Beyond the Broker Role
Today’s market requires mortgage brokers to act like bankers to regain borrower trust
By Baxter Fain, vice president, CB Richard Ellis Capital Markets
Even with the lack of available capital in today’s lending market, commercial real estate buyers
still must borrow money to make deals
happen. One issue surrounding the current financial crisis, however, is that the
trust between borrowers and lenders no
To be successful, mortgage brokers
must think and act like mortgage bankers
to help rebuild the trust between borrowers and lenders.
Here’s what that means: Brokers often
are simply intermediaries between two or
more parties in a mortgage transaction.
Many work solely for the commission and
don’t take any ownership over what they
do. When you act like a mortgage banker,
however, you work with your clients and
prospective clients as a trusted adviser
rather than just as an agent. You must
work diligently with clients to understand
everything there is to know about an asset, including the status of all tenants in
place, the property’s historical operations,
and all risks and corresponding mitigating factors.
Acting as a conduit to simply broker
a deal is no longer the school of thought.
Rather, you must dive deep into a deal to
help protect the lenders and to help mitigate risk for the life of the loan. A successful transaction takes careful planning
and due diligence. If you don’t understand
a deal’s current and historical details, the
borrower’s ability to receive financing
Today, focusing on relationships with
clients and lenders rather than simply on
transactions can help define the course of
action and help you achieve successful financing terms for your borrowers.
Helping clients understand
Commercial borrowers who previously had
direct relationships with numerous lenders
now often need a good mortgage broker.
Most are finding they can’t get their deals
done because of their bank’s illiquidity or
because the bank has reached its maximum exposure level.
Today, countless scenarios make financing a project unachievable. Clients
must be educated upfront on the underlying reasons and parameters that affect
deals. As their trusted adviser, you can inform clients who are pursuing an acquisition today about the realities of the market
before the process starts. If you don’t, your
relationship can be strained.
Thus, you must give clients an accurate
image of what a feasible loan will look like.
Depending on their situation, that loan
might be a 25-year amortization versus 30
years; 60-percent leverage versus 65-per-
cent leverage; an 8-percent coupon versus
a 7-percent coupon; or recourse versus
Discuss these points with your clients
upfront. The worst thing you can do is give
clients a false sense of success and wind up
with a commitment that falls short in one
or many ways, leading to unnecessary client expenditures.
Rather, you should discuss property
values and realistic bid/ask spreads and
help them weather the storm with their
existing assets by advising them on their
options, such as leasing, management or a
sale, if necessary.
In addition to playing more of an adviser
role for clients, it is critical to ensure that
you don’t waste your time on deals that
likely won’t close. The first thing you must
do is determine whether a client’s deal is
practical and whether it can be executed
today. This rule not only applies to the underlying real estate securing the loan but
also to what borrowers are willing to accept and what they require for a deal to
Setting appropriate expectations with
clients must be your next move. Doing all
your homework upfront will keep you from
spending a lot of wasted time and energy
on bum deals.
Once you determine that the deal can
find financing, control the situation. You
must immediately procure a list of all of
the lenders and mortgage bankers with
whom your client has already spoken.
Find out whether you will get an exclusivity agreement for the project.
If one or more of the other mortgage
bankers are working on the assignment, and
the client is unwilling to give you an exclusive, then seriously consider passing on the
assignment. An exception to this might be
if you have a specific lender in mind that
the borrower has not already contacted and
that would consider doing the deal.
■ ■ ■
Baxter Fain is vice president for CB Richard Ellis Capital Markets’ debt-and-equity-financing group in Denver. Since joining the company in May 2005, he has
closed more than $500 million in commercial financings. Previously, he was a vice
president with Goldman Sachs Commercial Mortgage Capital, closing more than
$7.5 billion in securitizations. Fain is a graduate of Southern Methodist University
and is active in numerous real estate industry associations. Reach him at (303)
628-1780 or firstname.lastname@example.org.
The state of the financial and real estate
market is uncertain, but commercial mortgage deals are still being done, and loans
are still closing. A critical part of your success as a broker — or a banker — is to sift
through submitted deals and to concentrate your focus and resources on those that
you actually can see through to a successful closing.
With that process, setting the proper
expectations with your clients comes hand
in hand. By moving beyond simply brokering deals and by acting as a mortgage
banker and trusted adviser to your clients,
you can help rebuild confidence and faith
in the mortgage industry.
Illustration: Dennis Wunsch