Commercial Loans and Fun Blog

There are 5,309 commercial banks in the United States.  There are over 35 conduits.  There are 7,165 credit unions.  There are 830 life insurance companies.  Most of these institutions make commercial real estate loans.

Nevertheless, if you look back at the commercial loans that you closed last year, you'll probably find that three or four commercial lenders closed more than 75% of your commercial loans.  These are the commercial lenders that feed you and your family.  Their closings pay for your kid's college tuition.  They are your bread-and-butter.  And you know what?  You're not alone.  This reality is also true for the vast majority of all commercial mortgage brokers and commercial mortgage bankers.

By the way, do you remember the difference between a mortgage broker and a mortgage banker?  A mortgage banker is defined as a mortgage company that either retains or sells its loan servicing rights.  As a result, mortgage bankers typically make a whole lot more money (on the order of ten times more) than the typical mortgage broker.  How many times have I told you that loan servicing income is where the money is?  It's the loan servicing income, stupid! (As a presidential candidate, Bill Clinton had a famous yellow Post-It Note over his desk, 'It's the economy, stupid!'")

The same truth also applies to commercial real estate loan officers for bank, conduits, and hard money commercial lenders.  The typical commercial real estate loan officer working for a direct lender closes 75% of his commercial loans for his six best brokers.  These brokers are his buddies.  He has a relationship with them.  They know what he needs, and they don't waste his time bringing him unsuitable borrowers.  He knows that when they show up at his door with a package that the deal is almost certainly do-able.

"Duh, I'm kinda 'tupid, but I think I want to be one of those six brokers."  You betcha!  You definitely want a relationship with your bank loan officer.  I be dying if I be lying:  I once had an incredibly successful commercial mortgage broker buddy who would bring two hookers and cocaine to his bank loan officer every time he brought him a loan package!  Nooo??!!!  Yup.  This mortgage broker knew the bank's apartment loan program so well that he knew the bank was going to approve the loan, so he brought along the "party favors" ahead of time.  A lot of borderline deals got approved this way.  (Sadly my buddy ended up a drug addict living outside a mission in the Tenderloin District of San Francsico, and the bank ended up failing.)  Please do not bring drugs or hookers to my own loan officers!  Ha-ha!

The reason I'm blogging on this subject tonight is because my sons, George IV and Tom (now both commissioned loan officers), are pretty envious of Alicia Gandy, our top performing loan officer.  Alicia is known as the Loan Goddess because she closes 60% of our company's commercial loans.  How does she do it?  What is she doing right?  How can my sons and you enjoy this kind of success?

Answer:  Alicia has a great working relationship with a half-dozen really successful commercial mortgage brokers.  These six brokers bring her a ton of great loans.  And for each one of these top-producing mortgage brokers, Alicia is no doubt one of their three or four top-producing commercial lenders.

Now we can finally get to the point of today's training article:  As a regular commercial mortgage borrower, commercial mortgage broker, or real estate broker, you need to develop a close working relationship with three or four commercial lenders.  It's all about the relationship.  Remember that old blog article I wrote about my final words to my sons.  "Commercial lenders close loans for their friends."  If you have never read this old blog article, you are missing out on a subject SO IMPORTANT that they were my dying words.

The following is admittedly self-serving, but there is a HUGE reason why you want to develop a close working relationship with my one of my loan officers: Tom Blackburne, George Blackburne IV, Alicia Gandy, or Ed Hupp:

Blackburne & Sons is one of the few commercial real estate lenders
that stayed in the commercial real estate lending market
EVERY DAY of the Great Recession.

We're different than other commercial lenders.  We are NOT a mortgage fund (although we sponsor two of them).  I don't like funds.  Instead, we syndicate every single commercial loan with a different group of private investors. And you know what?  Even if a horrible terrorist attack took place today, we could still syndicate the investors to fund your deal.  The rate would obviously have to be higher because of the fear factor, but there is some interest rate that would bring out the wisest private investors. 

Blackburne & Sons is the one commercial lender that is always in the market.  Since 1980.

Keep looking for bankers who are making commercial real estate loans.  We'll trade you the contents of a single business card for a directory of 2,000 commercial real estate lenders.  We solicit these bankers for their turndowns.

