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The commercial corner: Sourcing commercial business: Top tips for finding commercial deals once you've decided to diversify

National Mortgage Professional
Jun 11, 2006

The commercial marketplace: An opportunity you can't afford to missSalomon WancierCommercial mortgage lending Before the start of the new year, industry experts began to predict that 2006 would bring an uninvited cooling off in the housing and mortgage markets. However, most experts also agree that economic growth should remain strong, with commercial and multi-family mortgage markets expected to thrive. To survive and succeed, mortgage brokers and originators would be wise to put into action a plan for adding commercial offerings to replace the once-booming refi and origination volume enjoyed in years past. Why now? Competition in the residential marketplace has already tightened, making a strong case for diversification. As a large small-balance commercial lender, we've seen thousands of mortgage brokers make a profitable transition from residential-only to residential and commercial. We expect the trend to continue for a variety of reasons. In addition to helping mortgage brokers compete for business and enjoy increased income, commercial offerings can boost brokers' and originators' image among borrowers. The results of a consumer survey published in National Mortgage Broker in June 2005 showed that 81 percent of respondents selected as "more professional" a mortgage broker who offers both commercial and residential mortgages, as opposed to a broker offering residential loans only. In addition, 75 percent of respondents selected as "more credible" a mortgage broker offering both commercial and residential mortgages. The survey findings suggest that brokers can significantly improve their image and customer perception just by adding commercial mortgages to their offerings. Combine this conclusion with market trends that point to the competitive advantage of playing in the commercial space, and you have a compelling argument for crossing over. What to look for in a commercial lender Finding the right commercial lending partners is a vital first step in making a successful transition. Traditionally, commercial deals have been avoided or passed over by many residential brokers, because of the seemingly complex and lengthy lending process. However, the commercial market (particularly the small-balance segment) has made strides in the past few years with new programs in place that serve the niche more effectively. For example, an excellent strategy is to find a lender that applies the residential debt-to-income underwriting approach to small-balance commercial loans, which, by design, makes the transition from residential to commercial easy for brokers. This model is attractive to borrowers, who can qualify on their personal financial strength, not just the cash flow of the property, and to brokers, who can increase profit potential with a streamlined process that mirrors residential. Identifying commercial lenders is not difficult. Industry associations, publications, trade shows and online searches are valuable sources. The more challenging task is to ensure that the lender is a good match for you and your goals. It is essential to align yourself with a lender who provides a high level of customer service, broker support, training and marketing experience. Consider working with a mentor who has commercial experience to help guide your diversification strategy and planning. A trusted lending firm may also provide this type of assistance via an account manager or in the form of training and education. Eligible commercial property types differ by program, but generally include mixed-use, multi-family, office, retail, self-storage, light industrial, warehouse and mobile home park. Terms, loan amounts, credit requirements and broker compensation also vary by lender. As you become comfortable in your role as a dual mortgage broker, consider rounding out your database of lenders to offer a variety of loan programs that meet the needs of a wide range of borrowers. Sample questions to ask when evaluating a commercial lender include the following: • What is unique about your program? • What are your minimum and maximum loan amounts, property types and credit requirements? • What are your underwriting guidelines? • What is the typical timeline for pre-approvals and closings? • What is your fee structure? • What documentation is required to price a loan? • What types of broker support do you provide? • How do I get started? A suggestion for easing the transition from residential to commercial is to start with small-balance deals up to $1 million. Look for a streamlined lending program that promises quick decisions, flexible underwriting, innovative program features, fast processing (look for a lender who manages the appraiser, title company, insurance, etc.), attractive fees, incentives or reward programs and extensive broker training and support. Marketing assistance is another attractive benefit. Your first commercial deal Begin with transactions that are a natural extension of your residential business. Small-balance deals, such as multi-family and mixed-use, are smart choices. Starting with these more "vanilla" property types will help you gain the confidence to transition into more complex deals and expand into a wider variety of lending programs. For instance, your next step might be commercial condos, which are growing in popularity for small business owners and investors. Talk with your lender partner about other property types that may be right for you. Finding business Your existing client base is the best place to start. These borrowers are often the same individuals who will become your commercial customers. Modify your marketing and advertising initiatives to reflect your commercial loan offerings. Review borrower profiles for professionals and small business owners who may be interested in purchasing office space or refinancing their existing commercial properties. Check the real estate-owned section of the 1003 application for customers who already own commercial property. Network with existing and new referral sources who can bring you commercial leads. Real estate agents, CPAs, attorneys and related professionals can help identify opportunities outside your existing customer database. Understanding a borrower's objectives is important to effectively serving his needs. During your initial interview, inquire about the borrower's investment strategy and the level of documentation he can provide, so you can place them with the appropriate program. Learn about the property details, the creditworthiness of the individual and the intended goal of the purchase or refinance. Find out the expected holding time of the investment, condition of the property, occupancy level, tenant mix, outstanding mortgages and availability of income documentation, to have a better understanding of the transaction. With each commercial deal, you'll gain the confidence and momentum to continue expanding your business. Easier than you think Offering commercial products is a smart way to boost your image and production potential in a narrowing residential marketplace. The case for diversification has become even stronger in recent months. With the right lending partners and reasonable expectations, you may be surprised to find that the transition is not as challenging as you once thought. Consider commercial lending an exciting opportunity to offer more to borrowers, differentiate yourself among the competition and enjoy the rewards of earning more income, while closing fewer deals. Salomon Wancier is vice president of marketing communications for Silver Hill Financial LLC. He may be reached at (888) 988-8843.
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