Residential mortgage brokers continue to turn down commercial business rather than lead clients through the often-daunting application process, private lenders told a recently held CMP mortgage workshop.
Commercial mortgage applications do, in fact, require a higher level of broker involvement, and carry a greater degree of uncertainty, said Lionel Larry, president of private lender First Source Mortgage Corp. But the potential payoff for brokers willing to stay the course – or even to co-broker multimillion-dollar deals – is great.
“The average residential agent throws away a commercial deal because they’re not familiar with it, because it’s significantly different from residential,” he told more than 50 brokers gathered for the Toronto workshop. “We tell residential brokers: Don’t be overwhelmed and don’t just be a traffic cop – get involved with a commercial deal, stay with your client. If you have the skill set, there’s no reason why any of you shouldn’t bring a commercial client directly to us instead of going through an intermediary.”
Winning greater broker participation has and continues to be challenging despite the protracted economic recovery, which has cooled home sales and sent industry professionals scrambling for new opportunities. The reasons, said residential specialists attending Friday’s workshop, centre on the often onerous stewardship need to bring a commercial application to a lender.
Developing a bullet-proof loan summary – a key element for any commercial deal – means obtaining environmental assessments, conducting financial, tenancy and market analyses, proposing loan structuring and, above all else, defining a clear exist strategy for the lender. Even then, only about one in ten commercial deals come to fruition, with broker remuneration – usually a one-percent fee – dependent on a positive outcome.
It’s a lot of work for what remains a very uncertain outcome, said several residential brokers at the commercial workshop – part of the Canadian Real Estate Investors Forum, bringing together mortgage professionals and property investors for two days of networking and professional development.
“Generally, with commercial mortgage work, there tends to be a low return ratio on input,” mortgage agent Michelle Brienza told MortgageBrokerNews.ca at the workshop. “Also residential brokers have to ask themselves if at the end of the day are they doing the best for the client in hanging onto the deal.”
There is help. The Real Estate and Mortgage Institute of Canada (REMIC
) and others offer professional development courses specifically focused on commercial brokering. The programs centre on shoring up confidence, but highlight the need for brokers to leverage lender contacts and “package” the deal.
That presentation is usually key in selling a deal to lenders. For brokers, it’s like going into the Dragons’ Den, REMIC
founder Joseph J. White told workshop attendees. “In the case of commercial mortgages, the lenders are the Dragons.”