Why Utilize a Commercial Mortgage Broker?5 min read
When it comes to financing a commercial real estate property, many buyers may hesitate on whether or not they should utilize a commercial mortgage broker in order to save a mortgage broker fee.
In this article, we will discuss why commercial owners can save time, money, and stress by utilizing a commercial mortgage broker on their next commercial real estate acquisition.
What is a Commercial Mortgage Broker?
A commercial mortgage broker will act as a financial intermediary between a commercial real estate buyer seeking to obtain a loan and the lender.
The role of a commercial mortgage brokers help commercial owners arrange the best financing for their properties.
Why Buyers Should Utilize a Commercial Mortgage Broker?
Buyers often assume that they can save money by going directly to a lender. The reality is that, unless a borrower is a large entity that can afford a full-time in-house expert handling the financing needs for all of their properties, most borrowers do not have the expertise to identify the most appropriate lenders, negotiate the most favorable terms and close without hiccups with the best possible loan proceeds and at the lowest interest rate applicable at that time.
Would you draft your own purchase and sale agreement or loan agreement or get the help of an experienced real estate lawyer?
Most will agree that spending the money on legal counsel is worth the money. You should look at the value a multifamily/commercial mortgage broker brings to the table in the same manner – yes, you will have to pay a fee but the value you will get in return is well worth that fee, assuming that you engage a highly experience multifamily/commercial mortgage broker.
- Save you money
- Save you time and stress
- Increases certainty of closing
Let’s go over a few aspects of the commercial financing process and how a commercial mortgage broker can help buyers save time and money (and a lot of headaches):
1. Identifying the most suitable lenders
Not all lenders are suitable for a particular property (age, condition, stabilized vs. non-stabilized, operating history, etc.), market, sub-market, as well as a borrower’s experience and financial strength. A good commercial mortgage broker will be able to identify the most suitable lenders.
2. Creating competition among lenders
Once suitable lenders are identified, an experienced commercial mortgage broker will be able to create competition among those prospective lenders. During that process, it is important to pick lenders not just based on their offered terms but also based on the broker’s assessment of whether a lender is likely able to close with those terms (essentially weeding out unrealistic term sheets based on unrealistic lender underwriting). This is a crucial process to ensure that a lender is picked with the highest possible certainty of closing!
3. Reviewing loan application
An experienced commercial mortgage broker will go through the loan application with a fine comb and identify terms and fees that may not be market standard and/or negotiable. A borrower doing a few deals per year just does not have the experience to identify items that seem “off” or negotiable.
4. Handholding the lender due diligence
Even experienced commercial borrowers are overwhelmed with the long list of due diligence items that need to be addressed in a timely fashion. An experienced commercial mortgage broker will ensure that none of the items fall through the cracks and potentially derail a successful and timely closing.
5. Commercial mortgage brokers help to fix problems during the underwriting process
Virtually all commercial loan underwritings will face some challenges, such as an appraisal with lower than expected valuation and/or too high underwritten expenses, a property condition assessment that list unexpected immediate repairs, a negative environmental report, sudden operational deterioration at the property, higher than expected insurance quotes, problematic background checks of sponsors/guarantors, deterioration in the lending market, etc., etc. Any of those items can completely derail the financing of a commercial property, causing a so-called retrade (lowering loan proceeds or a change in terms) or a lender pulling out completely. This is the time when a highly experienced commercial mortgage broker will go into high gear to save/rescue the deal therefore worth every penny he/she is paid. The close relationship the commercial mortgage broker has with a lender will help to sort out many problems that a borrower directly would not be able to solve!
6. Reviewing the loan commitment
As with the loan application, a detailed review of the loan commitment is a crucial part. A great commercial mortgage broker will not only verify that all the terms match the original loan application but also will identify anomalies, “junk fees”, previously undisclosed terms and conditions, etc. that may need to be corrected/addressed.
7. Rate lock: Ensuring that a lender is not padding the rate
Except for bank and Freddie SBL loans with rates typically “locked” at the time of the loan application, most loans are not rate locked until a few days prior to closing. What does this mean? A lender will get on the phone with you and their “trading desk” to lock the interest rate of your loan. Unless you are constantly talking to lenders, it would be impossible to know whether the quoted rate is in line with the current market environment and lending spreads. If spreads improved or deteriorated since you applied for the loan, would you know by how much? A highly experienced commercial mortgage broker has the pulse on the market and will make sure that your rate is locked in a fair manner and that the lender is not “padding the rate” in their favor. This is an area where a broker is able to save your real money!
8. Closing: Ensuring a smooth closing
The days prior to a closing tend to be hectic and often chaotic, with everyone struggling to get all the outstanding items resolved. An experienced commercial mortgage broker will consistently follow-up with all parties to ensure that nothing falls through the cracks that could potentially derail or delay a successful closing.
9. Post-closing: Commercial mortgage brokers help sort out issues with the lender’s servicing
A good commercial mortgage broker will help with issues that may arise post-closing, particularly in cases where a borrower faces challenges to get draw requests funded in a timely fashion but he/she can also help with reporting disputes, etc.