Commercial Real Estate Loan Tip #3

Have a sense of urgency about the commercial mortgage process.

If we provide a letter of intent or a term sheet for your project, please make a fast decision. Just because you have a 30 million dollar project that looks good on paper doesn’t mean the lender won’t pull the deal. We see lenders pull deals all the time because the borrower cannot make a simple decision. Lenders like decisive-action-taking borrowers. Think about it. Lenders are confident in borrowers when they see the borrower confident about making a decision.

Commercial mortgages are not like residential mortgages. We’ve had clients mistakenly assume that just because one lender approves a mortgage or is interested in funding the transaction that there is another company out there willing to fund the mortgage with better terms. This is a big mistake.

Because of our relationship with lenders, we sometimes receive calls that our client has submitted a mortgage application through another broker – whether or not the lender approved our original application. We call this “shopping the loan.” We have even had another broker call us about a transaction that we are actively working. Unfortunately, when this happens, the damage is done. Even though our lenders are loyal to us and will not accept the second application, we recognize that a breach of trust has occurred. Most of the time, we terminate our broker agreement with the client. We choose to work with clients that are loyal to our services. We have found that we best serve our clients when there is mutual trust. We have too many mortgage clients that are loyal to our services to waste time with an uncommitted, unloyal client.

Once in a while, however, we have made the mistake to continue our broker relationship with a commercial borrower after discovering that they were using the services of another broker. As human beings, we also make mistakes. This usually comes after discovering that our original proposal was the best terms that the borrower was able to get. An apology by our client with a sincere plea for our assistance has pulled at our heart strings. Now we go back to the lender and strive to get the same terms as before. If we get the lender to respond, they will, at times, change their original terms. This usually happens because they don’t trust the client as much and change terms to reflect an inherently riskier transaction.

As a borrower, our clients can have confidence that we always submit a commercial mortgage application to multiple lenders. We are working to get our clients the best terms available in a very narrow market. We choose the original group of lenders based on our experience with the lenders and foreknowledge of their loan requirements. If we receive two letters of intent, we will provide our clients with both and consult with them on the merits of each proposal. If our client only receives one letter of intent, it’s probable that this is the only company that will fund and close their commercial loan.

Once you receive a letter of intent, it’s time for action. Most borrowers have about 2 to 3 days to make their decision. Lenders give borrowers time to review the letter of intent with their attorney or legal counsel, but not to play games or what we call “shop the deal.” If they discover that a borrower is “shopping the deal” or taking unnecessary time to sign a letter of intent, they will get uncomfortable with the transaction and sometimes pull the deal.

My best commercial real estate loan tip for this week is, take action.