Large Commercial Real Estate Loans Seldom Close
for the Average Commercial Loan Broker
If you are a commercial real estate loan broker, and you only work on large commercial loans, you will starve. For the reasons I will set out below, large commercial loans seldom close for commercial loan brokers.
- In order for a commercial bank or even a hard money commercial lender to be willing to make a huge commercial loan, the borrower must usually have a net worth at least as large as the loan amount. So if you're trying to place a $20 million commercial real estate loan, your borrower better have a net worth of at least $20 million.
- Why on earth would a borrower with a $20 million net worth apply to you - the typical commercial loan broker? He's not. He'll quickly recognize that you're not an expert on large commercial loans. Heck, the top real estate investors and developers probably know far more about commercial real estate finance than you do. Therefore the types of large commercial deals you will usually get will be borrowers and developers with $3 million net worths trying to borrow $20 million. It's a pipe dream! The loan will never close.
- If a borrower has a $20 million net worth, you can be sure he has had scores of bank loan officers calling on him directly. So even if you did did get lucky and got to work for an investor or developer with a huge net worth, you can bet that he has also contacted his own bank and a half-dozen other direct bankers who have called on him. So even if you deliver a delicious term sheet from a bona fide mega-bank, you will have to add your half-point fee to the mega-bank's one point fee. Guess what? The direct lenders who are also working on the deal will almost always be able to match your interest rate and offer a term sheet at only one point because there is no broker involved in the deal.
- But you probably won't be successful in delivering a delicous term sheet from some mega-bank or huge life company. Why? Because the top loan officers who work at those mega-banks and huge life companies probably won't give you the time of day. These guys are constantly in demand, and they will rarely waste their time working with some newbie or even an intermediate-level commercial mortgage broker. These top-of-the-food-chain loan officers usually have stable of about a dozen top commercial mortgage bankers who supply them with 95% of their loans - and you aren't one of them! These top commercial loan officers will probably just blow you off the phone, even if your deal was perfect.
- Should you never work on large commercial real estate loans? The only time it might sense to take on such a deal would be if the borrower was a returning customer. Maybe you closed a $3 million commercial loan for him seven years ago and then a $7 million loan three years ago. Now he is trading up to a larger commercial property and needs a $13 million deal. Sure, in this case, you should absolutely take on the deal.
- But absent a track record or some other personal relationship (maybe the filthy rich investor is your father-in-law), you should not take on these large commercial loans.
- Instead, stick to small commercial permanent loans, the types of deals that will actually close and feed your family.