What issues do brokers face in the commercial market?

Paul: [00:00:16] Hello everyone, and welcome to the latest edition of MPA TV. A commercial power panel brought to you in association with Acra Lending and RCN Capital. We're edging close to half way through 2022, and yet the effects of COVID 19 still linger over the sector. It was predicted that business lending would drive growth in 2022, but with many of us preferring our new work from home environment to being back in the office. Has that actually transpired? And what about the multifamily segment, one that was predicted by many analysts to boom this year, but has it lived up to that hype? Well, to assess the state of the market and delve into the opportunities in the space, I'm delighted to welcome Keith Lind, CEO of Acra Lending. And Jeffrey Tesch, CEO of RCN Capital. So, gents, welcome aboard. As I mentioned at the top, back in February, it was predicted by US banks that business lending would drive growth in 2022. Now, with the first quarter of 2022 in the books, how do you assess the current landscape? Jeff, I'm going to come to you first. 
 

Jeffrey: [00:01:25] Yeah, I appreciate it. Thanks so much for mortgage professional putting this together. Always great to get our thoughts out there. Really happy to be here. So, well, 2022 from a lender standpoint has been interesting. You know, we entered this year with very lofty goals. You know, we're a nationwide non owner, occupied investment lender. What does that mean? We lend on homes and apartment buildings for investors, either by fixed sell or rental. So that's our business. And coming into coming into January, we knew we were in a rising rate environment. There was no there was no question about it. But what it ended up happening is about mid January, the capital markets decided that it was time to begin raising rates on all the sources of capital that lenders like myself use. And it was a rapid transition. So while folks see the Fed and they see these slow but sure increases, whether it be quarter point, a half point or maybe even more, the capital markets really got ahead of those rate increases, which affected lenders such as ourselves. We began raising rates rapidly just to keep up with the pace of the capital markets. And what that did was that really gave pause to many investors on their ability to be able to secure long term debt coverage covered service ratio loans. And were those numbers going to work? Overall, most investors were buying right and were able to reprice themselves and get into those acquisitions. But I got to tell you, Paul, it was a rocky road there for most lenders in our space. In January, February, March until the till, the Band-Aid was really ripped off and we began to see what the new pricing looked like. The one thing I would say before I kick it back to you is investor appetite has not diminished from what we can see here in RCN in the least. That's both on the long term side, acquisition side, as well as the buy fix and sell the bridge side. So exciting news. But nonetheless, it's been a bit of a rocky road up until this point. 
 

Paul: [00:03:59] And I think that's a it's a great summary, a rocky road, but investor appetite still thriving. Keith is that how you see things? 
 

Keith: [00:04:07] We do it. And again, Paul, thank you for having us. I think two stats that that we've been focusing on is you've got to look at the big banks and sort of what the question was based off of, right. The big banks, their origination numbers off their residential platforms. Right. And commercial to follow. I think there will be a lag. Their originations are down about 25 to 30% in the first quarter. Right. So right. So there's an opportunity there for them to step into the into the business purpose space. Right. Which which I plan or which we think they will do. And then just one stat to speak about in 2020, one of the single family homes that were sold in the US, 71% of them went to individual owners. Right. They're going to live in them. 28% went to small investors. Right. 28% pre-COVID. That was about 10 to 11%. So we see what's happening with the housing market, the confidence, especially from the younger generation, to not maybe be focused on the stock market anymore, but actually have a lot of trust in the housing market. Right. And then we talk about what are the fundamentals? The fundamentals are we are short 4 to 5 million homes in the US. Right. So we think that trend continues. It hits on Jeff's point that investor loans and DSCR loans, at least in our origination channels, are are steady. They haven't dropped. We have seen a drop, a small drop on more of the consumer loans. But we are very bullish into 22 and 23 in the private lending space for business purpose for the reasons that I mentioned. 
 

Paul: [00:05:46] Thanks, Keith. And you know you're throwing stats at me, so let me throw another one back at you, if you don't mind. Because multifamily lending alone, which was included in the figures that I mentioned at the top, that is forecast to rise to $493 billion during 2022. Obviously, there's a lot of opportunities. Shed some light for us on where those opportunities lie, Keith. 
 

