Many commercial real estate buyers and sellers have long, pre-established relationships with certain lenders. This may be the lender they did their first deal with, or it might be the lender with whom they do their personal banking. No matter how the lender relationship was originally established, some borrowers feel an obligation to continue working with that lender deal in and deal out.
The problem with this approach, however, is that there is no way to know that your existing lender is offering you the best loan terms on your next purchase or refinance. The terms may seem reasonable—but are they really the best the market has to offer? The only way to know for sure is by shopping the loan around to various lenders.
Lenders can run the gamut. Most people looking for a commercial real estate loan will default to approaching traditional banks. But traditional banks are only one (albeit large) source of capital. Agency lenders like Fannie Mae and Freddie Mac, debt funds, pension funds and other institutional lenders may be willing to provide even better terms – yet few individuals know how to pursue these opportunities on their own.
This is where commercial real estate mortgage brokers can prove worth their weight in gold. Not only do CRE mortgage brokers have extensive relationships with a variety of lenders, but they also have their pulse on the market and can provide real-time insight as to the best terms available to borrowers today.
In this article, we look at some of the most common pain points faced by CRE borrowers and discuss how those obstacles can be overcome with the support of a highly qualified CRE mortgage broker.
The Role of a Commercial Mortgage Broker
A commercial mortgage broker acts as a third-party liaison between a borrower and lending institution. They are financial specialists who help borrowers access both debt and equity markets. They have broad reach, well beyond traditional banking institutions, that allow them to identify and lock in the best rate and terms for a borrower based on the specifics of any given deal. A mortgage broker will then guide the borrower through the loan application and closing process to ensure the deal closes on the necessary timeline.
Commercial real estate loans, unlike residential loans, can be highly complicated. Loans are individually crafted based on the deal in question, with terms that can be negotiated by both the borrower and the lender. A qualified CRE mortgage broker will provide the necessary push and pull needed to secure the most advantageous terms for their client.
In turn, a CRE broker will usually collect a modest fee from the borrower in exchange for providing these services. Depending on the arrangement, this could be a flat fee or a percentage fee based on the cost of the loan. The fee is often negotiable, again, based on the circumstances and the needs of the borrower.
Eight Key Ways CRE Mortgage Brokers Can Help Borrowers Overcome Pain Points
Some borrowers are hesitant to pay a commercial mortgage broker. Many feel that they can shop around their deal personally, without the support of a third party. Ultimately, several do choose to go this route, but whether is results in actual cost savings is a different story entirely. Often, borrowers will find that the brokers’ ability to negotiate better rates and terms actually far exceeds the broker’s commission.
Here are some of the many ways CRE mortgage brokers help borrowers overcome their biggest pain points when shopping for a commercial loan.
1. Local Market Knowledge
Someone doing a deal in a particular geography will want to work with a CRE mortgage broker who is intimately familiar with that area. This is important for underwriting purposes.
Let’s say you are constructing a 350-unit apartment building in Phoenix, Arizona and are looking for an $80 million construction loan. Any borrower will want to see detailed underwriting that justifies both the costs and your expected income (i.e., your projected rents). Someone with local market knowledge will be able to provide a gut check for you and tell you that yes, these numbers check out and will pass the sniff test with local lenders. If you were to approach a lender based out of a different area, that lender might question how realistic your numbers are – and whether, for example, your projected rents are indeed achievable. A commercial mortgage broker operating in that territory will be able to draw on comps and experience with similar deals to use as reference when negotiating with prospective lenders.
Local market knowledge is also important when a borrower is trying to understand what sort of pricing they can get. A borrower might call a commercial mortgage broker, for example, and express an interest in refinancing. The mortgage broker should be able to, pretty quickly, put together a high-level overview of the pricing available in the marketplace today based on other deals similar to their own.
Moreover, the mortgage broker should be able to provide the borrower with insight as to what type of lender is most likely to do that type of deal (and why) based on their local experience. The mortgage broker might say, for example, that Debt Fund ABC is making a hard push for multifamily in the Phoenix area right now and as such, will be most likely to offer the best terms. This type of local information is rarely available to individuals working on their own.
Working with a mortgage broker who has extensive local knowledge can save borrowers an inordinate amount of time and frustration as they pursue their loan alternatives.
2. Broad Access to Capital Markets
Those who pursue financing on their own will generally default to working with their existing lender or banking partner. Some will shop around at other traditional banking institutions, just to compare rates and terms before making a final decision. This approach excludes a major swatch of the capital markets.
Commercial mortgage brokers have much greater access to capital markets – debt and equity alike. Lenders include large national and regional banks, small banks and credit unions, agency lenders (i.e., Fannie Mae, Freddie Mac and HUD), balance sheet lenders, CMBS (commercial mortgage-backed securities) lenders, life companies, hard money lenders and more. Most individuals have no idea where to begin when exploring these other options and in turn, don’t explore them at all. Working with a commercial mortgage broker ensures that you have the greatest access to all sources of capital as you shop around for the best rate and terms for your deal.
