The Financing Hub’s Paul McGill outlines how the broad diversity in the commercial sector gives brokers the ability to become an expert in a single property type
In residential brokering, specialization typically means focusing on A or Alt-A borrowers, business-for-self borrowers or perhaps new-to-Canada borrowers. Brokers usually don’t specialize in just condos or single-family houses or duplexes. That’s because the vast majority of residential lenders don’t have stated preferences for property types. Frankly, there’s little need to because the purpose is always the same – for people to live in them.
This is not the case in commercial lending. Commercial buildings tend to have specific tenants, uses and characteristics. An office building, for example, would not be used as a multi-tenant retail outlet. A large warehouse would not be rented out to 35 families to share, just as no company would rent all the units in an apartment building to set up their manufacturing operations.
If you’re thinking about moving into commercial brokering, you should consider taking advantage of these unique subset characteristics and focus on one pocket of the business, rather than spreading your efforts over multiple property types.
Property owners tend to build their investment and lending strategies around these common elements. Most smaller multi-family property owners, for instance, don’t often have a cluster of office buildings mixed in with their portfolio. The good news for brokers looking to build a market niche is that people within these commercial subsets tend to know each other. They have the same issues, so they belong to the same associations and attend the same conferences.
As a residential broker, you’ve probably taken the time to learn how to assess and present your borrower’s income in the best possible light. Where there are issues with that income, you do your best to show your lenders solutions that help compensate for the negatives.
If you’re planning to make the move to commercial brokering and its higher rewards, you need to put that same effort into learning how to assess and present a building and its income potential.
Singe focus = better results
In the previous issue of CMP, I talked about how to use your applications to tell the best possible story. When you focus on a specific niche, the selling points you identified in past submissions (or variations on those points) will come back time and again. Each time they arise, your answers will get stronger, increasing your potential to close the deal.
Lenders in the commercial mortgage market tend to have very specific acceptance criteria. That’s one of the key reasons why Financing Hub platform exists – so you as the broker can spend less time shopping for the right lender. By focusing on one niche, you’ll gain a better knowledge of exactly what you should be presenting to lenders, where their outer edges are and what unspoken criteria they’ll use to make their final decisions. That advantage alone will allow you to close more deals.
By narrowing your focus, you’ll learn who’s who within your niche market – who the leaders and influencers are, and who you want to do business with. The upfront work you’ll be doing will bring faster returns because it will be targeted at a smaller but more relevant group.
Where to start
Once you’ve narrowed down the property type and size you’re going to focus on (e.g. office buildings with between six and 40 units), where do you go from there? Let’s start with conferences. Did you know there are more than 75 real estate conferences being held over the next 12 months? They can be found in cities all across Canada. Add in the small local forums, and those numbers grow even further.
Already this year, I have been to three of the larger conferences, where I met property owners, lenders and other industry participants. But interestingly, I rarely meet more than a handful of mortgage brokers at these conferences. Imagine being in a conference with 300 property investors and lenders, and you are one of the very few mortgage brokers in the room. With all those conferences and local forums to choose from, you’ll find the one your target clients are going to.
Now let’s go back to the who’s who in your niche. Commercial real estate ownership takes a team: commercial Realtors for both the purchase and as leasing agents postacquisition, commercial lawyers, property managers, construction and maintenance support, even structural engineers. All of these people are working with, and looking for, the same clients you are. It’s a broad pool of potential referral partners.
One last suggestion for pulling business from your subset: Leverage the knowledge you’ve acquired about your niche. As you gain more knowledge, you can size up an opportunity faster and more accurately. Use that.
For example, when you see a property in your area go up for sale, contact the Realtor with potential financing estimates. If you identify an issue with the tenant situation, advise the Realtor so they can work with you and the prospective buyer to get it solved so it doesn’t become a reason for a funding decline. It won’t be long before you’re known as the expert among the group of professional property investors you want to work with.
Paul McGill is president of The Financing Hub, which is dedicated to delivering effective digital solutions for commercial real estate financing.
