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Jun 01, 2005

The commercial corner: Start off right in commercial lending by avoiding common mistakesMike Boggianocommercial lending, lender database, borrower qualifications, marketing strategy The Mortgage Press is pleased to present "The Commercial Corner," a monthly column by Mike Boggiano of Silver Hill Financial LLC dedicated to answering your questions about the commercial mortgage marketplace. If you have a question that you would like answered in a future installment of "The Commercial Corner," please e-mail [email protected]. When starting something new, knowing what mistakes to avoid can often be the most valuable advice. Three common mistakes made by brokers entering the commercial arena are: An inadequate commercial lender database; insufficient knowledge of the borrower's objectives; and the lack of a strategy for getting started in originating commercial loans. The answers to the following related questions can help position you for success. How can I develop a viable commercial lender database? Commercial lender options range from the local bank on the corner to private hard money equity lenders. Locating them is as easy as attending your state's mortgage industry trade shows, reading industry publications, and searching for commercial lenders online and in telephone directories. At a minimum, you should have a stable of lenders that can provide the following financing: •Full doc borrowers •Stated-income/stated-asset borrowers •Small business administration •Conduit •Hard money equity lenders Identifying the lenders is the easy partqualifying them is a bit more challenging, as it is critical that you align yourself with lenders that will consistently deliver a high level of customer service. Remember that word of mouth is still a powerful evaluation tool. Request references from brokers who have submitted and closed transactions with the specific lender(s) you are evaluating. Inquire about overall production from the previous year, year to date and current year goals. Finally, gauge their reputation in the broker community relative to ease of use and the training resources they offer. These are all great indicators regarding a lender's ability to deliver on your transactions. Once you have identified your database, learn all you can about each loan program through your own research or by requesting specific information. One thing is certain: The more outlets you can offer your clients, the more of a resource you will become to them. How can I gain a clear understanding of my borrower's objectives? The more you know, the better the service you will provide to your customer. Knowledge starts with the initial interviewinquiring about a borrower's investment strategy and the level of documentation they can provide is critical in placing the client with the appropriate lender and program. Sample questions include but are not limited to: •What is the expected holding time for this investment? •What is the current condition of the property? •What is the tenant mix of the property? •What is the occupancy level? •Does it require rehab? •Are there internal and external pictures available? •Is the property owner-occupied or an investment? •How was the value of the property derived? Is it supportable? •What is the balance due on the mortgage? •What is the history of the mortgage payments? •Are the most current operating statements and rent roll available? The past two years of operating statements? •Are the borrower's current and past two years' tax returns available? •Is a credit report available? What is the borrower's credit score? •What is the structure of the ownership entity? Individual or corporate entity? The answers to these and similar questions should elicit some insight into your client's goals and objectives. Managing the client's expectations is crucial in developing long-term relationships. How can I develop a strategy for getting started in originating commercial loans? One of my favorite quotes is, "If you aim at nothing, you hit it every time." This is very applicable when undertaking a new business endeavor. Brokers new to commercial lending are wise to select a mentor who can show them the ropes of commercial originations. This person could be another broker (although typically a costly proposition as there will be a split in commissions) or a lender that is willing to provide training. Various programs are also available in the marketplace to help you gain sufficient knowledge about commercial lending practices. Equally as important is the step of identifying the markets, lenders and borrowers you will target and how you will meet their needs. Your mentor can provide advice with respect to setting goals in these areas. In addition, you will find value in a commercial lending firm that offers a comprehensive development program. Begin with transactions that are a natural extension of your existing residential business and not too complex. Small-balance multifamily and/or mixed-use transactions are a great starting point for the transition into commercial brokering. The key is to continually upgrade your knowledge by creating and sustaining momentum through closing deals, which helps you gain the necessary confidence to move on to more complex transactions and expand into different lending programs. Commercial lending is a challenging and rewarding career. By doing your homework, building relationships and establishing clear objectives for your business, you will be well positioned to succeed. Mike Boggiano is senior vice president, national sales manager for Silver Hill Financial LLC. He may be reached at (877) 676-1562 or e-mail [email protected].
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