3. Lender Relationships
At any given time, a commercial mortgage broker may be engaged in a dozen or more deals with various lenders. It is incumbent upon any CRE mortgage broker to maintain relationships with these and other lenders over time. Over time, mortgage brokers develop a keen understanding of each lender’s preferences – including the types of deals they are looking for, in which geographies, with what types of borrowers, etc. An experienced mortgage broker will know which lenders to bring certain deals to, and can then lean on these lenders to move forward with advantageous rates and terms for their borrowers.
Lender relationships are especially important for borrowers needing to move quickly. A mortgage broker might be able to call a specific lender, with whom they have a long-term relationship, and say, “I really need to get this done—what can you do for me?” or “How quickly can you push this through your underwriting department?” Borrower Joe Smith, approaching that same lender on their own, would probably be dismissed entirely.
4. Enhanced Credibility
Lenders prefer to work with borrowers who they already know and trust. This can prove to be a hurdle for a borrower that’s new or otherwise unknown in a specific marketplace. Working with a commercial mortgage broker can enhance a borrower’s credibility. A reputable mortgage broker who has strong relationships can convince lenders to look at deals that they would normally dismiss outright due to a lack of familiarity with the borrower.
5. Proper Documentation
Securing a commercial loan can take significant time and requires an inordinate amount of paperwork and documentation. A commercial mortgage broker can assist borrowers with compiling all of the requisite documentation in advance. They know exactly what a lender will ask for (sponsor business plan, pro formas, rent rolls, estoppel certificates, bank statements, tax returns, etc.) and in what format. The mortgage broker will package this information in a professional manner, in the format that the lender expects to see. This helps to streamline the lender’s underwriting process and can save the borrower significant time. It can also make the borrower appear more sophisticated, which can ultimately lead to better deal terms.
6. Creative Problem Solving
Simply put, some deals are messy. There can be unique circumstances that require unconventional debt and equity solutions. A commercial mortgage broker has the experience needed to identify creative solutions if and when unexpected challenges arise. For example, a borrower might find that no lender is willing to give them a non-recourse loan. A commercial mortgage broker might be willing to negotiate a non-recourse loan with a lender in exchange for some other “give” on the terms, such as additional equity or a slightly higher interest rate. In another instance, a deal might be too risky for an individual lender to make the full loan required by the borrower. A commercial mortgage broker might then step in and pair up two separate lenders that combined, will provide enough capital to finance the deal in full.
Commercial mortgage brokers had their creative problem-solving abilities put to the test during the COVID-19 pandemic. When traditional capital markets suddenly dried up during the worst of the pandemic, mortgage brokers were pushed to identify unique solutions to save deals on the brink of collapse. Many borrowers have their life savings investing in a deal – with so much on the line, having a results-oriented commercial mortgage broker working on your behalf is truly invaluable.
7. Third-Party Buffer
A commercial mortgage broker acts as a third-party buffer between the borrower and lender. Essentially, the broker can be the “bad guy” when pushing on loan terms. An experienced mortgage broker will know exactly when to push and pull, will know how far they can push and pull with certain lenders, and will work to fine-tune deal terms on behalf of their clients. Mortgage brokers are able to do this based upon their experience in a local market—they know what’s standard, what’s not, and what a borrower might be able to “get away with” when negotiating with different types of lenders.
8. Best Loan Terms
Ultimately, a commercial mortgage broker’s job is to help a borrower lock in the best rate and loan terms for their deal. This isn’t always a cost-saving exercise. Some borrowers have unique needs (maybe it’s an extended interest-only period or preference for a non-recourse loan) that supersede pricing alone. A commercial mortgage broker will be able to identify the best loan terms for the borrower’s specific needs, and then will drive the loan to the best rate and pricing accordingly. This saves an individual borrower from wondering whether they got a “good” deal on the loan (or not). This is particularly important for borrowers who have a fiduciary responsibility to other investors.
As you can see, mortgage brokers bring significant value to borrowers in need of a loan to purchase or refinance commercial property. Commercial loans are highly complicated and can be incredibly nuanced. A trusted commercial mortgage broker goes beyond finding you the best rates and terms available. They will be your advocate throughout the entire process, from start to finish (and often beyond!).
We’d love to learn more about your specific needs and discuss how our team is equipped to assist investors to overcome their most common pain points. Finding a commercial loan can be difficult, but it doesn’t have to be – not when you have the right people by your side.
Click here to schedule an introductory call with Commercial Capital Partners and learn how we can help you with your investments.
