Commercial Loans and Fun Blog

Sizing a Commercial Loan

Posted by George Blackburne on Wed, Jul 20, 2016

To many of you, Blackburne & Sons is an ancient commercial mortgage company; but we're "only" 36-years-old.  There are some commercial mortgage banking companies that make us look like wet-behind-the-ears youngsters, companies like Holiday, Fenoglio and Fowler, George Elkins Company, or George Smith Partners.

What is the difference between a commercial mortgage brokerage company and a commercial mortgage banking company?  A commercial mortgage banker is defined as a company that services its loans (collects the payments every month) for its investors.  Typically commercial mortgage bankers are correspondents for life companies; although Blackburne & Sons is arguably also a commercial mortgage banker because we collect the payments for our private investors and for our various mortgage pools.




Okay, but what is a correspondent?  A correspondent is a commercial loan origination company that acts as the branch office of a commercial lender.  Typically a correspondent is the exclusive representative of a lender for a specific area or region, like Southern California.

An example will make this clear.  Suppose you're a small life insurance company out of Indianapolis, Indiana named Grant Life Insurance Company.  You've only got $4 billion in assets, so you can't afford a branch office in every gateway city, where you greatly prefer to invest (make large permanent loans).  Therefore you set up seven or eight correspondents across the country to be your branch offices.

If a borrower calls the home office of Grant Life Insurance, the receptionist will ask him where the property is located.  If it is located in, say, San Francisco, the receptionist will look at her chart and see that George Smith Partners is the exclusive correspondent for Grant Life in the Bay Area.  The only way a borrower can get a commercial loan from Grant Life in the San Francisco Bay Area is through George Smith Partners.

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Although there are older commercial mortgage companies than Blackburne & Sons, in truth there are not a whole lot of them.  Why?  Because every 12 years or so, commercial real estate is hit by horrible depression, where commercial real estate falls by almost exactly 45%.  Almost exactly 45%?  In each of the three horrible commercial real estate depressions that I have endured since founding this company in 1980, commercial real estate fell by almost exactly 45%.

A good colonic is good for the industry.  Those commercial mortgage companies without loan servicing income are nuked off the face of the planet.  It's the loan servicing income, silly!  With 90% of the competition gone, the commercial mortgage bankers (they've got servicing income to tide them over) really mop up in the recovery years.




Okay, we're finally getting to the point of today's training article.  Even after 36 years in the commercial real estate finance ("CREF") business, I still learn new stuff from the "Big Boys" almost every day.

Funny story:  So I am at the Western States Commercial Real Estate Finance Conference, the biggest trade show of the year for the CREF industry, in late 2007.  I am boasting to an attendee that had placed $206 million in commercial real estate loans in 2006.  He was very polite and surprisingly humble, but then he informed me that the last commercial loan he closed (just one loan!) was for $250 million.  I felt like George Constanza coming out of a cold pool in that famous Seinfeld episode.  Humbled!  Ha-ha!  Yeah, the Big Boys.

Anyway, I subscribe to FinFacts, a wonderful newsletter published by George Smith Partners.  I religiously read these newsletters because they use lingo that I often have to research just to understand.  Remember, I write this blog to train my two sons and my wonderful staff in commercial real estate finance ("CREF").

In a recent FinFacts newsletter, the author deservedly boasted:  "Fixed for five years at SWAPs+225, the non-recourse loan was sized to 65% of current appraised value from a California Portfolio capital provider."

Note the expression, "sized to 65%".  That's the way the Big Boys say it.

Okay, so let's make some money together.  Do you have real estate web site?  This should be a no-brainer.  We once paid Alan Dunn a referral fee of $21,250, and he was sleeping when he send the lead to us!


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Surely you know at least one banker who is in the market to make commercial real estate loans.  We solicit these guys to send their turndowns to


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Attention Commercial Real Estate Brokers:  Poor folks do NOT own shopping centers.  Want to meet a half-dozen wealthy commercial real estate investors every day? Open a commercial mortgage company!  All you need is a desk and a phone.


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Do you need a lender who will allow a negative cash flow?  Do you need a lender who will also look at the borrower's global income - income from salaries, other investments, etc.?  Do you need a lender who will allow the seller to carry back a second mortgage?  Does your client have a balloon payment coming due on his commercial property?  Has your bank offered him a discounted pay-off?  Does your borrower have less-than-stellar credit?  Is your client's company losing money?  Is your borrower a foreign national?  Do you need a non-recourse loan?  Do you need a commercial loan with no prepayment penalty?  Is your client's commercial property partially vacant?  Do all of your commercial leases run out in the next 18 months?


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I write this blog to train my two wonderful sons in commercial real estate finance ("CREF"), and you get to peek in and learn as well for free!  I try to write at least two training articles in CREF very week.


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Topics: Sizing