Are you a commercial loan broker? Do you absolutely, positively want to starve? If so, then be sure to only work on large commercial loans. You will quickly lose that pesky 50 pounds.
By large, I mean commercial loans of $5 million or larger. For the reasons listed below, large commercial loans seldom close for commercial loan brokers. This is especially true for commercial loan brokers with less than five years of experience.
- In order for a commercial real estate lender to be willing to make a huge commercial loan, the borrower must usually have a net worth at least as large as the loan amount. So if you're trying to place a $20 million commercial loan, your borrower better have a net worth of at least $20 million.
- Why on earth would a borrower with a $20 million net worth apply to you - the typical commercial loan broker? He won't. Sophisticated, high-net-worth real estate investors will quickly spot that you're not an expert on large commercial loans. Heck, the top real estate investors and developers probably know far more about commercial real estate finance than you do. Therefore the types of large commercial deals you will usually get will be borrowers and developers with $3 million net worths trying to borrow $20 million. It's a pipe dream! The loan will never close.
- If your borrower has a $20 million net worth, you can be sure that scores of bank loan officers calling on him regularly. Therefore even if you someday got lucky and got a chance to work for an investor or developer with a huge net worth, you can bet that your client has also contacted his own bank and a half-dozen other direct bankers, many of whom have been calling on him for years. As a result, even if you deliver a delicious term sheet from a bona fide mega-bank, you will have to add your half-point fee to the mega-bank's one point fee. Guess what? The direct lenders who are also working on the deal will almost always be able to match your interest rate and offer a term sheet at only one point because there is no broker involved in the deal.
- But you probably won't be successful in delivering a delicious term sheet from some mega-bank or life company. Why? The top loan officers who work at those mega-banks and life companies are constantly in demand, and they will rarely waste their time working with some newbie or even an intermediate-level commercial mortgage broker. These top-of-the-food-chain loan officers usually have a stable of about a dozen top commercial mortgage bankers who supply them with 95% of their loans - and you aren't one of them! These top commercial loan officers will probably just blow you off the phone, even if your deal was perfect.
- Should you ever work on large commercial loans? The only time it might sense to take on such a deal would be if the borrower was a returning customer. Maybe you closed a $3 million commercial loan for him seven years ago and then a $7 million loan three years ago. Now he is trading up to a larger commercial property and needs a $13 million deal. Sure, in this case, you should absolutely take on the commercial loan request.
- But absent a track record or some other personal relationship with this high-net-worth investor (maybe he's your father-in-law), you should not take on these large commercial loans. Well, maybe you can take the deal on and try to close it, but you must not expect to feed your family with your efforts.
Instead, stick to small commercial permanent loans, the types of deals that will actually close and feed your family.