Looking Before You Leap
For newer brokers, it’s wise to recognize the limits and payoffs in commercial lending
Andrew Bogdanoff, president, Remington Financial Group
As published in Scotsman Guide’s Commercial Edition, July 2008.
The sea of potential new commercial brokers is as wide as it is deep. Some want to learn more about the industry. Others might have dipped a toe into the commercial waters and are considering moving into the business full-time.
If you fit into one of these groups, you would be well-advised to go in with your eyes open. Many beginning brokers do not know the nuances of commercial lending but must learn them to make informed decisions.
For the right candidates, commercial lending is a perfect fit with tremendous rewards. But for the wrong candidate, the risks, stress and commitment to customers might break the camel’s back.
Examining cautionary and positive aspects of being a commercial broker can help you understand the unique position you’re in—and help you understand how to proceed.
Challenges
The news about salaries in commercial lending is that, for the most part, there are none. Often, commercial lending is a straight-commission industry, where there are no draws and no benefits offered. It can be a radical life change for people unfamiliar with a commission structure.
It’s common for beginning commercial brokers not to bring home one dime in the first two to three months on the job. It’s generally recommended that people who can stomach the uncertainty of the commission structure should wait to enter the business until they have built a 60- to 90-day war chest to cover their personal financial obligations. By doing so, they can ensure that their personal or family situations are not adversely affected in the time it takes to learn the business and to build a solid lead base.
A good number of commercial brokers also work as independent contractors. For the most part, commercial brokers set their own schedules and take on only the business that they want.
While this offers tremendous flexibility, managing your own time can be a pitfall for the wrong candidate. There is a tremendous amount of self-discipline required to be your own boss.
Just because no one tells you when to be at work or how many hours to be there doesn’t mean that you don’t have to do anything. Remember, you are likely not pulling down a salary. Simply filling your seat will not pay the bills. Most commercial brokers are in a position where they must find the discipline to uncover leads, work them, create relationships with investment-banking firms and maintain stellar customer service for clients.
These added responsibilities can be stressful. Commercial lending is a 24-7 job that includes demanding clients who expect you to be available to them all the time, at any time. It can affect your home life, with frequent interruptions outside of regular working hours. Financial dealings also are emotional, particularly for the borrower, which often adds to brokers’ stress.
To succeed in this business, you have to have a thick skin. You must enjoy the work enough to offer additional help to clients who become upset with you.
Although it’s tempting to play tough, realize your clients ultimately are paying your bills. It would be wise to treat them well and to work hard for them.
The plus side
It’s always wise to balance the challenges facing commercial brokers with the positive aspects of the job.
The biggest upside of commercial lending is in the financial rewards that a good broker can generate. The commercial lending industry is not like the residential side, with its pronounced dips and peaks. Even as the housing market slipped, commercial lending continued in relative stability—meaning that the vine is still ripe for the picking with deals that need funding. Brokers who have the right business acumen, the right contacts and solid investment-banking partners can create a significant revenue stream.
Another advantage is that for the most part, being a commercial mortgage broker does not require a license, specific education or particular work history. Granted, many commercial brokers do have advanced degrees, well-regarded résumés and years of experience. But many others have taken advantage of the fact that a nose for the business, strong sales tactics, people skills and a stellar work ethic can be building blocks for a successful career with commercial loans.
While other positions in the commercial lending industry might require a particular formal education—an underwriting or analyst position, perhaps—a broker’s personality, passion for the industry and keen ability to look for good business deals can lead to industry success.
It’s important to note, however, that even though brokers might enter the field without a specific education, new market entrants should look for opportunities for on-the-job training.
As a new or questioning commercial broker, it’s wise to know what type of business lifestyle you desire before you get into commercial lending full-time. Successful commercial brokers can make a tremendous living while enjoying a flexibility other occupations can’t provide. But they have to understand that stress, demanding clients and a lack of a stable paycheck often are part of the bargain.
Either way, take the time to know the business and to know yourself before you make the leap.
Andrew Bogdanoff has more than 35 years’ commercial lending experience and founded Remington Financial Group in 1993. Bogdanoff has served as the company’s president since its inception, and, under his leadership, RFG has closed billions of dollars in transactions. Andy can be reached at andy@remingtonfg.com. For more information on Remington Financial Group, please visit www.Remingtonfg.com
$5.5 Milliom non-recourse permanent financing secured by Remington Financial Group
To refinance the brand hotel in north Vermont , RFG’s permanent financing was selected by the long time and repeat borrower of Remington.
Remington financial group competed with the borrower’s options and won based on the extremely low rate it was able to secure along with other favorable terms such as low reserves and short time frame to close. This was the 7th deal done by Remington Financial over an extended period which was based on the reliability and confidence portrayed in Remington by the borrower. This loan was set up on a ten year term with a rate fixed at five percent on a thirty year amortization.thirty-five %.
Remington Financial Group raises capital to the tune of $960,000 for the buyout
With its small loan service, Remington Financial Group began acquisiton funding to secure buying retail property in the Raleigh, north Carolina market. Remington Financial Group, known for its ability to acquire funding for very difficult deals, the principal engaged them to get hold of funding for their first commercial investment property.
