappear.

If you need a commercial real estate loan right now, please click here.

Advertise to Companies Who Are Spending Big Money to Market for Mortgages

If you're a commercial mortgage broker, you probably need more leads on borrowers seeking commercial loans. Eventually you will discover that marketing directly to the public for commercial real estate loans just doesn't work. If you send out 10,000 mail pieces, you'll usually only get around six leads and no closings.

So what does work? Residential mortgage brokers can be a wonderful source of referrals. Just pay them 20% of your loan fee in return for a name and telephone number of a prospective commercial real estate loan borrower.

Here's why advertising to residential mortgage brokers is so effective. The typical residential mortgage broker spends about $400 per month on some form of advertising - perhaps a small classifed ad in the Money to Loan section of the newspaper, a big Yellow Pages ad or a display ad in the Pennysaver or similar free grocery store magazine.

This advertisment by the residential mortgage broker probably reaches thousands of potential borrowers every month. Now if this residential mortgage broker is giving you all of his commercial loan referrals, this means that with a single $1 mail piece to the mortgage broker, you are reaching thousands of potential borrowers.

If the residential mortgage broker is spending $400 per month, then your $1 mail piece is getting leveraged by a whopping 400 times. This is marketing leverage.

Do you need to place a commercial real estate loan right now? You can submit your commercial real estate loan to 750 different commercial mortgage lenders in just four minutes using the C-Loans Commercial Mortgage Lender Portal.

Auto Repair is Hot and Retail is Not

I recently spoke on commercial real estate loan matters at the National Association of Mortgage Brokers Annual Conference in New Orleans. While at the conference, I wandered through the exhibit room and brain-stormed with the exhibitors.

Not surpisingly, commercial real estate lending was way down. Commercial lenders had scaled back their appetite for retail properties.

But one asset class was hot - of all things, auto repair! Apparently some of the larger commercial lenders had noticed that the best performing class of commercial properties in their portfolios was in fact auto repair. It makes sense. Americans are not buying new cars right now but are rather just repairing their existing cars.

One lender with whom I spoke had actually raised its loan-to-value ratios on auto repair loans from 65% to 75%, in order to encourage more commercial loan applications on such properties.

Do you need a commercial loan? You can apply to 750 commercial lenders in just four minutes using C-Loans.com. And C-Loans is free!

September 23, 2020

Below is the Advice I Gave To 
a Struggling Commercial Mortgage Broker

After writing this blog article waaay back in 2008, I actually sat down and wrote an entire training course devoted to keeping new commercial mortgage brokers from making the same bone-headed mistakes that I cluelessly made forty years ago, when I first entered this industry.  I call it my Practice Course, and I consider it my finest work.  It contains over sixty lessons.

Here’s my advice:

1. Stick to small commercial permanent loans. Do not work on anything larger than $3 million unless you have a special relationship with the borrower (former client). Small commercial loans are the ones that close and feed your family.
   
   
2. New commercial mortgage brokers almost never close large loans. Why would a filthy rich investor with perfect credit and millions of dollars in equity work with a mortgage broker who is obviously new to the business? He'll spot the new broker's inexperience in the first few minutes of conversation. So the large deals that new mortgage brokers get are almost always hopeless. And even if the perfect, large deal ever did fall in their laps (one chance in a million), most new brokers don't yet have a personal relationship with the top loan officers at the huge banks. These top dogs are very, very, VERY cliquish. They don't fight hard in Loan Committee for newbies. So don't waste precious time trying to place large loans ... unless you have 18 small commercial permanent loans in process that will feed your family.Give me a $300,000 lead over a $30 million lead any day!  Small deals close. Large deals waste your time.
   
   
3. Do NOT waste precious time working on construction loans. The world has more enough homes and commercial buildings right now. Ninety-nine percent of the time, when a developer approaches a mortgage broker for help placing a construction loan, the developer does not have enough cash into the deal to qualify for a construction loan. He can't cover 20% of the construction costs. Do not work on construction loans! The deals you want are the permanent loans and the bridge loans.
   
   
4. Never waste a minute on international loans. They never close.  Ever. Ever!  There is a huge tax issue.
   
   
5. Read my blog daily for tips. http://www.blog.c-loans.com.  Go back and read all 100 of the old articles.
   
   
6. Build a databank of referral sources (commercial brokers, residential mortgage brokers, bankers, property managers, estate planners, etc.) and advertise to them by snail mail or email regularly.  Pepper your newsletters with TONS and TONS and even more TONS of jokes and fun stuff.  Condition your referral sources to look forward to your emails.
   
   
7. Your newsletter does NOT have to fancy.  A funny pic (see above), along with your signature block, with the words, "commercial loans" prominently displayed, will work just fine.
   
   
8. Learn how to create your loan packages using PDF’s.  This saves on shipping and allows you to submit a deal to multiple lenders in seconds.
   
   
9. Start buying leads from C-Loans. They’re only around $2 apiece (plus 37.5 bps. on closing). http://www.c-loans.com/leads.html
   
   
10. Get a signed fee agreement on every deal, but don’t ask the borrower to sign it until you’ve run him around for weeks fetching documents.  Wait until the borrower is desperate and hungry before presenting your agreement.
    
    
11. Don’t waste time working on deals with a low probability of closing.  Instead, use every free minute to meet new bankers and commercial brokers (realtors).  Add them to your email list.
    
    
12. Realize that your closing rate will never exceed 30%.  This means you need to have 15 to 18 loans in process at all times. Do you have 18 loans in process right now?  If not, get busy building your email list.
    
    
13. Only work with strong loan officers.  Loan Committee is a process where the decision-maker almost always says, "No", initially.  Then the loan officer has to use logic, fundamentals, oratory skills, and strength of will to push the deal through to approval.  If the loan officer at the bank who has your deal sounds and acts like a wimp, ask for the package back and then submit the same deal to a stronger loan officer at the same bank.
    
    
14. Grasp the concept that commercial lenders make loans for their friends. Become buddies with the top loan officers at various banks.  They will then fight for your deal in Loan Committee.  This may be my most important tip.
    
    

Need a lender for your commercial deal?  You can submit your commercial real estate loan to to 750 commercial lenders in just four minutes using C-Loans.com. And C-Loans.com is free.  Click here.

*  I always loved that line.  It comes come from the Ghostbusters II movie, when a demon possesses the body of a very young (40 years ago) and beautiful Sigourney Weaver.  Sigourney is laying on the bed seductively, and she asks the whacky Bill Murray, "Do you want this body?"  Bill turns to the movie audience and famously replies, "Is this a trick question?" :-)