Registration is just a fancy word for typing in your name, address, etc.  We want you registered on C-Loans.com so that you'll be in a sprint start to enter your next commercial loan.  Here is our bribe, and its a sweet one!

Need a commercial real estate loan.  Don't hop from lender to lender, repeating the same work each time.  Instead use C-Loans.com.  It's free!

During the Great Recession, most commercial mortgage brokers starved.  Right now, however, is a GREAT time to be a commercial mortgage broker.  More commercial loans are ballooning this year than in any year in history!!!

The money in the mortgage business is in loan servicing fees.  They are TEN times larger than loan fees.  And the easiest way to start servicing loans?  Become a hard money lender.

Back in August of 2012, I wrote my most important blog article ever of the subject of commercial loans and commercial loan brokerage.  If you read only one commercial real estate finance training article in your lifetime, make sure you read my 2012 blog article entitled, The Most Important Lesson in All of Commercial Real Estate Finance.  This lesson is an advanced version of that article.

In real life, the typical commercial real estate loan officer working for a bank, a conduit, or a life company closes 80% of his commercial loans for just 5 or 6 mortgage brokers.  I am going to call these five or six mortgage bankers and mortgage brokers the loan officer's "best brokers".

By the way, do you know the difference between a mortgage banker and a mortgage broker?  A mortgage banker retains the loan servicing rights and typically earns between 8 and 32 basis points per year for collecting the loan payments on behalf of the lender.

I know that 10 basis points doesn't sound like much, but 10 basis points on a $20 million loan is $20,000 per year, just for collecting 12 payments and forwarding them on to the investor.  Remember this:  The real money is commercial real estate finance is in the loan servicing rights.

"Yeah, George, but servicing loans is hard."

Naw.  My beautiful bride serviced our first 30 commercial real estate loans out of a bedroom in our home, when George IV and Tommy were still both in diapers.  She did it with no loan servicing software, just using some payment books given to us by the title company.  The borrower would send in his payment book, along with his monthly check.  She would write in the payment book the total amount of his payment, the amount that went to interest, the amount that went to interest, and his remaining principal balance.  Then she would mail the payment book back to the borrower.  Voila!

Today, my hard money commercial mortgage company, Blackburne & Sons, services about 180 private money commercial loans, totaling around $40 million, for an average annual loan servicing fee of 200 basis points (2.0%).  You really-really owe it to yourself to do the math.  What is 2% of $40 million?  Now you can see why I say the real money in commercial real estate finance is in loan servicing fees.

Okay, now back to how most commercial loan officers close 80% of their loans for just 5 or 6 "best brokers".  The 2,000 other brokers who bring this loan officer deals account for a mere 20% of his total production.  And folks, this reality is probably true for almost every commercial real estate loan officer in the country.

So why do commercial loan officers close most of their deals with just a half-dozen of their "best brokers"?  Expediency.  A commercial loan officer cannot possibly train every mortgage broker who calls him in what exactly to look for in a deal.  There is simply not enough time in the day.

So most commercial loan officers end up training a mere half-dozen brokers in the finer details of his bank's particular commercial loan appetite.  As a result, since the lender has carefully trained these 5 to 6 brokers, he knows that if one of his best brokers does call that this best broker probably has a carefully-screened and do-able deal for him.  The lender takes his call.  For every other broker who calls, the commercial loan officer's staff often just takes a message.  Maybe the non-preferred mortgage broker get a call-back later, but often he doesn't.  Best brokers get priority.

There is a huge advantage to being a banker's best broker.  If a commercial lender likes you and/or considers you one of his best brokers, he will often overlook a black hair.  A black hair is a flaw in the deal.

Underwriting commercial real estate loans is not about finding a black hair in a deal and then turning it down.  The truth is that every commercial real estate loan ever made has had at least one or two black hairs.  The secret to underwriting commercial loans is to know how to properly weigh the strengths of the deal against the weaknesses.  If you are a banker's best broker (one of six or so), he won't get fixated on just one or two black hairs.

Okay, so obviously we all want to be some banker's best broker.  So how do you become a best broker?

A lot of it is luck.  If you happen to stumble upon a commercial loan that is perfect for some new lender, and he happens to close it for you, you both leave the relationship with a good feeling about each other.  The next time you call this lender, with one closing together already under your belt, he will be much more inclined to look favorably on your deal.

