Commercial Real Estate Loan Tips | C-Loans

When to Ask Your Commercial Borrower to Sign Your Fee Agreement

Mon, 28 Apr 2008 11:07:45 -0400

If You Ask Him to Sign a Fee Agreement Too Early, He'll Just Walk Away

Most experienced commercial mortgage brokers would agree that you should always get a signed fee agreement with your commercial borrower. But when do you ask him to sign it?

If the client is new and you ask him to sign a fee agreement right away, he’ll probably refuse. Commercial borrowers want the freedom to keep shopping for a better deal, and unfortunately there’s a competing commercial mortgage broker on every corner. If you try to force him to sign a fee agreement right out of the starting gate, your commercial borrower will probably just walk down the street to another broker.

Instead, you should just be patient. Convince your commercial borrower to send you his package. It’s often true that the first broker to get the borrower’s tax returns usually wins the deal. These tax returns are usually too thick to easily make multiple copies.

Once you have the borrower’s loan package, you should prepare a mini-package for prospective commercial lenders. We’re not talking about a lot of work here – just an Executive Loan Summary, some pictures, the pro forma operating statement, a lease schedule and a few years’ historical operating statements. You should be able to whip this up in less than an hour.

Armed with your mini-package, your various commercial lenders should be able to issue a verbal proposal. Be sure to tell your lender not to start work on a written term sheet until the borrower agrees to his terms by signing your fee agreement. Then take the best loan proposal and present it to your commercial borrower.

If he wants to proceed, it is now time to explain to him that he must first sign your fee agreement. If he refuses to sign it, you’re done. You’ve only lost about an hour on the phone and an hour preparing your mini-package. Just move on to your next deal.

Most commercial borrowers at this point, however, are anxious to move forward on their loan. They’ve invested a lot of time with you fetching various documents, and they certainly don’t want to start the whole process all over again. Therefore most commercial borrowers at this point will readily sign your fee agreement.

Once it is signed, you can then ask your lender to prepare a written term sheet. Your lender will appreciate knowing that the borrower has just signed your fee agreement – an agreement that described the bank’s loan terms – so your lender is not wasting his time.

No matter what, however, always get a signed fee agreement. Just about every experienced commercial mortgage broker can tell you a horror story about the time he failed to get a signed agreement. Ouch.

Need a good fee agreement? Our 90-minute fee collection video course is just $199.

Do you need a commercial real estate loan? You can apply to 750 different commercial real estate lenders in just four minutes with just one mini-app. And it's free. Click here to apply.

Commercial Real Estate Lenders, Make Sure the Appraiser is Loyal to YOU

Sun, 20 Apr 2008 05:21:11 -0400

If a Commercial Real Estate Appraiser is Loyal to the Borrower, He'll Bring in an Over-Inflated AppraisalSuppose a commercial real estate appraiser appraises a $1 million commercial building. Because commercial real estate appraising is so inexact, he can justifiably bring the appraisal in at $1.2 million or $800,000 - depending on whether he is loyal to the borrower or the lender.

Commercial real estate appraisers have a way of unconsciously trying to please the folks who are paying them. If they are hired by the commercial real estate lender, then they will appraise the commercial property very conservatively.

If a commercial real estate appraiser is hired by the borrower, however, he will too-often work hard to find comps (usually not quite so comparable) to justify a higher value. In fact, commercial real estate appraisers have a tendency of "falling in love with the borrower." By this I mean they become vested in the idea of helping this "poor borrower" get as large a loan as possible from this "big, mean mortgage company" who can probably afford a loss anyway because they are so rich from gouging borrowers with a high interest rate.

Therefore, as a lender making commercial real estate loans, it is critical that the commercial real estate appraiser be loyal to you and not the borrower. Otherwise, you'll be stuck with a portfolio of bad loans that are upside down; i.e., the loan is greater than the value of your collateral.

This is one of the reasons why experienced commercial real estate lenders insist on ordering the appraisal themselves. If the commercial real estate appraisal is ordered by the borrower or a mortgage broker, most experienced lenders will assume that the appraisal is tainted and over-valued.

Do you need a commercial real estate loan? C-Loans is a free databank of 750 commercial real estate lenders. You can apply to all 750 commercial lenders in just four minutes with one, simple mini-app. Click here to apply.