The individual borrowing the funds had a low credit score, no experience, and little overall net worth. A substantial real estate property had a sales contract at a very competitive price, though. RFG was at ease to settle the deal due to the properties strength and the borrower’s seemingly good insight throughout the financial stage of the process. As a result, Remington Financial structured $960,000 senior and mezzanine financing which represented a 95 percent LTV when combined with the seller financing which occupied a third mortgage position. A combined rate of 7 was used to supply senior and mezzanine financing.3/4 spread over a period of seven years as well as 25 year amortization.
Remington Financial Group received $58,000,000 in debt and mezzanine funding
Remington financial group is perhaps the largest group of hotel owners . Nevertheless, the level of difficulty required to complete the financing seemed too great. The aging properties slipped into bankruptcy after losing their competitive edge to newer hotels that had developed in their own market areas. Another challenge that was evident involved the property debt of approximately $100MM that was worth only about $70MM. Contributing to its complexity, considerable ecological difficulties existed. The court gave Remington Financial Group 30 days by which to turn in a resolution plan together with commitment for funding. When the borrower involved Remington Financial Group, they had fully planned to give the properties back to their lender ,because after 18 months no one else had been able to get them a deal.
It was acknowledged by Remington financial group that this selection was not an asset that was wanted by the lender. Because of the relationship it has cultivated with it’s current lender, Remington was able to ask settle the senior financing for less. This caused a tax liability for the borrower entailing added finances to cover this expense. And to fix the environmental issues, a large amount of money will be needed. Remington financial group had to secure mezzanine financing for a very speculative business plan, to solve these needs and the need for additional capital to invest into the properties to help reposition and upgrade the portfolio and make competitive within its market.
Remington financial group sealed the market rates and gave a fifty eight million dollars finance which helped owners to retain all of their ownership in emergence of bank cases and properties. The business was completed within 45 days.
There is an extra kick to commercial real estate loans
In the commercial world there are mortgages and there are commercial real estate loans. The key difference is that a mortgage is simply to buy the property, yet the commercial real estate loans that can be obtained can encompass so much more. Some of the possibilities are in the improvements of the property, advancements in the grounds, and even in the renovations of the property itself to suit the needs of the company. This can be a number of factors that can equal out to a huge loan where the mortgage is just a smaller portion of the overall whole.
This is where many commercial real estate loans are set up through financing firms that deal with the base mortgage and also provide a larger loan to the company. This is to help the company launch into the market from the building and not have to deal with additional loans to get the building up to specs. The huge advantage that the firms see is that this helps in the purchase of buildings that are appealing, but have areas that are in need of work. In simple terms, it makes a sale and also makes a commitment to the firm from a company that needs their services.
The commercial real estate loans can make the jump from a small office building into a complex possible. This is all based on what method the loan is obtained and what the overall criteria are for the loan itself. In many cases the commercial real estate loans are reviewed by representation from the company to ensure that it is fair for them and something that will be possible for them to meet.
For commercial real estate loans of this size, there is a large of money that is fronted and they are usually set up for a long period of time. In most cases they could be seen as a mortgage, except that they amounts of the payments are larger and the company is usually bound to pay it in a shorter timeframe than that of a residential property. Part of this is due to the expense that has been put into making this purchase a reality, and the other part is that a company can easily make more than most individuals or families can. This is also why commercial real estate loans are devoted to more than just the purchase of the property.
The merchant account versus the commercial loan
There have been many misconceptions of a commercial loan. Loans of this nature are designed to help a business get a leap a head, but still have to be paid back with the interest that is created over the course of the loan. Unlike a grant, a loan is where a business can get help and be able to pay it back over the course of months or yours.
These differ from merchant accounts as well. Merchant accounts are usually seen as a flex account that is similar to a credit card, but have a base interest rate that has to be dealt with as well. These are usually dealt with when a company has smaller needs of expenses that go beyond the expected norm. This is much different from that which comes from getting a commercial loan. Loans are more focused on presenting a large lump of sum that can be used in the expansion of a company or in getting items that are needed in the course of the company’s life. This difference is something that is often overlooked and can be the killer in those that are trying to get a merchant account, when it was only a commercial loan that they needed.
A merchant is good to have, but a person has to remember that they usually have higher rates that the typical commercial loan. Loans are supposed to be paid over a period of time and a merchant account is something that is best when paid off quickly. This is mainly the reason why large banks and also credit card companies offer most merchant accounts. A merchant account is a good method of addressing one issue or a particular need that the business needs, but not in the course of purchasing property or in expansion considerations.
Overall, a commercial loan is where a company can take a massive leap forward and see if they can land on their feet. It is the bigger chances that a company makes in growth or in staying in the here and now with technology. A choice like this is all depending on the industry that the company is involved in with the course of work. This is why loans of a commercial nature are often considered so that the company can make the changes now rather than having to wait for what could be.
