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Commercial lending insight ... or, why we miss the company that almost killed our industry!

Mark Anthony McCray
Mar 12, 2010

“Friends, Americans, mortgage professionals, lend me your ears … I come to bury InterBay, not to praise them. The evil that men do lives after them. The good is oft interred with their bones, so let it be with InterBay … we have been told that InterBay was ambitious: If it were so, it was a grievous fault …” Please forgive my mangling of Mark Antony’s great speech commemorating the burial of Julius Caesar, and the coincidence in the name, but it seemed appropriate to consider the demise of a group of companies that simultaneously helped so many of us prosper, while also contributing to the death of the American economy. It’s no secret that making a living in the mortgage business is tougher than ever. I’ve written about it before. While some of the competition has gone away, it’s been replaced by borrower distrust and disarray in the lender market. I would argue that becoming proficient in closing commercial loans is a key to staying in the game as the residential market continues to settle down and begins to recover. But, many of the lenders that we called for help don’t even have Web sites or contact numbers anymore! Therefore, I believe that there is one good thing that companies like InterBay did for all of us: They gave us much needed guidance through the commercial lending maze by showing us how to prospect, package and place loans for many types of properties. Commercial loan brokering has always been intimidating to some of us. However, let’s take a brief look at what is it and isn’t and discuss how we can all profit from closing commercial loans. Commercial real estate finance is the process of arranging money to purchase, refinance or develop real property through the issuance and sale of debt and/or equity or managing commercial real estate assets. It normally does not involve properties used for permanent single-family housing. Basically, any real estate that is purchased or developed solely for profit is a commercial real estate deal. There are a number of ways in which commercial real estate finance differs from residential lending practices:   ►Acceptable loan-to-value (LTV) ratios are generally much lower than one would expect with residential loans. ►Loan underwriting is still done on a case-by-case basis with less emphasis on credit scoring and debt ratios, and more emphasis on present and/or future cash flows. ►Appraisals and other third-party reports, such as environmental assessments, surveys, feasibility reports, inspections, etc. will cost more and take longer to complete. ►The time frame required to analyze, package, place, underwrite and close the loan is usually much longer. ►Closing costs are higher for the borrower. ►There is a broader array of lending alternatives and financing structures available to the borrower. Because of all these distinctions, many real estate professionals choose not to work on commercial mortgages because: ►They believe that the work is too complex for them. ►They believe it takes too much time to understand and close the loan. ►They believe they will spend too much time working without getting paid. ►They feel like they don’t know the money sources. ►They are intimidated, afraid and uncertain. There are countless other reasons. Many are legitimate and some may not carry as much weight. Still, without the proper guidance, a lot of money-making opportunities can be squandered. Yet, the bottom line for you and for me is that, as a result of the rigid underwriting guidelines of most traditional banks—even more so following the debilitating credit crunch of the last couple of years, there is a sizeable pool of unserved and undeserved commercial property buyers. Most small commercial property owners and buyers don't know where to go for a commercial loan outside of a bank. The small commercial property segment is being underserved or ignored by lenders with only the best of the best being able to obtain even a positive review from a bank’s loan committee. The opportunity is here now. So, where does an honest, hard-working mortgage professional turn to for help these days? As someone who has been brokering commercial loans since I entered the business, I have some advice to share with you as you consider doing more commercial deals. Learn the terminology One of the reasons that entering any new field is intimidating is that the people in it tend to use a lot of jargon and unfamiliar terms. Commercial lenders, borrowers and brokers don’t speak that same language as their residential counterparts. Take the time to study trade publications. Make time to read The Wall Street Journal. Read up on commercial mortgage news-related Web sites. When you’re talking to people and a concept goes over your head, ask your partner to explain it to you. They’ll feel smarter, you’ll be smarter and you’ll be able to serve your customer more effectively. As you gain a better handle on the language, your confidence will soar and your clients will notice. Meet with lenders I believe this is the habit that separates those who will last in this business from those who won’t, and divides those who close loans from those who don’t. Since commercial lending is still more of a face-to-face, relationship-oriented business than residential lending, you’ll need to get in your car, get on a plane and wait in front of some receptionists to get a leg up on the competition. Resist the temptation to substitute e-mails and phone calls for this part of your process. Ask people about their lending preferences and pick up tips on how to get loans through their processes. The lenders have capital and want to lend it. This practice will dramatically increase your close ratios. It’ is no longer about having lots of lenders in your database. The lenders need to know you, too. Begin where you are Once you’ve decided to add commercial brokering to your toolkit, you will want to develop the habit of telling at least 20 people per day. It can be as easy as sending out an e-mail, sending a fax to some of your old customers, handing out your business card or talking to a few people at the local coffee shop when you stop in for a latte. Make sure you’re always telling people which loans are being done (and now that you have met with some money sources, this should be easy and convincing). You will attract a lot of business if you let your contacts know, “Here’s who I am, and here’s what I’m doing.” Never, ever stop. Even when you feel like you’re getting too many leads and too much business, don’t stop telling people about your services. You want to get to a point at which you have “too many” prospects. It’s at that point at which you can select the best and most profitable scenarios on which to work. Manufacture momentum Momentum is one of the most precious elements that your business can have and once it’s lost, it is incredibly difficult to recapture. You can’t allow yourself to lose momentum in filling your pipeline ever. It’s like a flywheel. Once you let it slow down or stop, it takes a lot more energy to get it going up to speed again that it would have to keep it going in the first place. It’s better to act radically whenever you might feel like it is slipping away. In my experience, the easiest and most financially productive way to jumpstart one’s momentum is to get very aggressive with your advertising. Reach out to touch new markets and meet new people. Their energy will add to what you’re doing whenever you’re feeling a personal slump or your business needs a jump start. Shift your mindset Now that you have chosen to become a commercial lending professional, you each have to realize and respect a couple of things about yourself. Your knowledge and what you are able to do are not common. You might feel common, but I hasten to point out that you’re already specially positioned and a member of a very small group of professionals. As you’ve endeavored to make important connections and develop your expertise, you’re already a cut above the average loan officer in your knowledge. Celebrate that! Appreciate it and others will, too. Commit to personal and professional development Real estate lending will continue to morph over the next few years and months as the market at-large matures, regulations increase and lenders continue to consolidate. Globalization is having an impact as well. Be sure to invest in yourself by attending conferences, joining professional trade organizations, reading the local newspaper, enrolling in continuing education and more. In any field, the leaders are the learners. There is a gap in the market today left by the sudden explosion and then implosion of the commercial segment of the market. The newspapers tell of the need for commercial loans to be restructured and for properties to be refinanced. On the other side of the ledger, most non-bank lenders have more capital to lend than they have had in quite some time. Companies like InterBay made commercial lending accessible to us all. We thank them for that. Now there is a gap and in that gulf lies an opportunity for you and me! To your success! Mark Anthony McCray is chief executive officer of Houston, Texas-based First Capital Commercial Finance and an associate with Managed Mortgage Investment Fund (MMIF). First Capital is a commercial mortgage banking firm that helps clients leverage millions of dollars in financing for their real estate acquisitions, developments and investments. MMIF is a direct lender specializing in short-term private mortgage financing and equity investments.
Published
Mar 12, 2010
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