How a Commercial Mortgage Broker Survives Recessions

Mon, 14 Apr 2008 23:18:50 -0400

When the Music Stops in Musical Chairs, Will You Still Have a Chair?If you're a mortgage broker, right now the recession is probably kicking your tail. If you happen to survive, remember the economic pain you're feeling right now and vow to be better prepared for the next recession.

The wise mortgage broker runs his mortgage brokerage business with an eye towards how he will survive through the next recession. For example:

Never sign a long term lease. Instead, get your landlord to give you lots of one-year extensions. This way you only have to survive for a few more months until your lease expires, and then you can move into smaller, cheaper space.
Don't over-expand during recoveries. Leave some money on the table. Yes, it's true. If you add ten more employees you might make a bigger profit during boom times, but what are you going to do if those ten employees serve you loyally and well? Fire them at the first hint of a slowdown? Naw. You'll try to carry them way longer than you should. In the process, you'll have to draw down heavily on your line of credit. By the time you are finally forced to cut them loose, you could easily be so far in debt that you've passed the point of no return. You end up losing your company and all of the profits you made during the boom times. So don't over-expand during a boom!
It is almost impossible to cut someone's salary. If if they don't quit, they'll resent you. They'll hate you, as if you caused the recession. Instead, keep your base salaries low and simply compensate your loyal employees with frequent bonuses and incentives, like $50 per closing, etc.
Don't hesitate to move your office back into your home. In fact, you should pay extra and buy a bigger home, just in case you do have to retreat to the home. Borrowers understand. Recessions are tough on their businesses too.
During boom times, get your bank to approve a big line of credit. Borrow on it regularly, but quickly pay if off. When your loan balance is zero, and when your profits are booming, apply to your bank for increase in your operating line of credit. This way, when the recession comes, your line of credit will already be approved, and you can draw down on it.
Remember, a real estate recession will hit you hard every seven to ten years. You can bet on it. Run your business as if you are preparing your ark for a massive flood.

If you can survive the industry shakeout every seven to ten years, you'll be in a great position to enjoy big profits during the next recovery. Your competitors will be long gone, and your operation will, by necessity, be lean and mean. BUT ... you have to survive.

Need a commercial mortgage loan? You can apply to 750 different commercial mortgage lenders with one simple mini-app using C-Loans.com. And C-Loans is free. Click here to apply.

Commercial Loans Are Named After the Property

Fri, 28 Mar 2008 17:22:34 -0500

Always Give a Commercial Loan a Good Name

Let's suppose you're a commercial loan broker working on a commercial mortgage loan. Suppose three couples own a small office building as tenants-in-common, the Smith’s, the Jones and the Kowalski’s. Should you call this the Smith loan? The Kowalski loan? No.

Commercial loans are named after the property.
Often this is easy. The property might have a sign that says, the “Shade Tree Office Suites.” Obviously you should usually name the property according to the sign on the building.
But you have to be careful. Oak Park is an infamous, crime-ridden section of Sacramento, California. If the name on the building was, the “Oak Park Office Suites,” you shouldn't use it. As soon as the lender saw the words, “Oak Park”, the deal would be dead. Instead, you might use, the “West Side Office Suites.”
Always give a commercial loan a good name.
Do you need a commercial loan? You can apply to 750 different commercial lenders in just four minutes using C-Loans.com. Simply key in your commercial loan needs. The computer will then exclude every unsuitable commercial lender and suggest a list of 40 or so perfect commercial real estate lenders for your deal. And C-Loans.com is free.

Understanding Energy Efficient and Green Buildings

Fri, 14 Mar 2008 15:49:24 -0500

Gorgeous, Well-Located Brown Buildings May Soon No Longer Qualify as Class A BuildingsAn office building developer recently wrote to me about how important it is that all new buildings be designed to be green.

"If someone does not understand what LEED Platinum is, it is akin to 1990 when someone said they were getting a “cell” phone, or 5 or 6 years ago when someone mentioned “hybrid” car.

"Those that know what “LEED” is tend to be more aware of what is happening in the world of buildings. I would venture to say that 100% of licensed Architects, 98% of commercial office building construction companies, and 70-80% of commercial real estate brokers are very familiar with LEED. You are correct here because I would also estimate that only 10-20% of Bankers are even slightly informed.

