Financing commercial real estate differs for each investor and property type based on short to long-term goals, liquidity, risk tolerance, asset class, location, tenancy, return on investment, and overall borrowing history. These are just a few of the metrics that influence how to secure the most competitive financing.
Traditionally, when seeking a commercial real estate loan, most borrowers will go directly to where their local deposit relationship is held or managed with that request. While it is possible to go directly to your relationship lender, doing so can be time consuming, expensive, provide limited options and potentially result in an unsuccessful activity. It is important to understand that banks and lenders all have specific credit appetites for loans and if your request does not fit within their credit box, one can spend lots of time and make little to no progress.
Contrary to popular belief, many borrowers believe that working with a mortgage banker is expensive and unnecessary.
This is far from the truth; associating a commercial mortgage banker with these impediments is a major misnomer.
Utilizing the experience, skills, and network of a mortgage banker can often save clients ten times more than going direct to a single lender and often offer many more tailored solutions for their needs. While there are small employment fees when partnering with mortgage bankers, the associated costs can save borrowers tens and even hundreds of thousands over the life of many loans.
If you are thinking about new commercial real estate investments, outlined herein are a few reasons why you should consider employing a mortgage banker for your next commercial real estate loan.
One of the most often overlooked processes of securing a commercial real estate loan is the discovery process. The discovery process employed by PACT Capital takes both a short- and long-term view of the borrower’s goals for a specific property, housing their business location and /or managing the liabilities associated with their investment portfolio. The PACT Capital discovery process takes an in-depth approach in reviewing the entire schedule of real estate, current and proposed debt obligations coupled with an asset review to ensure the correct financing is selected. As advisors in this process, the principals at PACT Capital are very experienced and steadfast to ensure the lowest cost of capital solution is achieved.
Locate the Best Lender
Locating the right lender for your commercial mortgage is more complex than you’d think. Time being a major aspect. Different lenders are seeking to lend on different commercial property types, offer varying financing options, and underwriting individual circumstances. As a borrower, going to one lender will only provide insight regarding their specializations and may not be the best entity to accommodate your specific needs. To find a lender who provides the right lending options, you will need to contact multiple different lenders at different institutions. This is quite time consuming and cumbersome in attempting to locate the correct contacts at each institution.
While a relationship lender is important to growing a real estate portfolio, there are certain risks when working with a single bank lender versus a qualified commercial mortgage banker. In doing so, borrower’s risk wasting time and money if the commercial loan application were to be denied.
End to End Solution Provider
A qualified mortgage banking firm works in volume and as a result is highly in-tune with market conditions, lender credit appetites and can assist lenders in getting comfortable with non-traditional needs. Due to the amount of working relationships mortgage bankers encompass, they can help apply to multiple lenders that are directly interested in the type of property and borrower profile; ultimately creating a competitive environment that allows borrowers to leverage lower interest rates, better terms, longer amortizations, and more flexible prepayment penalties.
Mortgage bankers leverage their relationships with multiple lending sources to secure tailored solutions for every situation and property type.
With advancements in technology, mortgage bankers are in better positions than ever before. Now, firms like PACT Capital can provide a platform to deliver more insight and information to lenders, allowing those who do not have brick and mortar locations to lend across larger and more diverse areas. This vastly increases the opportunity to find the right lender. Most borrowers aren’t aware of this and don’t have the network of relationships to acquire the best partnership. Working with an experienced mortgage banker gives borrowers access to a variety of active lenders who will best accommodate all your commercial financing needs without wasting time.
Better Financing Terms
Due to increased access to multiple lenders, borrowers who work with a mortgage banker can receive better financing terms than those who go directly to lenders.
There are often notable differences in interest rates, fixed terms, prepayment penalties, on-going covenants, and other associated costs between each lender. When a borrower directly contacts lenders, these fees tend to be higher, and it is not as easy to gain an understanding regarding the current market rates. Mortgage bankers provide insight as to what’s reasonably priced and how interest rates can affect your costs of capital – which directly affects ROI.
When considering interest rates, it’s important to understand how small differences can create substantially different payments throughout the term of a loan. While a 0.05% difference in rates does not seem like much, it can equate to tens of thousands of dollars when trying to improve ROI and IRR.
Mortgage bankers also send volume to wholesale lenders and therefore have more influence in pricing and modifications to credit policies. Some of these lenders are not open to the public. Due to the business mortgage bankers provide to lenders, there are substantial rate savings.
Stronger Loan Structuring
The documents that result in negotiating and drafting commercial real estate loans can be complex and filled with intricate details. If borrowers are not experienced in terms and conditions alongside traditional market values, they can surpass critical details of the financing agreements. Mortgage bankers are experienced in navigating the complex loan structuring process, so they can make sure that the borrower is in the best position possible. In fact, one of the main goals a mortgage banker is to help make borrowers’ lives easier and create value in the commercial financing process.
Mortgage bankers have a certainty of execution and are incentivized to deliver commercial real estate financing that will work with borrower’s capital needs. Through an integrated network of professionals, we provide a more streamlined process to applying for, closing, and acquiring best-in-class commercial financing with optimized loan structures.
Higher Fiduciary Duties
Mortgage bankers have a fiduciary duty to their clients. Mortgage bankers serve as a quasi-outsourced CFO for borrowers’ commercial real estate holdings and operations. Banks have a single interest—make the least risky loans to protect the bank deposits; therefore depositors have priority in most situations. This can create loan terms that disproportionately favor the bank, not the borrower. Mortgage bankers understand how to manage the underwriting nuances of every lender, ultimately providing the best deal to clients, not the banks, keeping the interests of clients at the forefront of every decision. The fees associated with engaging a mortgage banker are a profitable investment and ultimately, the best way to ensure you have someone working on your side.
Relationship or Transactional Financing
Sometimes, lenders only utilize relationship financing. This means that a borrower would have to move their entire banking relationship if they wanted a simple investment real estate loan. Many banks and traditional lenders do this to strengthen customer loyalty, but it creates chaos and challenges to borrowers—especially if they already have long-standing relationships with other financial institutions. Mortgage bankers can provide both relationship and transactional financing, so borrowers don’t have to upend their entire real estate portfolio just to secure a commercial real estate loan.
Engaging a mortgage banking firm like PACT Capital delivers borrowers unmatched expertise and market connectivity which can save time and expense. The PACT Capital team of experienced advisors deliver the entire capital stack to borrowers through a streamlined single point of contact. As a relationship lender, the principals at PACT Capital take the time to thoroughly research and examine all the options available in the capital markets to best match our clients’ needs. To learn more about partnering with PACT Capital’s mortgage bankers for your next commercial real estate loan, email info@PACTCap.com, or call 213-799-PACT (7228) today.