As an experienced commercial mortgage broker, you can become a trusted adviser for your clients. You know the ins and outs of the loan-approval process, but it’s a mistake to assume that your borrower does.
Your clients may be strong sponsors or developers, but they also may be unfamiliar with the best available loan products, as well as the application and approval process. You will better serve your client if you take the time to explain the issues surrounding an underlying property and its individual characteristics.
To do this effectively, however, you should try to think like that borrower and understand what that client’s goals are. When you initially sit down with a potential borrower, you’ll also need to try to figure out what your client doesn’t know. This can help you clearly explain the best options for the individual deal at hand.
An advisory-type relationship will best serve the borrower. Not only can you draw on your expertise to guide your client away from pitfalls and dead ends in the process of getting a loan, but this kind of value-added service also is likely to inspire client loyalty and enhance your reputation as a commercial real estate finance expert.
Providing quality service
Commercial mortgage brokers can serve as advisers in a number of ways. Sometimes this service can go beyond the traditional role of a broker as the intermediary between the borrower and lender. You can help steer your borrowers away from projects that you know won’t be received well by lenders, and you can help to speed the entire process toward a successful closing.
Lenders tend to be heavily influenced by market trends, but your clients may not have the needed level of insight about the market where they are planning a project. Today, for example, mixed-use residential, office and retail developments are popular, particularly ones with a hotel component.
Additionally, many of these mixed-used developments are happening in cities, and they are built to appeal to young urban professionals and millennials, who want to live near trendy areas where they work, shop and spend much of their free time. A developer who has his or her sights set on, say, a suburban mall, may not realize that selling that kind of concept to a lender will be a difficult proposition.
Providing full service to the borrower means going beyond the numbers and drawing on your experience to make the process move quickly and smoothly.
Providing full service to the borrower means going beyond the numbers and drawing on your experience to make the process move quickly and smoothly. You will want to advise the client from the start to do a market analysis, then draw up development or construction plans for the property. Additionally, talk to them about the project timeline and other issues that may arise with the permitting process, such as investigating whether road and infrastructure improvements will be necessary to prepare the property for its intended use.
It’s also natural to ask for details about the client’s project. Each transaction is unique, with its own quirks and considerations. For example, is it an early-stage property, such as raw land or a parcel with minimal development? In these cases, a traditional financing source like a bank may hesitate to extend a loan unless the property is either shovel-ready or at a more advanced development stage. Bridge lenders tend to be more open to finance a riskier, early-stage development project, but the fees and carrying charges are usually higher. For an experienced commercial mortgage broker, this is simple stuff, but it may be news to the borrower.
Furthermore, your client may not know the nuances involved in financing a purely speculative project, as opposed to one built for a stable and established tenant that is prepared to sign a long-term lease. A lender will strongly prefer the latter scenario, given that the risk for a built-to-suit project is much lower than a speculative venture.
Navigating the hurdles
If your client comes to you with a speculative project, however, you’ll need to advise them of the hurdles ahead. These projects can involve a large outlay of funds with an uncertain return. Your client likely won’t know who the tenants will be, or what kinds of designs and features they may need.
Since there’s no upfront lease commitment, lenders also will require a compelling reason to take on the higher level of risk. A mortgage originator knows all this, but the commercial real estate borrower may not have thought through these challenges.
When a property is beyond the planning phase and under development, the financing hurdles are not likely to be quite as high. Before recommending a loan product for a more advanced project, however, it is a good idea to discuss with the client any related issues that can affect the financing, such as the construction scheduling, permitting and infrastructure improvements, as well as the leasing status.
Armed with this information, you can narrow down your search for the right loan for the borrower. But once you have the right mortgage in mind, borrowers also need your help more than ever in getting through the loan-approval process.
Generally speaking, commercial mortgage lenders have placed stricter requirements on borrowers in the aftermath of the Great Recession. Borrowers typically need to put more money down, put aside more money for escrow and provide more detailed information to lenders. Banks also are keeping closer tabs on the development of a property. Going over all this with your client early in the process will prepare your borrower to clear the hurdles and also will save time for the lender.
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Although the U.S. commercial real estate market has been strong for several years, lenders face their own pressures in balancing the need to move quickly to complete deals while also protecting their capital and reputation. In any kind of market, an informed mortgage broker who has taken the time to fully understand the borrower’s needs is going to stand out. Ultimately, you will increase the odds that your client’s deal will be funded quickly, and you will enhance your reputation as a trusted mortgage adviser and expert in the field.