Keith: [00:06:10] Yeah. I think in our business vertical, we recently rolled out a small balance multifamily program. And the numbers that you're throwing out, the 493 billion, a lot of that seem to be driven by loans going to Fannie and Freddie. Right. But with that said, there's a lot of fallout. And there and the small balance multifamily that we focus on is on loans up to seven and a half million. Right. But a lot of a lot of the units that we're going to be looking at or five plus probably 5 to 20 units. And there are a lot of those across the United States that either need permanent, better permanent financing or some transitional lending from the standpoint of a fix and flip or maintenance to update their properties. And we do think it's a huge opportunity for over the next couple of years, and it's something that we're going to be super focused on. 
 

Paul: [00:06:58] Thanks, Keith. And as soon as you started your your answer there, I realize I need to apologize to our viewers for my pronunciation of multifamily. Multifamily. Jeff, tell us about the opportunities in the space as well. 
 

Jeffrey: [00:07:11] Well, it's it's interesting. Right. Multifamily has been on a tear for years, but most of that has been new construction. And of of larger developments, and especially to Keith's point, you know, a lot of these large GSE loans that secure these particular investments are great. But especially for your audience here today, Paul, you know, the broker, whether it be small midsize or larger broker, there are opportunities in every corner of this nation to work with lenders like ourselves here on today's panel to originate product that fits a very different niche. And that niche is really the sub $10 million investment landscape. And you know, if you drive around any urban centers, even suburban, you run across these 5 to 30 unit buildings that were built 20, 30, 40 years ago. And many of these buildings haven't been touched at all. And oftentimes these buildings come into the marketplace and new investors come along and the first thing they want to do is secure a mortgage to buy the property. But just as importantly, Paul, they want to secure a mortgage that allows them to put CapEx into these units to bring them up to today's standards and the products that that are available today, not only allow that acquisition dollars, but they also allow the funding of the capital improvement that these buildings need. And as a nation, as a nationwide wholesale lender, we provide these products to your readers to originate across the country. And it's really important in today's, we'll call it changeable environment that the independent mortgage professionals, which are really the lifeblood of the American mortgage community, understand that these products can be worked in to their business model and help them grow in a in a in a changeable environment. 
 

Paul: [00:09:34] I love that you're coming at me with this positivity, Jeff, but I'm going to put you on the spot, if you don't mind, because you're showing me many opportunities out there. But let's step aside from from multifamily, if you don't mind. What other areas would you highlight for commercial mortgage brokers out there? 
 

Jeffrey: [00:09:52] Well, listen, you know, Keith said it best. We're 4 to 5 million units underserved in the United States. So even as interest rates rise, the the demand isn't going away. People need a roof over their over their head. And with the age of the American House today, much of the inventory out there is 30, 40 years old. As folks retire and move to different areas, as folks transition out of their existing homes, these homes are ripe for reinvestment. And and your brokers need to understand that that product, which is often referred to as a bridge product, by fixing sell product, that product is available from coast to coast. And what it will do is it will allow that broker to originate an acquisition loan, roll all the rehab dollars into that loan that will allow the investor to to buy it, fix it, and either put it back into the marketplace for a family to move into or potentially hold that property and rent it out to a family to live in as well. Those kind of opportunities today. Or something that should be added to most brokers origination platforms. 
 

Paul: [00:11:16] Thanks for that. And you know, Keith as well, if I can pick up on the same point with you, Jeff, talking a lot there about fix and flips, and I imagine that's a stronger if for you guys as well. 
 

