What is a commercial mortgage broker?
If you have ever thought about financing a commercial real estate property, the thought of using a commercial mortgage broker may have crossed your mind. However, some property owners have debated using a broker based on the belief that it is more expensive to engage the service of a broker than going directly to a lender. While in some cases this may prove to be true, this common belief is not an accurate assessment in all cases and we will list the various reasons to why that is.
The reality is that there are a number of ways in which you can save money by engaging a commercial mortgage broker to provide assistance with your real estate financing needs and objectives. If you take the time to determine the value of using a broker, you will surely see that it is money well spent.
Locating a Lender
Locating a lender to fund your commercial mortgage is not as easy task. A good mortgage broker will have dozens of working relationships with active lenders who will accommodate your specific borrowing needs. You may waste a considerable amount of time simply trying to find a lender that offers the loan program or parameters you need. At the end of the day, real time feedback could save you thousands of dollars by leveraging your brokers experience and networking abilities.
Don’t put all your eggs in one basket
Creating a competitive environment for your commercial real estate loans is imperative. Working with a single relationship lender may be comforting, however, lending environments and banking regulations tend to change. Experienced brokers follow these changes and can often facilitate loan terms that are far more superior than what you may have been able to obtain on your own. By leveraging a brokers experience, you obtain bargaining power to get the best deal in return.
Lower Interest Rates
One of the most significant ways in saving money by using the services of a commercial mortgage broker rests in their ability to deliver lower interest rates. Active commercial mortgage brokers are often times provided special interest-rate options based on the volume of business they bring to a lender. This rate savings is passed along to the borrower. Brokers also add value by obtaining interest-only options which ultimately frees up cash-flow to borrower in need. All in all, these savings could turn out to be significant over the term of a loan.
Non-Recourse vs. Personal Guarantee
Commercial mortgage brokers often shine by delivering competitive non-recourse loan structures for retail, office, multifamily, hospitality and industrial property types. No borrower wants an unnecessary liability on their balance sheet, especially those that are in the business of ground-up development. Brokers are able to facilitate competitive non-recourse acquisition and/or refinancing. It is common for all non-recourse loans to have standard “bad-boy” carve-out provisions baked into the loan docs, which now takes us to reason #5.
Commercial mortgage brokers understand the complication and intricacies of negotiating and drafting favorable loan documents. This is an area where brokers truly earn their commission. Each transaction can be unique in its own way, having an experienced business loan broker to help navigate you through the drafting of the loan structure can be critical. Whether the loan is procured through a life company, conduit or an agency lender, the proper structuring of Tenant Improvement, Leasing Commission (TI/LC) and Replacement Reserves is important. So too are reporting requirements that lenders generally require of the borrower which can be time consuming and costly. Brokers assist in finding and adding flexibility to make the lives of borrowers easier pre and post closing. This is yet another way brokers add value to transactions when engaged. Commercial mortgage brokers work hard to provide a seamless closing process.
Certainty of Execution
If you had previously engaged a commercial mortgage broker to facilitate financing for your property, then you should already know that brokers normally get paid at the closing of the loan. If the loan is not closed and funded, the broker does not get paid. Having said that, brokers are incentivized to structure, negotiate and facilitate a successful closing. Networking in commercial real estate is important, and brokers frequently earn their keep.
It is true that in the end, you do pay a fee for utilizing the services of a commercial mortgage broker. However, you will find, as many commercial investors have in the past, that working with a broker will help ensure that your needs are met and that you get the best deal in the process.
Whether you are in a market for a commercial construction loan, permanent, mezzanine loan, a good broker will be able to provide guidance in selecting the best lending source. If timing is an issue, the broker will be able to leverage their long term relationships with a lender to garner an expedited processing of your request. A commercial mortgage broker is your advocate in navigating the commercial lending marketplace to deliver results and savings.