Selecting a Commercial Real Estate Lender

By Mark Hulsey

Throughout a normal work week, the seasoned brokers at RE/MAX Results Commercial Group are playing matchmaker in one way or another for our clients. It’s how we get business done. Often, we’re connecting commercial & investment real estate buyers with the best lender and bank options as we consider all circumstances surrounding the transaction and the buyer.

Many sales executives in real estate have their one go-to mortgage person. Transaction details like who, what, when, where and why, just don’t seem to matter to them. They simply send it to ‘their guy.’ In commercial real estate, that doesn’t serve anyone in the deal, including the buyer, lender, and certainly not the seller. That’s a blind-referral versus a smart, qualified referral.

Who is the best match for the buyer to get this transaction not only closed & funded, but also offers the best terms and service? It’s critical to understand that not all lenders are created equal! They all have a good pitch and speak to things like ‘relationship and quick approvals,’ but it takes a savvy buyer to dig a little deeper and be sure they want to go into business with a particular lender.

Bigger is Not Always Better

It’s important to note that bigger is NOT always better when it comes to picking a commercial lender. And, it’s not only about rate. It can be about the additional demands of a lender regarding deposits, recourse, or the depth of services offered that will truly serve the property or business owner.

Our focus at Results Commercial is serving sellers because we know how to properly package, position, and market a property to ensure maximum exposure. However, we are often an essential component in working with the buyer side to be sure the best resources are being engaged for the transaction including everything from real estate attorneys, to survey and environmental companies, to architects, lenders, inspectors and title companies. This matchmaking or transactional supervision, is one of the many behind-the-scenes ways we serve our sellers. Regardless of buyer or seller side, what matters the most is working with commercial brokers directly connected to deep industry resources.

So, we’re matchmakers. But what does that mean when it comes to matching up buyers with lenders? What is the key criteria we need to know at the early stages of a transaction to determine the best commercial lender option?

Understanding the Deal

Here’s the first round of buyer questions to understand the basic transaction criteria:

• Property Type?
• Location?
• Purchase Price?
• Owner Occupied or Investment?
• Property Condition, Vacancy, or NOI? (If available)
• Challenges including zoning, parking, compliance or leasehold improvement requirements

From this information, the list of potential lenders should start to filter out.

Understanding the Buyer

With the next set of buyer questions, the criteria and options become better defined:

• Does the Buyer currently have a bank they use for their everyday banking?
• Have they talked with their current bank’s commercial loan department for pre-qualification? (Subject to standard underwriting, appraisal, & loan committee approval, if applicable.)
• Does working with their current bank feel comfortable to the Buyer or would they prefer a different lender?
• Type of loan under consideration: Conventional or SBA?
• Creditworthiness of the Buyer: Strong, Medium or Weak?
• Does the Buyer own other commercial real estate? How sophisticated are they in the CRE space?
• Does the buyer have the capital in-hand for all acquisition, build-out costs and reserves?

Now, at this point in the discovery process for finding a lender match for the Buyer, there’s ample information to provide the best two or three lender recommendations.

I think it’s a reasonable starting point to consider the current banking relationships the buyer has as long as they’re satisfied with their lender’s service. It’s a simple route to initially explore since their bank already has a lot of information regarding their banking history and credit worthiness. Plus, it does not mean the buyer is making a commitment to them. It’s just a logical great starting point as the buyer prepares to shop for their best debt and loan options.

As all lenders will tell you, it’s all about the relationship and not necessarily just the rate. Yes, rate matters. But there’s a lot more to the story. Like everything in business, it’s a two-way street. Lenders are looking at buyers and quickly determining if they want them as a customer. And, buyers need to be looking at all of their lender options and determining which one they want in their corner.

There are many excellent lender options for commercial real estate buyers in the Minneapolis / St. Paul metro and greater Minnesota at this time. Plus, it’s not just cookie-cutter terms out there in the debt market. There are many bankers and lenders who really know how to problem-solve on behalf of their clients. They’re experienced. They’ve seen it all. That’s how they can quickly determine if the buyer fits the lending profile for the bank’s business focus.

Buyers must be diligent in exploring their options. If the buyer is of high-net worth with fantastic credit, then they qualify to shop some of the larger banking institutions that may be able to cater to their needs through their private client wealth department. There are plenty of mid-sized local lenders and community banks that are equally qualified here too, sometimes even better than the giants. Small and mid-size banks can provide fast and personalized service. Less layers of bureaucracy to cut through and many of those loan officers really take the time to learn about their customer’s business so they can stick with them for the long-haul.

Personal bank and lending relationships are golden. It’s very powerful when a consumer can just call their lender and consider it done – big or small. That’s the service many of us have come to expect. As long as we’ve done our part, then we need our lender partners closely connected to support our growth.

I hope this has helped you to re-think how we should approach matching-up commercial real estate buyers with the best commercial lender options. It makes the transaction process not only effective, but also very efficient with satisfied buyers, sellers, and lenders.