"I was in San Francisco a couple of weeks ago for the Green Building Finance Forum and one of the tide changing consensus items was that in one or two years at the most, an office building will not qualify as “Class A” by the leasing industry unless it is LEED certified, regardless of how well it is located, how new it is, or how nice it is.

"There are “green” buildings and there are “brown” buildings. Any building that is in the planning stages or under construction that is not LEED certified is already obsolete. Brown buildings will be the new “office ghettos”. Kinda like the poor guy selling motorhomes or Chevy Suburbans when gas is $5 per gallon and rising. LEED certified buildings are taking the market share like the Toyota Prius did to the Hummer.

He went on talk about the energy efficiency of his own new building:

Independence Station beat the strict Oregon Energy Code by an astounding 74% and our energy cost budget is 92% less that in a comparable brown building. What do you think that does to the NOI and the value from the cap rate?

"What on earth does LEED mean anyway?" I asked.

LEED stands for Leadership in Environmental and Energy Design. It basically is a point based, voluntary building code (about to become law in San Francisco) and is administered by the US Green Building Council (see www.usgbc.org). It is kinda like the Energy Star program is for appliances.

Apply to over 750 commercial real estate lenders in just four minutes using the same mini-app. And it's free. Please click here: C-Loans.com

You are invited to comment.

How to Survive This Horrible Recession in Mortgage Lending

Fri, 07 Mar 2008 11:35:40 -0500

Here are Ten Survival TipsThe mortgage business has been very slow recently, and it's not likely to get better for at least a few more years. If you're a mortgage broker, here are some tips that may help you survive on far less income.

If your operation is small, close your office. Retreat back to an office in your home. Don't worry about your image. Every else in America is cutting back as well.
If your operation is too large, then retreat to a smaller, less expensive office the moment your current lease expires. And in your next life as a mortgage company owner, never sign a long term lease! Sign short term leases with lots of options to extend.
If you have dozens of loan agents, you don't need an assigned desk for every one. Instead, provide desks for about 30% of the number of loan officers currently working full or part-time for your company. Each desk just needs a phone and a networked computer. No one gets an assigned desk. In real life, only a handful of your loan agents will ever be working the floor at any one time anyway. This allows you to lease far less space and keeps your overhead down.
Make sure your loan agents know how to arrange both home loans and commercial loans. You need to be able to make some dough from any lead. The cheapest way to teach your staff how to arrange commercial loans is to order our nine-hour video training program. This way any new loan agents can quickly be taught commercial mortgage finance.
If you have a large mortgage company with lots of loan agents, you can hire me to fly out and train your entire staff in one nine-hour training session. The cost is $6,000. More on this ...
If you are going to broker commercial loans, concentrate on the do-able deals. For example, international commercial loans never close. Don't waste your time.
Don't work on construction loans. If the developer had enough cash into the deal, his own bank would have made the loan. Invariably the construction loan requests received by mortgage brokers are deals where the developer doesn't have enough skin in the game. They are a waste of time.
Unless you have been brokering commercial loans for at least five years, don't work on commercial loans larger than $5 million. Any investor strong enough to borrow $5 million knows fifty bankers personally. If the deal was do-able, they would have done the loan for him. These large deals are pipe dreams that waste your time.
Buy commercial mortgage leads from C-Loans. They cost only $1 to $3 each, plus 37.5 bps. if the deal closes.
Focus your extra time on developing a marketing list (direct mail, fax or email) of contracts who can refer deals to you. The best commercial leads are the ones that come from referrals.

You can submit your commercial loans to 750 different commercial lenders in just four minutes using C-Loans.com. It's free!

How about some more ideas? You can add to this blog post by clicking on the Comments link below.

The Window Is Closing for Subprime Commercial Borrowers

Wed, 05 Mar 2008 17:16:39 -0500

Tell Every Business Owner That You Know To Borrow NOW!Let's suppose you're a general purpose (both residential and commercial) mortgage broker and you're starving. Here's a good way to drum up some business.

Tell your auto repair mechanic, your favorite restaurant owner, and the owner of your pool cleaning service that it's last call for subprime commercial loans. I predict that the subprime commercial mortgage loan market will shrink by 75% within six months. If these small business owners are ever going to pull some equity out of their commercial buildings to tide them through the coming recession, it may be too late if they don't apply in the next few weeks.

