As a commercial mortgage broker I find it fascinating to go through the process of identifying worthy loan opportunities. It’s not always obvious picking the winners from the losers. A mortgage broker/loan officer can waste a lot of time if he/she doesn’t choose wisely which deals to work on. Stating the obvious, we don’t get paid unless the loan closes. Therefore it’s critical to our financial well being to focus on those loan opportunities that have the highest probability of closing.
I have seen my peers waste several weeks if not months on loan requests that I could tell up front had little or no chance of closing. It’s painful to watch and it’s even more painful to experience first hand. Over the years, successful mortgage professionals acquire a sixth sense about which commercial real estate loan requests can ultimately be financed.
The Initial Steps in Separating the Winners from the Losers
For most mortgage brokers/loan officers the process of finding properties that have a high probability of getting financed goes something like this:
It usually begins with a telephone call, many times from a person I’ve never met who has been referred to me.
I try my best to patiently listen to their request. I ask probing questions to draw out the issues that will make or break this deal. Usually the deal ends with this first conversation as typically I identify a significant flaw in the deal. I try my best to tell them as gently as possible that I’m not the right mortgage broker for their loan request. If possible I then refer them to someone I think can help them.
But sometimes, usually about 1 in 6 conversations, I end the conversation requesting their documentation so I can get a better look at the deal.
Once I get their documentation I underwrite the property and the borrower. I use the metrics that the typical lender will use to evaluate the loan opportunity.
I then visit the property to see first-hand its condition and its neighborhood
Once I’ve completed this process my deal radar kicks into overdrive. I try my best to discover what makes this deal a truly good opportunity so that lenders will have no choice but to say “yes.”
Not that I’m telling you anything you don’t already know, but lenders as a rule are very conservative when it comes to risk taking. They have what some people call a “belt and suspenders” approach to lending. To avoid risk they look at the loan through redundant safety procedures, like a man who wears both a belt and suspenders.
Finding “the Hook”
Another word for “safety procedures” is what I call finding “the hook.” I politely ignore the sales pitch that the prospective borrower makes about why this is such a good loan opportunity. Instead I go fishing for “the hook” that I believe will snare the lender’s interest. Shown below are several examples of finding “the hook.” The borrower:
Agrees to sign personal recourse. He has a strong personal financial statement with substantial liquidity in proportion to the financing request.
Is willing to put in all or a majority of the cash/equity required in the deal instead of a group of passive investors with minimal real estate experience.
Has an excellent track record owning and managing that particular property type with decades of experience.
Is requesting a very low leveraged loan.
These are just a few “hooks” and the more obvious ones. A good mortgage professional has the uncanny ability of finding the less obvious hooks that can change the outcome of a loan request from “no” to “yes.” They are the unsung heroes of our business. Many times the borrowers don’t even realize what a service they’ve provided to them.
Good Mortgage Professionals Are Hook Finders!
It’s not uncommon for a client to request a loan with all the “bells and whistles” that they heard one of their peers just received. Many times they say it with something of an attitude like, “If you don’t get me these incredibly good loan terms I’ll go to your competition who’ll get it for me.” What they don’t realize is for their friend to have received such a “smokin’ deal” the lender was able to identify “the hook” that made those rates and terms possible.
It is not enough to say that the commercial real estate market is “hot” or a specific property type “can’t miss.” We need a hook! And that is what I do for a living. I’m a professional hook finder!
Source: What is it that gets real estate deals financed today?; Kevan McCormack; Metropolitan Capital Advisors; April 24, 2013