Bringing commercial deals into focus Art Swiatkowskicommercial loans, useful tips, getting started
When talking with residential brokers who are looking to put
their toe into the pool of the commercial and income property
world, I've found there's one thing they all seem to want more than
a life preserver: They want ideas on how to source commercial
deals. They want a foolproof, easy-to-execute plan that will bring
hordes of commercial leads to their door.
If you are a residential originator looking for marketing ideas
to attract commercial business to your shop, there are two
questions you need to answer before you can implement a successful
marketing campaign. First ask yourself, "Where do I start my
journey into commercial lending?" And second, "Why is this a good
place to start?" These are critical questions for the originator
with little or no experience in the world of commercial lending.
The answer to these questions is a matter of focus.
Where?
Rather than trying to provide every available commercial product to
all possible prospects, it is wiser for novices to narrow the scope
of their marketing effort to a specific group or category. Trying
to be all things to all people is an overwhelming task. Reducing
your focus will help make the transition to commercial lending more
manageable, and your success more achievable.
One area of focus that makes sense for the novice is
small-balance commercial deals, say under $1 million. The
marketplace has more properties that will lend themselves to this
range of financing and they tend to be less complicated
transactions than larger deals. For the uninitiated, the lure of a
big commission from a big commercial deal often ends in frustration
and much wasted time and effort. To start, keep it simple by
keeping it small.
Further refining your focus, you can choose to work with
prospects in a specific industry or entities that may have a need
for a commercial real estate loan such as property investors, bar
and restaurant owners, retail or manufacturing businesses, or
medical and dental practices. If you have knowledge of a particular
industry from your past business experiences, it can be a great aid
in building rapport with these prospects.
Still others may find that the best way to get started is to
focus on a property type. With most commercial real estate loans,
the property is the most important ingredient to the lenders.
Therefore, by learning the ins and outs of a particular property
type, you can become an expert in that category. You'll know
exactly what a lender is looking for to get that specific kind of
deal done. Your focus may be on multi-family buildings, mixed-use
properties, office buildings, retail space, industrial/ warehouse
properties, agricultural/ land, automotive or one of many special
purpose properties such as churches, self-storage facilities,
mobile home parks, golf courses or entertainment centers.
Many brokers who are new to the commercial side of the business
narrow their focus by working with a particular lender category.
One choice would be to work with the traditional lenders such as
the banks, thrifts and Small Business
Administration sources. Be aware that for the most part,
working with these lenders will require a strong ability to
understand their qualifying and underwriting criteria, as well as
their specific documentation requirements, unless you are working
with them on a purely referral basis.
Another option would be to work with an intermediate
non-traditional lender (non-bank alternative). These lenders
typically require less documentation and rely more heavily on the
appraisal for their decision. Although both categories deal with
good credit borrowers, the intermediate non-traditional lenders
target borrowers who want the simplicity and ease of a process that
requires little or no documentation from them or their business.
Because of the greater risk associated with this type of loan, the
loan-to-value (LTV) is usually lower and rates are a little
higher.
The third category is the private/hard-money lenders. Many of
the applicants that can't meet the credit requirements or
guidelines of the traditional or intermediate lenders will find
this group to be their best option. The higher risk of this type of
loan is mitigated by a very low LTV and usually very high rate and
points. Explore each category. Interview lenders so that you have
an understanding of which will be the best fit for your entry into
the commercial/income property market. Eventually, you would be
wise to build relationships with at least one lender in each
category.
Why?
Once you've selected your niche, consider the next critical
question: "Why is this the best place to start?" The answer should
make good business sense. Your area of focus should give you the
confidence you need to successfully begin marketing to commercial
clients.
An example of a good "why" would be your experience and/or
contacts in a particular industry. This can be a great basis for
your choice. If you have worked in the restaurant business, your
knowledge and connections could be invaluable to success with that
type property. Perhaps you are familiar with the operation of gas
stations. Automotive properties could be a good starting point for
you. Do you know people who own multi-family investment properties?
They can be a reference source that could get you started in that
area.
Perhaps your "why" is that you are more comfortable working with
one category of lender over another. Some lenders have simplified
their processes in order to attract originators to enter the
commercial arena. Maybe a lender has training and marketing support
that would be instrumental in helping you reach your goals in the
commercial marketplace.
For many originators, it may be advantageous to refine the focus
using multiple levels. For example, you could use a lender category
and client type, or lender category and property type. This can
help you focus on the commercial side of the business without
losing your residential focus. The ability to expand your marketing
efforts are always available to you as your knowledge and
experience grow, so dont be afraid to narrow your focus in the
early stages.
Who knows where your exploration of the commercial lending arena
will lead. I've seen some loan officers and brokers shift their
entire business over to commercial deals. But remember, in the
early stages, the key to effective marketing for commercial loans
is focus!
Art "Ski" Swiatkowski is business development manager for InterBay Funding LLC. He may be
reached at (215) 283-4520 or e-mail
[email protected].