The way that Wall Street lenders, like Bayview Financial (a fine firm and good friends of ours), raise their lending capital is to securitize their subprime commercial loans. They put the loans in a big pool. They assign the pool of loans to a trust. The trust issues bonds backed by the loans in the trust.

Then investment bankers sell these bonds into the Asset-Backed Securities (ABS) market. In addition to subprime commercial loans, credit card debt and car loans are also often sold as ABS bonds.

The problem is that the buyers of these ABS bonds are now requiring massively higher yields. I read in Bloomberg yesterday that the buyers of AAA-rated ABS bonds are currently demanding yields that are a full 2% (200 basis points!) higher than they were just eight months ago. The appetite for ABS bonds is clearly waning.

In addition, Wall Street subprime commercial lenders are also being forced to lower their loan-to-value ratios. For example, Silverhill Financial recently lowered its high-LTV program from 97% to just 85% loan-to-value.

These changes are a warning that the market for ABS bonds may be drying up. If Bayview, Lehman Brothers and the rest of the Wall Street subprime commercial lenders suddenly dial back their programs, the relatively tiny hard money commercial lending companies, like Blackburne and Brown, will be unable to handle the overflow. Subprime commercial mortgage lending could largely dry up, and it could happen very quickly.

Therefore you need to tell the owner of your favorite coffee shop and your auto body repair guy that if they are ever going to try to borrow against their buildings, they better do it now!

You can apply to 750 different commercial mortgage lenders, including dozens of different subprime commercial lenders, in just four minutes using C-Loans.com. And it's free! Please click here.

Smaller Banks Are Stealing Commercial Loan Market Share From the Money Center Banks

Wed, 27 Feb 2008 01:08:29 -0500

The Money Center Banks Are Limiting New Commercial Loans Due to Subprime LossesSeven months ago the money center banks were making lots and lots of commercial real estate loans. By money center banks I mean the big nationwide banks, like Citicorp, Bank of America, JP Morgan Chase, Wells Fargo Bank and Wachovia.

Unfortunately for most of the money center banks, they were participants in the residential mortgage backed securities pipeline. They made alt-A home loans and subprime home loans, and they briefly held these loans in their portfolio until the loans were ready to be securitized.

Then the music stopped. The market for residential mortgage-backed securities secured by alt-A and subprime home loans suddenly dried up. There were no more buyers.

As a result, the money center banks found themselves stuck with tens of billions of dollars of these risky home loans on their books. They lost a lot of their liquidity, and they are all terrified of future loans losses.

The end result is that the money center banks have largely frozen their balance sheets. They aren't making a lot of loans of any type, so their commercial real estate loan volume is down sharply.

Fortunately most of the smaller commecial banks were not involved in securitizing subprime home loans. Therefore they were not stuck with billions of dollars of crumby home loans when the music stopped, and they still have an appetite for new commercial real estate loans.

So if you need a commercial real estate loan today, and your deal is clearly bankable, look for a smaller bank to make the deal.

You can also apply to 750 different banks for a commercial loan in just four minutes using C-Loans.com.

You Better RUN to Your Commercial Lender

Mon, 25 Feb 2008 18:20:57 -0500

It Would Be Lunacy to Delay Applying for a Commercial Real Estate Loan Right NowMortgage money for commercial real estate loans is drying up. Officially several thousand banks are still in the market to make commercial loans, but in practice the banks simply aren't approving many deals. The volume of commercial real estate lending by banks is down by more than 60% since last August. A commercial loan has to be almost perfect to get approved by a bank these days.

And the situation is going to get worse. Most western countries are in the midst of a credit crunch. The money supply is steadily shrinking. Commercial real estate lenders are getting more and more frightened. This tight money situation could continue for seven to ten years ... or maybe longer. Japan's money supply began to contract when it's stock market crashed in 1990. Eighteen years later banks in Japan are still very cautious about lending.

If you have a balloon payment coming due on any of your commercial properties in the next three to four years, you better run, not walk, down to the nearest bank first thing tomorrow.

You can also apply for a commercial real estate loan to 750 different banks in just four minutes using C-Loans.com. And C-Loans is free! Please click here to apply.

