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KHufford
6002 Posts |
 Posted - 05/13/2008 : 12:55:50 AM
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I may have posted about this awhile back but recently I find it very worth revisiting. I have seen many deals recently that brokers are sending out either commericial or private/hard money res deals that are simply never going to close.
Example: $5,000,000 loan with 5+ broker points. NOT HARD MONEY EITHER, A plus clients. Loans like this NEVER close. You have to realize 2 very important things in regards to why this is, which I will point out again at the end of this blog.
Commercial Real Estate Loan Brokers Often Pack a Deal to Death
Packing a Deal Means Adding Too Many Loan Fees
Commercial real estate loan brokers usually add a loan fee of one to two points to the fee charged by the bank making a commercial real estate loan. This a reasonable fee.
Sometimes, however, a commercial real estate loan broker will take a deal to another loan broker, who takes the deal to a third loan broker. Then they will all try to add a fee of one to two points to the deal. When a commercial loan broker, or a series of loan brokers, all try to add a huge fee to the same deal, it's called packing the deal.
Such deals never close. Usually the banker working on such a commercial real estate loan will just automatically turn the deal down in order to save time. The banker knows from experience that there is no way that any decent borrower would ever take a deal that has been packed with more than one or two loan broker points. If some borrower would ever sit still for three or four broker points, the borrower must either be desperate or just plain stupid. Either way, such a borrower is a poor risk and a waste of time.
If you're a commercial real estate broker caught in such a daisy chain, you need to recognize that daisy chains seldom (virtually never) close.
Unless you have the absolutely perfect commercial real estate lender in mind, you should immediately walk away from the deal. If you should decide to tackle such a deal (your chances suck!), you'll first need to convince all of the earlier loan brokers to share between them a referral fee of no more than 33 to 50 basis points. If they want more, run (don't walk!) away.
TWO MAIN FACTORS AGAIN:
1. If a client is willing to pay that much there is a reason they are so desperate or willing, it may seem like a good deal, but its 99% likely that this deal has been killed over and over and has some issue you are not immediatly seeing, thats why they are willing to take such a loan.
2. Even if the deal is decent and the client agrees to these broker fees, by the time you get to closing they will have found a cheaper deal, or will back out last minute.
If 1 point equals 50k on a large deal, you cannot expect every person who has ever touched the file to make a point. Its ok to split referral fees but you need to be willing to 'step out' of the deal, unclogging communication to the client, and taking a % of the fee, not 50k or a 'point' for each person.
Take a look at the amount of work you are actually contributing? What VALUE are you providing? Did you just email a 1003 and appraisal? Did you write up the whole executive summary and pro forma?
Take an honest look at what amount of work you are doing and be happy to get the deal closed and to the right lender in the end, making the client satisfied without trying to get rich on one deal, you will be happy you did and close more deals for it.
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joe313
650 Posts |
Posted - 05/13/2008 : 07:06:52 AM
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| Great post Kyle! |
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EMScommercial
5138 Posts |
Posted - 05/13/2008 : 07:17:36 AM
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| Yes, even though there are no governmental agency that tells us how many points you can charge, it doesn't mean that a lending source will allow outlandish fees.... keep it reasonable.... |
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gcaron05
247 Posts |
Posted - 05/13/2008 : 07:22:58 AM
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| Good post Kyle, Thanks. |
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bankwalker
156 Posts |
Posted - 05/13/2008 : 07:37:54 AM
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What is the easiest way to begin in the commercial
loan arena?
What training is available?
How about co-brokering or net branching?
Any potential legal issues?
It seems so lucrative yet so complex.
It's probably easier than it seems.
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KHufford
6002 Posts |
Posted - 05/13/2008 : 08:15:43 AM
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Thanks for the positive feedback, I assume you guys have seen this alot lately too. Seems like tough times bring out these, trying to kill it on every every deal and make up for lost income maybe....which is a double edge sword.
It would be great to make 200k on every deal but the truth is, the reason the client agrees to the fees is because the loan is impossible to close in todays market, guaranteed.
First thing to ask yourself when you get one of these deals, "Why is the client willing to pay this much? Where has it been declined and why? What is the hidden issue that I am not seeing with the file?"
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samwillsonbiz
194 Posts |
Posted - 05/13/2008 : 11:09:18 AM
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| Good post |
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KHufford
6002 Posts |
Posted - 05/13/2008 : 11:12:24 AM
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And in the spirit of some other threads....if you claim to "have" 100 million dollar deals that you need help with. Be very prepared to answer HOW you are involved in the deal.
Any legit developer that can actually qualify for $100MM is not shopping a real Costa Rican Hotel deal to some residential broker in Nebraska.
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