Focus on Permanent Loans
A permanent commercial real estate loan is a first mortgage with a term of at least five years. Commercial loans with shorter terms are considered either mini-perms (3 years) or bridge loans (1-2 years).
Right now commercial lenders greatly prefer making small permanent loans, as opposed to land development loans, commercial construction loans, or even bridge financing. It makes sense to give the commercial lenders what they want, so in this tight lending market you should be focusing exclusively on small commercial permanent loans. If you work on any other type of commercial real estate loan, the loan probably will not close, and you will not get paid.
By small I mean deals under $3 million. Small commercial permanent loans have by far the highest closing rate.
Why is the closing rate on small commercial deals so much higher than on the larger ones? First of all, the typical small commercial loan borrower is a small business owner who is busy running his print shop or his auto repair facility. He needs the help of a commercial mortgage broker, and he appreciates you.
While this small business owner may be worth a one or two million dollars, he is not so rich that banks are beating down his door. He therefore doesn't have some bank quote in his back pocket that he can pull out to beat your best deal.
Because he is a business owner, as opposed to a professional real estate investor or developer, he is not terribly sophisticated about commercial lending. You know far more about commercial mortgage finance than he does. Because this small businessman doesn't know where to go to get the best quote on a commercial real estate loan, squeeky clean and do-able deals often end up being submitted to commercial mortgage brokers just like you.
In contrast, the real estate investors who own the large commercial properties and need large commercial loans are usually very wealthy and very sophisticated. Some bank is knocking on their door every month trying to sell them a loan. If you try to broker a large commercial deal,and the deal is clean, almost every time the borrower will reject your best offer because he has a quote directly from a bank, without a mortgage broker fee.
In fact, if a large commercial real estate loan does end up being submitted to a mortgage broker, there is usually something wrong with the deal. Perhaps there are too many vacancies or perhaps the deal doesn't cash flow. You can easily waste months working on a large commercial loan that was ever do-able. In the meantime, you're starving.
So be smart. Stick to small commercial permanent loans for your first five years in this business.
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