Hard Money Commercial Lenders Likely to Get More Picky

Thu, 21 Feb 2008 11:25:37 -0500

As the Banks Stop Lending, Hard Money Commercial Lenders Are Getting the OverflowCommercial banks are scared. They lost billions of dollars when the market for subprime and alt-A residential loans suddenly dried up. They are stuck with billions of dollars of these risky home loans sitting on their balance sheets.

In response, most commercial banks have virtually stopped making commercial real estate loans. They are not officially out of the market , and if a commercial deal is perfect, they might still make the loan, after an extra two weeks of anguishing over the deal. But for all practical purposes, the banks have stopped making any significant volume of commercial real estate loans.

As the saying goes, "Stuff flows downhill." Since the banks aren't making commercial real estate loans, these loans are flowing to the Wall Street subprime commercial lenders and the hard money commercial lenders. My own hard money commercial lending company, Blackburne & Brown, is enjoying a terrific volume of very fine commercial loan applications.

I spoke with the owners of four other hard money commercial lending companies last week, and they all reported wonderful increases in their commercial loan application volume. Each one was amazed by the quality of the deals that they are being asked to make. We are all seeing bankable borrowers knock on our doors.

This is all great for my buddies and me, but if you are a subprime commercial borrower, you better get your commercial loan application submitted to us very soon. Otherwise you might find all of the hard money commercial lenders too picky to fund your less-than-perfect commercial real estate loan. Please click here to apply.

Where Are All of the Commercial Real Estate Lenders?

Thu, 14 Feb 2008 10:41:31 -0500

Attendance at the Mortgage Bankers Association's Annual Commercial Real Estate Finance Conference Was DismalI own a commercial mortgage portal known as C-Loans.com, and we exhibited at the annual Mortgage Bankers Association Commercial Real Estate Finance Conference in Orlando, Florida last week. The attendance was just a fraction - maybe just 30% - of last year's attendance.

Why was attendance so low? It's a reflection of the level of commercial lending activity right now. Banks and conduits simply aren't making a lot of commercial real estate loans right now. And when commercial mortgage lending volume is down by 70%, so is the fee income of most commercial real estate lenders. Commercial banks and commercial mortgage banking companies simply couldn't afford to send their agents to attend the conference.

I remember thinking as I manned the C-Loans exhibit booth the first morning, "Gee, I guess the big surge will come tomorrow." In reality, the pathetic first day of the conference ended up being the busiest day.

These are not good times for the commercial real estate lending business.

Fortunately I own a hard money commercial lending company known as Blackburne & Brown, and we are receiving a nice volume of loan requests right now. The reason why is because the banks are turning down most new commercial real estate loan requests right now. If you happen to need a commercial real estate loan, please click here. If you fill out the little mini-app, it comes directly to me, George Blackburne, the owner of Blackburne & Brown.

Business and Industries Loans from the Department of Agriculture

Tue, 05 Feb 2008 20:26:08 -0500

This Government Guaranteed Loan Program is For Communities of Less Than 50,000There is a very attractive new commercial loan program for commercial properties located in rural areas. The Department of Agriculture guarantees these loans, up to 90%, in a manner similar to that of the SBA.

The important difference is that these properties can even be investor properties, such as apartments! The Department of Agriculture will also guarantee loans on most rural commercial buildings, medical clinics, and other special-use properties.

The property must be located in a town of less than 50,000 in population. The maximum loan is $10 million.

If you need such a loan, please call David Painter at United Western Bank at 503-481-4528 (cell) or 503-535-8808 (office) or email him at dpainter@uwbank.com

And would you please be sure to remind him that the deal came from C-Loans? Thanks!

Commercial Financing - Fee Collection Tips

Thu, 17 Jan 2008 11:58:19 -0500

It is Often Economically Infeasible to Hire an Attorney to Collect a Loan Fee

Let's suppose a borrower cheats you out of a loan fee of $10,000 and you decide to sue him. The problem is that if you hire an attorney to represent you, he'll likely charge you $25,000 to $40,000 to handle the case through trial. Even if you eventually win, it will be a pyrrhic victory. You will have spent $35,000 to collect $10,000.

The reason you may be tempted to hire an attorney is because your mortgage company is a corporation or an LLC. Corporations and LLC's must be represented by an attorney in civil court.

