Broker Boarding: Six Answers You Need From Your Commercial Real Estate Mortgage Broker

The search for commercial real estate financing can be challenging during good economic times and capital torture in economic downturns. A commercial real estate mortgage broker can uncover sources of debt capital after your lending relationships are exhausted. But there are six essential questions that must be answered before you hire someone to find a loan.

Do you have relevant experience? You want a broker that is an expert in your category of commercial property. A commercial real estate mortgage specialist in multi-family properties is not necessarily the best choice to find a loan for your shopping center. Some brokers claim to have expertise in all property types and wide spectrum access to capital. While that may be true for some of the large commercial mortgage brokerage shops it can be an overstatement for an individual broker. Look for an experienced broker who is intimately familiar with the challenges and solutions for your property type.

How wide and deep is your portfolio of lenders? The primary reason to hire a commercial real estate mortgage broker is for access to their list of potential lenders. Your stable of relationship lenders may not have the appetite or capacity to meet your borrowing needs. A mortgage broker may have lending sources that are not on your radar. Your broker should know who is lending in your situation and have a broad and deep list of potential capital sources. Obviously there may be some overlap with your lending relationships and you don't want to pay a fee to a broker for someone you can go to directly for capital.

How much and by whom are you paid? A mortgage broker is usually paid by the borrower, not the lender. Ask your broker for a schedule of their fees and be sure they are spelled out in your engagement agreement. The biggest fee will be the loan origination fee which is often expressed as a percentage of the loan amount. Make sure you shop around for competitive fees among brokers but keep in mind the level of service and support you expect to receive. Discount fee brokers are not always the best choice. You usually get what you pay for. You are paying a fee for someone to find a loan. Keep in mind that brokers are salespeople first. Practically speaking, not from a legal perspective, the broker gets paid if a new loan is funded. Many brokers are reputable but be aware of the potential conflict of interest when evaluating advice from your mortgage broker.

What kind of support staff do you have? Your broker will represent you in front of lenders and be the salesman for financing your property. Large brokerage firms have a deep bench of support staff to help the broker find a lender and then close the deal. The key players on a loan transaction team include a financial analyst, market research specialist and the loan administration or servicing specialist. Avoid hiring a broker with limited resources who will lean on you for presentation materials, financial modeling and closing checklist management. These are services that should be provided by your broker. A full service mortgage brokerage firm will have these services but may charge a larger fee to cover their overhead. You will balance cost versus service when deciding which broker to hire.

Will you service the loan after it closes? You may benefit from a mortgage broker who rolls into loan servicing functions after closing. The originating lender may have an existing arrangement with the broker to provide loan servicing for a fee. You benefit from continuity of service with a familiar name to call if you need help during the loan term. But be aware of the potential conflict of interest if your loan closes with a lender for whom the broker provides loan servicing.

Are you demanding an exclusive period? Service providers love a protected market. Borrowers in exclusive handcuffs can miss capital market opportunities. Brokerage agreements can contain exclusive periods where the borrower promises to stand down on any search for financing while the broker is engaged and for a specified period after the engagement. Carve out your right to conduct capital market activities for your other properties and corporate credit needs. Be careful with exclusive rights. There is no guaranty a broker will succeed in finding the right loan for you. You could be standing still for months while your maturity date gets closer and the financing market shifts for or against you.

Mortgage brokers can be incredibly helpful allies in the placement of commercial real estate debt. But get satisfactory answers to these important questions before making a broker hiring decision.