From time to time I get a phone call from a residential mortgage broker trying to place a commercial real estate loan through me.
I try my best to be cordial over the phone but deep down I know 30 seconds into the conversation this isn’t going to end well.
You see I’ve never closed a loan that a residential mortgage broker has presented to me, and for good reason. The way a residential loan is underwritten and processed is completely different than how it’s done for a commercial real estate loan.
In an effort to be helpful, in a tough love sort of way, I want to share my comments to the residential mortgage broker who wants to dabble occasionally in commercial lending.
- You’ve stumbled upon a client who unwittingly has asked you for a commercial real estate loan. You think to yourself, “How hard could this be? You quickly calculate the commission you’ll receive and with the vision of receiving the single largest commission in your career you say to your client with a straight face, Sure I can find you a loan.”
- If you had your client’s best interest in mind you would refer him to an experienced commercial mortgage broker and then get the heck out of the way. Most commercial mortgage brokers would gladly give you a 20% referral fee for just giving them the name and telephone number of your client. Instead you want to share equally in the fee and more importantly you want to control all access to your client.
- What you don’t realize is that you have no understanding of how to:
- identify the issues that will either make or break this loan opportunity
- identify the mitigating factors that will help overcome these issues
- prepare a preliminary loan package that will best represent your client’s interest
- identify which lenders would be most interested in this loan opportunity
- contact lenders in such a way that they won’t quickly hang up on you once they realize you’re a lightweight (a dead give away is when you divulge your client’s FICO score to the lender as if that is the most important bit of information to determine whether or not to approve a loan)
- When the commercial mortgage broker decides to pass on your loan opportunity, please don’t have the audacity to ask them which lender you should go to. We don’t divulge our lending sources any more than an accomplished chef would divulge the secret ingredient in his award winning recipe.
I know no example of anyone who has successfully financed both home loans and commercial real estate loans. Not one. If you think you can dabble in commercial real estate lending, don’t even start. It’s all in or don’t even bother.
But if you are seriously considering becoming a commercial mortgage broker then that’s a different story all together. I have these suggestions:
- Realize that the average commercial mortgage broker is his late 50s, early 60s and has 25 or more years in the business. They will eat you alive and enjoy doing so if you come off as a newbie.
- Find yourself a mentor who can help train you in the commercial mortgage business. The best way is to work as an analyst for a few years. The pay is not great but it’s the best way to learn the business.
- Educate yourself as quickly as you can. The CCIM Institute has an excellent educational program.
- Burn your bridges. Once you’ve committed to becoming a commercial mortgage broker don’t look back. Don’t waver in your decision. Those who waffle fail.
Commercial real estate is a very cyclical business. It has its joyous highs and its very deep lows. There are no statistics to back this up but I would guess that there are 1/3rdfewer commercial mortgage brokers in the Portland area than prior to the Great Recession. This business can be brutal at times but if you can make it in this business, it is both a financially and emotionally rewarding career.
So do you really want to get into this business?