One way around this is to include an arbitration clause in your fee agreements. In most states, corporations and LLC's can be represented by non-attorneys at the arbitration.

If, however, you failed to include an arbitration provision in your fee agreement, there is another solution. Your corporation or LLC can always assign the cause of action to you personally. Then you can, as an individual, sue the bad guy in pro per (as an individual without an attorney). Individuals are not required by law to be represented by an attorney.

You can apply to hundred of commercial lenders in just four minutes using C-Loans.com. And C-Loans is free!

Commercial Financing - Do You Have an Over-Leveraged Commercial Property?

Mon, 31 Dec 2007 12:52:50 -0500

Blackburne & Brown Can Bring Equity Dollars Into Your Deal to Reduce the DebtLet's suppose you own a $1 million commercial property, and your existing loan of $800,000 is ballooning. You've contacted scores of lenders, and no one will lend you more than $700,000. They are all telling you that you'll have to bring $100,000 in cash into the closing in order to reduce your existing loan balance.

The problem is that you don't have an extra $100,000. Yikes!

Now you can try to sell your commercial building, but the moment the buyer discovers that your existing lender has filed foreclosure, he'll only find some cruel excuse to back out of the deal. His plan will be to buy the property from the lender at a discount after foreclosure.

You're toast. What can you do?

Blackburne & Brown is a hard money lender that also has an equity investment division. We can actually bring equity into your deal to reduce your debt. Now this investment is not a loan. No-no-no! It's an investment in the property. In return, Blackburne & Brown takes a share of the equity.

In the above example, Blackburne & Brown would invest $100,000 in the property to reduce your existing loan to $700,000. Ownership of the property would be transferred to an LLC, of which you, the existing owner, would own the lion's share. You would even continue to manage the property for a fee to be negotiated.

So if you need equity dollars contributed to your deal, please call Warren More at 916-338-3232 or email him at wmore@blackburne.com.

You can apply to 750 different, direct commercial mortgage lenders using a four-minute mini-app. Just click here.

Commercial Financing - Does Your Subdivision Builder Have Enough Equity?

Thu, 20 Dec 2007 10:57:36 -0500

Residential Subdivision Construction Lenders Now Require 25% of EquityA subdivision developer is usually required by his construction lender to contribute a certain percentage of the total cost to build the subdivision. For example, if the total cost of the project is $10 million, historically his construction lender will require that the developer contribute 20% of the total cost of the project, which in our example would be $2 million.

Homes were selling like hotcakes three years ago. Aggressive banks, in order to attract more subdivision construction loans, were making loans as high as 90% of cost. In the above $10 million example, this meant that builder only had to contribute $1 million in equity versus the traditional $2 million in equity.

With the housing bust, however, residential subdivision construction lenders have become far more conservative. In today's market, a builder may even be required to contribute 25% of the total cost of the project.

If you are a mortgage broker, and you're working on a residential subdivision construction loan, the very first thing you need to feret out is how much bona fide equity your developer has in the project. If he hasn't contributed at least 20% of the total cost of the residential project, the deal is probably not going to get funded for a few years.

You can submit your commercial construction deal to hundreds of hungry construction lenders with one, easy mini-app. And C-Loans.com is free. To submit your deal, please click here.

Commercial Real Estate Loan Tips | C-Loans

When to Ask Your Commercial Borrower to Sign Your Fee Agreement

See Also

Commercial Real Estate Lenders, Make Sure the Appraiser is Loyal to YOU

See Also

How a Commercial Mortgage Broker Survives Recessions

See Also

Commercial Loans Are Named After the Property

See Also

Understanding Energy Efficient and Green Buildings

See Also

How to Survive This Horrible Recession in Mortgage Lending

See Also

The Window Is Closing for Subprime Commercial Borrowers

See Also

Smaller Banks Are Stealing Commercial Loan Market Share From the Money Center Banks

See Also

You Better RUN to Your Commercial Lender

See Also

Hard Money Commercial Lenders Likely to Get More Picky

See Also

Where Are All of the Commercial Real Estate Lenders?

See Also

Business and Industries Loans from the Department of Agriculture

See Also

Commercial Financing - Fee Collection Tips

See Also

Commercial Financing - Do You Have an Over-Leveraged Commercial Property?

See Also

Commercial Financing - Does Your Subdivision Builder Have Enough Equity?

See Also