Commercial real estate owners and purchasers have a choice to make when it comes to financing their real estate investments. They often wonder “Should I apply to my local bank directly, or should I employ the services of a professional commercial mortgage broker to assist?” In order to answer this question, the following points need to be considered:
►How many transactions does the borrower handle in the course of a year? Most real estate owners purchase, sell or refinance a very limited number of properties in the course of a year. By contrast, an active and competent commercial mortgage broker will handle dozens of transactions in the same time period. The commercial mortgage broker will understand the current lending environment, market conditions, and underwriting guidelines, all of which are constantly changing as the market goes through its typical cycles.
►How many lenders does the borrower engage with during the course of a typical year? Most real estate owners have relationships with several local lenders in their market. A commercial mortgage broker typically deals with a wide array of local and national lenders every day. These include: banks, Wall Street investment banks, insurance companies, pension funds, credit unions, hedge funds, agency lenders, government agencies, and private lenders. A good commercial mortgage broker will know which lender is the best choice to handle the given transaction.
►Is the borrower knowledgeable enough to best prepare the loan submission package for the lender? The typical lender sees far more requests than he can possibly review and approve. A commercial mortgage broker knows how to prepare a professional loan request package that will stand out and gain lender acceptance. A commercial mortgage broker knows what information is key to obtaining a loan approval from a lender.
►Is the borrower up-to-date when it comes to current deal structures? Many borrowers focus only on the interest rate. A commercial mortgage broker will help negotiate many other deal points, including: Maximum leverage, loan term, amortization period, recourse obligations, pre-payment penalties, closing conditions, post-closing and/or annual requirements, etc. There are many moving parts in a commercial mortgage transaction and a commercial mortgage broker will be able to negotiate the best deals for his clients.
►Does the borrower’s local lender offer a variety of different rates and terms? A commercial mortgage broker should be able to offer different choices, such as: Five-year fixed-rate, seven-year fixed rate, and 10-year fixed rate options. Additionally, the commercial mortgage broker will usually offer many different amortization schedules. Many local lenders only offer short term loan options (three to five years) and short-term amortizations (15-20 years).
Most large real estate investment firms employ in-house financing professionals to source, negotiate and place their commercial mortgage loans. It is often cost prohibitive for smaller firms or individual investors to employ financing professionals on a full-time basis. These investors are best served by hiring a competent commercial mortgage broker to represent their interests on a deal-by-deal basis.
Stephen A. Sobin is the President and Founder of Select Commercial Funding LLC, a nationwide commercial brokerage firm. He has more than 30 years of commercial mortgage lending experience. For more information, call (516) 596-8537 or visit SelectCommercial.com.