Commercial
Mortgage Brokers - Worth The Risk?
If you are seeking development financing for a commercial real estate
project, commercial mortgage brokers may be
able to offer you the loan that is right for you. All really great
commercial mortgage brokers are focused on getting your transaction matched to
an institution that will meet the commercial mortgage broker's needs. If
your needs are met, so much the better, but that's not a requirement in their
world.
A fundamental understanding of the principle of the time-value of money
comes into play for the brokerage industry. Brokers live on deals that are
already in perfect condition for submission. They will not perform any due
diligence until the institution tells them the transaction has passed the first
review. The second issue is brokerage fees. Unfortunately, there are
all too many brokers out there who are really not brokers, they are playing a
different game - the application fee game. Recently, a number of them on
Wall Street have been busted and some rather high-profile players are going to
go to jail, but Rainmaker does not believe this will lead to any substantive
change in the industry. Forewarned is forearmed so we will provide you
with additional information that may be helpful in your funding solicitation
cycle for a DEVELOPMENT STAGE financing.
For
one thing, most commercial mortgage brokers don't have a direct correspondent
relationship with an institution; their approach is to solicit a number of
institutions and hope one of them will pay their fee (getting their fee paid
takes precedence over getting your project funded). In other words, you
are going to be paying them to do no more for you than you can do for yourself
with no tools or special knowledge that you do not already possess.
Another
thing is the underwriting of the investment. It used to be that the
underwriter would be that firm that undertakes the investment responsibility,
meaning; they assembled the capital out of their own resources and packaged it
into the investment security being offered by the promoter group seeking the
capital. Today, underwriting has deteriorated so badly that the only real
responsibility is the loan file. This means the "underwriter" is
being paid an "underwriting fee" to assemble the transaction
documentation. Funding the deal is left up to someone else. Is that what
you want?
Why
not talk to Rainmaker about a quasi/semi-public underwriting using the indirect
solicitation method? You would be surprised what you can learn and how
fast your transaction can complete its own underwriting process.
