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The 10-year yield dropped a bit over the last week.  Going forward, the pressure is still pushing rates higher with the FED announcing their intentions.  However, the White House is making it clear that they are not too happy about the effects of increased interest rates on the economy.  I suspect we will see future increases, but with some sort of eye towards keeping the peace with Washington.

Commercial Mortgage Broker Insights and Protecting Clients:

I have had on my list for some time now my desire to shed light on some of the abuses I see in my world (and the effects on clients).  It can be interesting (definitely a euphemism) to stumble across how clients can get into loans that really do not suit their needs.  My style is to just get clients the best possible loan terms that fit their financial objectives.  And, that should seem pretty simple, right?

Well, it is not.  This can be a tough business since everyone does not do what is in the best interests of the client.  Some just do not know the available choices; and they simply refer clients to lenders they like that they know can get the loan done.  I do not see this as malicious, but it can have some terrible effects on clients.

Let me give you a case in point.  Clients go to purchase an industrial building and get an SBA loan.  So far, it seems pretty easy.  However, let me show you some math.

Purchase Price – $6,000,000
Loan Amount – $5,100,000
Interest Rate – 6.25%
Principal and Interest – $33,643

Now, this loan is a variable rate loan and has now risen upwards to 7.75%!  Okay, in fairness, if the client had bad credit, then this would have been one of the few options open to them.  BUT, their credit was fine.  If this client would have had the proper representation on the loan side, then they could have had a much lower interest rate that would have been fixed for about 25 years.

Here is the math on the difference which is substantial:

Loan Amount – $5,100,000
Interest Rate Estimated at 4.75%
Principal and Interest – $29,076

That would be an original savings of over $4500 per month.  Since their current payment is now over $37,000, the current savings would be about $8000 per month.  This is real money that has been wasted due to a total mishandling of the client’s needs.

I do not want throw anyone under the bus.  However, someone caused these clients unnecessary financial harm.  Someone referred them to the wrong group to do this loan (and the clients did not know any better).  This is the challenge of the business.  If clients go to financial institutions directly, then their lender (hopefully, there are exceptions) cannot tell the client if something better exists in the market.  It is tough when your employer is not the ideal solution for a problem.

When I take on clients, it is my job to protect their interests, find cost-effective solutions that can close on time, and I am their agent.  Trust me, I get loan offers that range all over the place.  Experience tells me which ones are real and in the best interests of the client.  I can choose among all lending sources.  Thus, there is plenty of competition.

The other point to make is that some financial institutions offer a rebate to me and others as well.  That just means they are trying to get me to bring them the loan and pay me a fee.  Again, my job is to get the most cost-effective loan that can take care of my client’s needs.  If the option offering the rebate ends up being the right choice, then great.  However, most of the time it is not.

I can go on and on about this subject.  I do not like when clients get abused; and it is unnecessary.  It happens in a lot of businesses.  It is why it is so important to find competent professionals to work with.  I will stop for now as I tend to get on my soapbox a bit.  Hopefully, you get it.

Most want to do the right thing by their clients.  To those, I applaud you.  If you want my assistance and appreciate my style, then I welcome your call.  As I have stated many times, doing what is right is THE best marketing approach you can ever take.  It will get you those repeated clients and their trusted referrals.

Investments Opportunities for Purchase with Strong Cash Flow:

Back on the January 15th update, I wrote about “Creating Residential Listings Using Commercial Opportunities.”  Each week,  I am presenting some of those investment opportunities to better educate all on what is actually available.  Note that these are all Single Tenant Net Leased properties that have listed in about the last 10 days.  In addition, I assumed a 5.50% loan with 50% down.  This is just a small sample of what is actually available.

If you assume investors in the Bay Area are getting a cash flow of 3.5%, then you can see the potential improvement with these properties above.  This approach is great for the investors desiring increased cash flow, an opportunity to get out of daily property management, and/or taking the challenges of rent control off the table.  Should you wish to discuss any of these or others, then give me a call.

That’s it for this week.  As always, feel free to give me a call with any of your strategic financing needs.

Articles of Interest:

The SJ Mercury News reported “California lost more residents to other states than it got last year.

NREI reported “Foreign Investors Seek Safe Haven for Capital in U.S. Industrial Assets.”

NREI also reported “CRE Investors Should Act Now to Seize the Opportunity in Opportunity Funds.

See the table below for approximate interest rates.



Type Rate Fixed Term
Apartments 4.695% – 5.300% 3 to 10 year (30 yr amortization)
Commercial 4.995% – 5.600% 3 to 10 year (25 yr amortization)
SBA Lending Call for Options Call for Options
SV Commercial Lending