Monday, November 12, 2007 - Article by: Lender411 Member
There is a huge misconception that commercial real estate lending - especially the small-balance stuff - is either: 1) being ignored by regular banks or underwritten and stipped to the point of impossibility; 2) only serviced by hard-money lenders who are perceived to be vultures ready to pick the meat off of the bones of your borrower; 3) so brain-draining to close with anyone that it is not worth the time, effort, Advil, Mylanta, therapy, etc. to make it worthwhile.
These perceptions are just not true in today's market! Fear of the unknown, or the circulation of a few horror stories, makes this realm of business seem unapproachable. Remember the stories that circulated when we were kids about eating Pop Rocks and drinking soda at the same time? You would explode, right? Sure - there was a kid in the next town over that died from it, but the soda company paid off the family so that is why it never hit the paper... See where I am going with this?
Please understand, I am not a commercial lender and I am not trying to push loan programs. Our company provides commercial real estate loan closing doc solutions to commercial lenders, so we definitely have our pulse on who is operating in the small-balance ($100K-$25MM) arena, what type of programs are out there, the kind of volume they are doing, who is table funding, who is accepting broker deals, and what combinations work.
We had one client who had an incredible machine operating prior to being pulled into the subprime vortex. They had a commercial lending cell as a part of their subprime division. Their residential brokers mined for business from their customers and were able to generate about 50% of the business for the commercial group - mainly o/o commercial structures, self-storage, small strip centers, small apartment complexes, etc. Unfortunately, the commercial cell was tied to the subprime group, so when the mother ship went down, it took the highly-profitable commercial group with it.
For all of you residential loan brokers out there who have lost volume recently, you could use this same cross-marketing approach to generate more business (minus going down with the mother ship) for yourself!! A lot of your clients have small commercial dabblings, and you can very easily scoop that business if you make them aware you are able! If you have gained their trust in a situation as intimate as providing financing for their personal residence, you have a huge open door in front of you!
To be effective, you have to arm yourself with information - and there is quite a bit of information out there if you look. If you email, I can give you at least a few leads of lenders (bank, private, and hard money) that are either protecting brokers or table-funding (for those who don't know, table-funding is where your lender does all of the underwriting and closing doc prep, allows you to close the loan in your name, and assign it to them concurrent with closing - you get to keep the relationship all the way through, and they get to steer the loan process).
A lot of banks - local, regional, and national - are launching small-balance programs, so if you know where to look, you can source lenders for your transactions quite readily. Again, if you need a few suggestions, email me and I will try to steer you to a few operating in your area.
Hard money lenders perform a needed service in the real estate market. There are some sharks out there, no doubt, but there are also some straight-up lenders, too. Rates are high, but sometimes the circumstance and the margins justify the additional cost. Remember, things are viewed differently in a commercial transaction as compared to a residential transaction. Expensive debt is still cheaper than cheap equity in most cases...
Commercial transactions tend to be a little more negotiated, but a lot of the same streamlining that exists in residential lending is seeing its way into commercial small-balance lending. You have more information to collect on the front end because you have to get property information (rent rolls, leases, etc.) and due diligence info on the borrowing entity as well as the principals - so what? A few more items on the checklist and a little more legwork on your part. Don't you think points on a $3.5MM commercial strip center vs. points on a $120K residence justify a little more work?
Didn't find the answer you wanted? Ask one of your own.