Commercial Loans and Fun Blog

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.

Submarines

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.

Joints

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.

Vegans

Instead, stick to small commercial permanent loans, the types of deals that will actually close and feed your family.

Wine2

We have talked in depth about why large commercial loans are so difficult to close. First of all, large loans have to almost perfect because so many executives have to sign off on the deal.

In addition, most of the large commercial loans we see as mortgage brokers have already been turned down by several banks. The loan may have been turned down because borrower’s credit was flawed, the borrower lacked enough equity in the property or a large enough cash down payment, the developer was not contributing enough equity into the construction deal, or the borrower’s net worth was too small when compared to the loan amount. Remember, if a commercial real estate investor is really clean and really strong, he usually has a half-dozen different bankers in his back pocket.

Lastly, even if a mortgage broker is lucky enough to have a perfect large commercial loan in hand, he will often still fail to place the loan because he is not in the Big Boy clique. Remember, the bank loan officers who close the really large commercial loans are very choosy about the brokers with whom they will work. They’ll politely take your call, but the moment they discover a black hair – and every deal has a black hair – they will often just shoot you out of the water.

All these things being said, however, a few large commercial loans do sometimes close. What allows these large loans to close? Here’s my observation:

Large commercial loans only close when the
mortgage broker doesn’t need the commission.

If the mortgage broker has plenty of dough in the bank, and if he has a huge pipeline of small and/or high-probability commercial loans in processing, the mortgage broker will sound cool, relaxed, funny, and knowledgeable when he presents his large loan to his lender.

But if the mortgage broker needs the large loan to close, the battle is already lost. The mortgage broker will sound nervous and needy on the phone, so the bank loan officer will already be assuming his “No!” position.

The wise mortgage broker will therefore focus his time on building a huge pipeline of smaller and/or high-probability commercial loans before spending a lot of time trying to close a single large loan. I’m not saying that you shouldn’t work on a large commercial loan if it falls in your lap. I’m just saying that you shouldn’t neglect the smaller commercial deals in your pipeline because they are probably the only deals that will close.

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