I recently watched a TV commercial for a local bank. At first I thought the ad was for a travel website, because they showed families enjoying their vacation. Then I realized they were selling their ATM access. Nothing was said about loan programs or commercial lending. The fact is, they don’t want borrowers to contact them because the answer is most likely going to be NO.
When borrowers and brokers send us a request for commercial real estate funding, we always respond with questions. Every loan request that comes to us is in raw form and needs to be prepared for lender review. Many times these loans are prepared by a third party and when asking for additional information the client points to an extensive business plan, which may have been written for a different audience.
Commercial Loan Packaging
Thank you for taking time to read this blog. You certainly could be doing other things and you most likely appreciate reading a message that is well articulated, with proper use of grammar and correct spelling and punctuation. I spent time thinking about the points I wanted to highlight and proofread my draft before publishing it on the website. I hope you find this article thought provoking and entertaining.
If I wrote this using my smartphone, I would leave out some important points. It would have numerous spelling errors, lots of abbreviations, and would be all lower-case. You probably would not bother to read all of the text because you would get annoyed with translating SMS language to English.
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Commercial Lending Report
Even with uncertain economic indicators and slow hiring, rental housing demands are increasing. Conditions remain favorable for multifamily markets across the nation. The demographic trends indicate high levels of immigration, the surge in echo boomers forming their own households, a further shift away from homeownership, and the growing diversity in household composition support continued demand for rental housing.
You are probably wondering what the title of this article has to do with the business of Private Lending for Commercial Real Estate. I was listening to the Tom Petty song and thought about the important attributes of commercial real estate brokers. In our business, success comes from being patient and understanding the timing of the process.
If you are looking for a business loan, commercial real estate loan, or looking to raise equity for a commercial project, you are likely going to work with a commercial loan broker to raise the capital. This article addresses the quandary known as the broker chain. If a broker chain is formed to find a source for funding a project, the process is likely to be impeded by weak links in the chain.
What is a Broker Chain
Commercial lending, for the most part is based on the value and performance of the commercial assets used as collateral. Because of the focus on the asset performance, many borrowers expect commercial loans to be non-recourse.
Most borrowers are optimistic investors leaving much to chance. Most private lenders are bullish and use mathematical models to provide risk assessment. Loan originators are jammed up in the middle.
Have you applied for a commercial loan lately? Most banks are not doing commercial loans and others just wait forever to give you an answer. They don’t want to lose you as a customer and they really don’t want to fund your project.
Commercial loan brokers are aware of the painfully long process of closing a loan for commercial real estate. The process will take several months to complete. It can be even longer for construction loans or business loans that are not tied to commercial assets. For example, HUD loans can take 18 months to fund. Recently, a borrower in Honolulu came to me to refinance an operating assisted living facility. He has been working with a local bank to refinance for 6 months and still does not have an answer.
One of my favorite movies is Easy Money with Rodney Dangerfield and Joe Pesci.
Rodney’s character made a deal to give up all of his vices to inherit his mother-in-law’s fortune. It turned out to be harder than he imagined.
There is nothing “easy” about obtaining a Hard Money loan from a private lender. It is a proposition based on risk. The lender assumes the risk of repayment of a highly leveraged loan, the borrower assumes risk of paying up-front fees to someone who will not perform, and the brokers assume the risk of getting squeezed out of the deal. Hard money fees can be as high as 10 points with interest rates above 12% and upwards of 20%.
My wife, Monalisa and I just celebrated our 27th anniversary. She is my soul mate and I could never have found a better person to spend my life with. We have truly loved and respected each other all these years and are the perfect match.
The Perfect Match
By now you know that I am a Consultant representing Private Lenders for Commercial Real Estate. Those of us in this business specialize in certain types of loans, based on the offerings of our Lending Groups. One of the problems in this industry is that the lending groups are looking for the perfect match.
This article may seem self-deprecating as I try to give a realistic view of Private Lending Groups for Commercial Real Estate. Many agents contact me with loan requests that were turned down by their lender. Instead of walking away, they try to find someone who can solve their problem. We all do this because we want to help our clients. That should be a good thing, but it is frowned upon by the Lending Groups.
As a private lender for commercial real estate, I receive requests everyday for loans and equity partnerships. On average, about 1 out of 100 is presentable to the lender and 1 out of 25 of those is fundable. If you are a broker or an investor looking for a loan for a commercial real estate purchase or refinance, you could save yourself some time and frustration by giving the lender what they need to evaluate your request.
This time I thought the picture makes a great point. Every business plan is good for something – then there’s that whole perceived value thing. This article will give some tips to creating an executive summary targeted to private lenders for commercial real estate.
Personalize Each Submission
Investors looking for funding or joint ventures should tailor their documents to match the recipient’s interest if they wish to be taken seriously. Continue reading The Art of Writing an Executive Summary for Private Lending
I grew up in Woodbridge, NJ, which is about 30 minutes by train to NYC. When my Mom was walking out the door, if we asked where she was going, her response was typically something like, “Up the pig’s ass for a ham sandwich. You wanna come?” I miss my Mom, she had a great way of getting her point across.
Commercial Real Estate – Best Hedge against Inflation
According to the National Real Estate Investor website, the outlook for real estate investments in 2011 is optimistic. “An improving economy combined with a thaw in the capital markets and limited new supply led to a big spike in investor confidence in the fourth quarter”nreionline.com .
The Treasury Department in U.S. is finally here with a concrete step to remain within the Federal debt limit. It has been decided by the department to keep funding the government without crossing the national debt limit. This is indeed a commendable step.
As per the settlement between the Obama administration and Congress, increase in the debt ceiling has been approved. The “debt-issuance suspension period” has been announced by the U.S. government under the specific act which governs the Civil Service Retirement and Disability Fund. This will help the government to convert the remaining treasury securities used for funding and put it to good use for other improvements.
Here are some links to the links I found in my search.
# 10 – Top 10 things to do before starting a business
It’s an exciting time for the Private Commercial Lending industry. 2012 trends are showing growth for commercial investments and many regional and local banks have started lending again for commercial projects. The demand for private money is still very high as the banks and mortgage companies are still avoiding construction and land development. Also the recent years’ lack of funding for notes coming due and distressed properties has left the door open for Hard Money Lenders and Equity Lenders.