Pros, Cons of Commercial Originations

While commercial mortgage originations can offer residential brokers bigger commissions, a new market to tap and the chance to extend investment opportunities to existing clients, it takes more time to deal with the additional variables commercial lending brings.

As residential fundings wane, some mortgage brokers are turning to commercial lending.

One commercial wholesale lender says it is sweetening the deal by offering brokers reward incentives and in-house training that simplifies an often-complex process.

Coral Gables, Fla.-based Silver Hill Financial specializes in small-balance commercial loans from $100,000 to $1.5 million and says it has streamlined the lending process, making it easier for residential loan brokers to learn the commercial real estate lending procedure.

Evelyn Kidd of Texas-based Directors Mortgage, who is a commercial broker for Silver Hill, told MortgageDaily.com there is more to learn but that it has been a lucrative move for her, adding commercial lending to the origination mix.

“A considerable amount of my residential business is investment,” Kidd said. “I was interested in offering my current client base more avenues for their investment opportunities.

“Silver Hill has simplified their underwriting and fashioned it after a residential underwriting style, it is extremely user-friendly,” she continued. “You have to familiarize yourself with rent rolls, profit and loss statements, etc., but it is basically the same concept as residential lending.”

She said that most of the commercial loans she originates are between $500,000 and $1 million, and pay between two and three points.

“The commercial deals do take a bit longer and are a little more difficult however the end result makes it well worth while,” Kidd said.

Opportunities in commercial lending can exist just about anywhere — from apartment buildings to retail strip centers and commercial condos, according to The Insider’s Guide to Small-Balance Commercial Mortgages, a white paper released by Silver Hill last May.

And the commercial market appears to be heating up. The National Association of Home Builders/Fannie Mae Multifamily Rental Market Index released last August indicated a record increase in demand for luxury and lower-priced apartments. Moderately priced apartments were also up from last year.

“We are in the midst of a solid comeback on the rental apartment side of the multifamily housing market,” NAHB Chief Economist David Seiders said in the press release. He also noted, “During the last three years, condos have made up a rising share of multifamily housing production.”

Common commercial property types include multifamily, office and retail properties, the paper explained. Other types include warehouses, storage facilities, mobile home parks, automotive and restaurants.

The different property types cause commercial deals to become more complicated and involved than with most single-family loan originations, Patrick Connors of Marketing Mortgages Direct told MortgageDaily.com by e-mail. But there is “great satisfaction when one commercial loan closes,” he said.

“You cannot expect a cookie cutter approach for commercial loans,” Connors said of an industry he calls very competitive. “You really have to offer the right product at the right price to be awarded the business.”

Geoffrey Dorney of GP Dorney Mortgage Services agrees that every deal requires customization.

“The biggest difference is that they take longer, more effort (more phone calls, faxes, emails and copies), and there is a lot more fallout,” Dorney told MortgageDaily.com in an e-mail interview. “No matter how hard the lending industry tries to standardize the process, from origination to (underwriting) to closing, something unexpected pops up in virtually every case, causing either a delay or an end to the deal.”

In any case, Dorney added, there is room in this industry where there are “very few real experienced players.”

“With time, you can develop a reputation as a ‘go-to’ person, to residential professionals that need someone they can count on, when an important client needs a commercial deal. That’s our bread and butter.”