<< Focus continued from Page 31
Lawrence S. Brown is the CEO of Evergreen Private Finance and has more than 20 years of
experience in growing highly successful specialty finance and investment companies.
He also has acquired, managed and sold real estate in the Washington, D.C., metro
area. He is a venture-capital investor and a limited member of Centripetal Capital.
As a noted entrepreneur, he has structured and financed more than $2 billion in loan
products across multiple asset classes. Reach Brown at (301) 928-5750
Continued on Page 34 >>
Foreign nationals who seek commercial real estate financing fall into
two groups. The first group has documentation and is relatively easy for
brokers and lenders to work with. Often, these foreign nationals come to
the United States through the EB- 3 or L-1 visa programs. They usually have
a Social Security number, as well as a credit history and a place of employment
that a lender can verify. In short, they have all the characteristics of a typical
borrower, except they lack U.S. citizenship or permanent-resident status.
The second group is comprised of foreign nationals, including sophisticated investors, who do not have the necessary documentation. They
don’t have Social Security numbers. Their work history generally involves
employers outside the U.S. and their bank accounts are often issued by
foreign institutions, making their financial background more difficult or
impossible to verify. Overall, they do not fit most — or sometimes any —
of the criteria of a typical borrower.
On the surface, the first group of foreign nationals appears to be much
better to represent. But you should remember the old saying that looks
can be deceiving. It is actually the second group of foreign nationals —
those who are undocumented — that you want to bring to lenders.
Foreign nationals who have all the requisite documentation on hand
are problematic for commercial mortgage brokers for one main reason.
Because they are not considered risky, they generally seek and acquire
financing from traditional lending institutions. Because they don’t need
creative funding solutions, they rarely require a mortgage broker’s assistance.
On the other hand, undocumented foreign nationals have an opposing set of characteristics that make them a much better opportunity for
brokers. Their higher perceived challenges and risks are unique conditions
that create specialized-financing scenarios for commercial mortgage brokers.
These specialized loans often deliver a considerably higher return on
investment than conventional loans. And, unsurprisingly, undocumented
foreign nationals are willing to pay much higher interest rates and produce
much larger downpayments to acquire specialized financing.
Downpayments for these loans can range up to 30 percent or more, while
rate spreads also can vary widely depending on conditions, such as how
quickly the borrower needs a loan approval, how much documentation they
can provide, how long they’ve been residing or operating in the U.S. and
what domestic assets they have. Loan-to-value ratios can go as high as 75
percent with rates in the high single digits and low double digits. And, in fact,
these supposedly risky loans can contain less risk than conventional loans.
The fact that foreign nationals may lack traditional documentation and
easy-to-verify employment or financial records creates a few big fears in
the lending marketplace. Some lenders worry that undocumented foreign
nationals will be constrained from finding high-paying jobs because of
their immigration status. Other lenders worry that these borrowers will fail
to pay off their loans because they reside or can easily disappear outside
the U.S. Many lenders, however, simply worry that undocumented foreign
nationals may be detained, deported or denied employment altogether.
These are valid concerns on paper, but in the marketplace, they rarely
materialize. As a whole, the population of undocumented foreign nationals
often perform better than their A-paper counterparts. Some lenders that
issue residential mortgages to borrowers with individual tax identification
numbers (ITINs), for example, report delinquency rates of about 1 percent,
which is lower than the 3. 25 percent delinquency rate for all residential
mortgages as of this past second quarter.
When adverse events such as detention, deportation or loss of work do
occur, many lenders who have dealt with this population have found that
borrowers continue to make their loan payments on time. These points
alone are not enough to make undocumented foreign nationals an easy
sell to lenders. But there are additional actions that mortgage brokers can
take to further reduce a lender’s real or perceived risks with these borrowers.
To find undocumented foreign nationals who seek funding, you should
look for commercial real estate agents who are focused on servicing this
population. Often, these agents reside within the ethnic communities of
the borrower’s nationality. Lenders that provide these types of loans are
seeing substantial opportunities among Chinese foreign-national populations, and employees at embassies typically seek these types of loans
more than other groups.
Most lenders that work with this population are niche lenders that
specialize in these types of transactions and advertise their willingness to
help. Once an appropriate lender is identified, it is always a good idea to
contact a lender representative and ask for their specific guidelines and
eligibility requirements for these loans, as they may vary from company
For the most part, lowering a lender’s risk is not a particularly different process regardless of whether the investment opportunity involves
an undocumented foreign national or a more conventional prospect. As
a commercial mortgage broker, it’s your job to delve into the deal and
piece together what is not obvious on paper. You need to listen to and
understand the challenges your borrower faces in their business and in
their investment objectives. You need to explore their history in order
“Undocumented foreign nationals are
willing to pay much higher interest
rates and produce much larger