The lesson to be learned here is this:  Suppose you close a nice apartment deal with Bill Smith at Union Bank.  Suddenly, another sweet apartment deal falls in your lap.  Do you take the loan to Bill Smith again at Union Bank, or do you take it to Todd Stranger at JP Morgan Chase?  Maybe, under this fact pattern, you should take the deal back to Bill Smith and really cement that budding best broker relationship.

So how else can you become the best broker of a number of commercial loan officers?  Here are some thoughts:  (1) Deliver your commercial loan packages in person and schmooze the loan officer.  (2) Charm the receptionist or loan department secretary, so she will mention your name positively around the office.  Flowers.  Candies.  Compliments.  (3)  Take your loan officer to lunch.  (4)  Play golf with your banker.  (5)  Invite him to your home to watch football or to BBQ.  (6)  Perform a kindness or favor, like visiting him in the hospital or finding him a new book by his favorite author.  My darling wife taught me this.  If you want friends, be a friend.

This brings me to my last point.  I once shared that even though there are 750 different commercial lenders on C-Loans, fully 40% of our online loans are closed by the 30 or so "Proven Brokers" listed on C-Loans.  Why?  Because these Proven Brokers are the best brokers for three, four, or five different banks.  As a result, when they submit a loan to one of their banks, with whom they have a special relationship, the banker properly weighs the pro's and the con's of the deal, and the black hairs are often overlooked.

I know you guys prefer to deal directly with the bank, but there is a time to leverage the special relationship our Proven Brokers have with their banks.  Commercial loan brokerage is not so much about what you know, but rather with whom do you have a best broker relationship?

If you are new to this blog - perhaps because someone kindly re-Tweeted the article - and you felt like you learned something today, please be sure to come to the home page of our blog and subscribe to it by filling in your email address.  And to our regular, loyal readers, thank you so much for you recent re-Tweets, Facebook shares, and LinkedIn and Google Plus atta-boys.

I once paid a $21,250 referral fee to a guy who merely put a Commercial Loans link on his real estate website.  How would you like to get that phone call?

I like residual income - money that comes in every month whether I close any new loans or not.  Residual income, like loan servicing income, allows me to sleep at night.  A huge network of referring sources is not technically a form of residual income, but enjoying a steady flow of incoming leads every month sure chases away my mental storm clouds.

We have added my seven-hour audio course, Intermediate Commercial Mortgage Finance, to our famous (2,000+ graduates?) 9-hour basic training course, How to Broker Commercial Loans, all for just $549.

You can add my four-hour video course, How To Find Your Own Private Mortgage Investors, to the above training collection, and get all three training courses for just $849.  The real money in commercial real estate finance is in loan servicing fees.  The easiest way to get loan servicing rights is to become a hard money lender.  Its never been easier to raise money from private investors.  The banks are paying less than 0.50%.

My hard money commercial mortgage company is approving commercial loans like crazy these days.  Yield-desperate private investors are beating down our doors.  We need commercial loans!  And we issue Loan Approval Letters for no charge.  You can show our LAL to your banker and say, "A private money lender has already approved this loan.  You can beat these rates, right?"  It's a lot easier to meet lovely ladies when you already have a pretty girl on your arm.  And if the bank leaves you standing at the altar looking stupid, your borrower can always fall back on our loan.

C-Loans now arranges business loans NOT secured by real estate, like unsecured loans, equipment loans, inventory loans, accounts receivable loans, factoring, leasing, and asset-backed lines of credit.

Great commercial lenders are flocking to C-Loans again.  We recently signed up, in addition to a dozen other lenders, one of the largest investment banks in th world.

Sooner or later I am going to come to my senses and take this offer away.  "George, you stupid-stupid man, why are you giving away a list of 2,000 commercial real estate lenders - a list that cost you at least $10,000 to build - all for the contents of one lousy business card?"

Been cheated out of a $10,000 commercial loan fee yet?  If not, your impalement is coming.  It happens to all of us.  It happened to me so many times that I went to law school at night, graduated with honors, passed the Bar on my first attempt, and then never accepted a single law client, outside of my own company.  I would fall off my chair in shock if any other company had completed and won more loan fee collection suits than my own.  And no, I will NOT represent you.  But I will teach you my secrets.  Armed with these secrets, you won't need me.