Keith: [00:11:26] It is. And I share the same thoughts. Again, it just goes down to the simple facts. The the the tailwinds for whether it's residential or multifamily, whether it's permanent financing or whether it's a bridge or a fix and flip or transitional loan or just tremendous. Right. Again, short 4 to 5 million homes. Average home in the US is 40 years old. These homes have to be rehabbed and it's just it's a it's such a large opportunity and and I'll focus on I do think the largest and this just goes down to the fact that if you're looking at residential 1 to 4, right. Like I stated earlier to write 28% of of purchases in 2021 are going to small investors. Right. So the the broker base out there. Right. There's plenty of ways to find these brokers. Right. And I think whether it's trade shows, whether it's LinkedIn, you know, they've got to sort of hone their skills of where to find these people. But it's just it's a it's a huge opportunity. There's more opportunities there for in the residential space than there are going to be in the multifamily space. It's just it's by the numbers. Right. So I think that's where they should be focusing. And again, if they have questions on products, processes or even need help on some basic knowledge, they should come to Acra. Right. Our team, we have over 105 sales people in our wholesale division ready to answer their questions. 
 

Paul: [00:12:57] You guys are both being very kind to our broker audience out there, presenting them with a lot of opportunities. But let's see if you can be a little bit critical as well. Are there any common issues that brokers encounter or maybe mistakes that they make in the market? And maybe you can give us some tips onto how as to how those can be addressed. Keith, I'll stick with you. 
 

Keith: [00:13:18] Yeah, I think, you know, some of the common problems that we see is just product knowledge, right? A broker might know that something exists and they just want to submit it and they really need to understand the background and what the product is. Right. Have some understanding of the guidelines, have have some understanding of how they need to sell this as well. Right. So so again, I think if they're willing to take the time to learn these products, I think moving forward in 22 and 23, they'll be much more successful. And then also learning all the products out there. Right. There was a lot of the brokers we speak to. Right. 2021 and really 20 and 21 were easy years. It was low hanging fruit. Right. And a lot of them got stuck in one vertical, whether it was agency, whether it was multifamily. Right. But I think now in 22, things have changed. Like Jeff said, rates are rates are up significantly. The risk appetite has changed and opportunities opportunities have changed. There's not as many deals. So I think it would be beneficial for them to to spend some time, learn what product, what learn what other products are out there that that they're not versed on speaking to their customers about. 
 

Paul: [00:14:35] So so product knowledge seems to be the theme from Keith. Jeff, what about you? 
 

Jeffrey: [00:14:41] Right. So, you know, as I mentioned, the independent mortgage broker to me is the backbone of the United States mortgage industry. And those that were in the business previous to 2008 and 2009 understand the challenges that everyone was put through during the Great Recession and those that have come out on the other side and as well as the new additions, I cannot strongly enough really thank the broker community for for empowering not only the the homeowner but the investor across the United States. It's when we started this company almost 12 years ago, it was the wholesale model that to me made the most sense because I have a local representative in a local community helping a local investor to build a business. And to me, Paul, that was everything. The tools that we've built over the years to provide those educational opportunities, not only for the owner of the local mortgage broker, but their teams and the amount of time and effort that we put into our toolbox to bring their standards up so they understand the products. It's it's everything. And I just can't I can't thank the brokers enough. Now, with that said, you asked me what challenges the brokers have. What how do they differentiate themselves? How do they put in best practices? And it really starts with the education. 
 

Jeffrey: [00:16:22] They want to they want to understand the products that they are selling, but more importantly, they want to have their teams understand those products. And when when you partner with a lender, that education is everything. And we take it very seriously. Transparency is is super important. Once you have that education, you want to be transparent on the products, you want to be transparent with timelines. And this really goes across product suites. Being transparent with your customers, especially in this volatile marketplace that we're in today, is really, really important. And then finally, do what you say you're going to do. Don't give timelines that are unrealistic. Be extremely clear with your customers on how long that appraisal is going to take, how long the underwriting is going to take with your lending partner, and then finally, how long it will take to close the loans, whether it be internally, externally, transparent with those fees. That customer, especially in our business where there's a lot of repeat business, it will reward you, the broker, over and over again. We've seen it over the years, Paul. This is how you win. 
 

Paul: [00:17:41] Yeah. And I think you've given us a lot of fantastic tips today, both of you, in fact. But if you don't mind, I'm just going to ask you for one more, because this is a difficult market, 2022, if we're looking at brokers, how they can succeed in this. Environment. What's your key tip or your key takeaway if they they walk away or what? Stop watching this video with just one thing in their mind. What would you want that to be? Keith, I'm going to come to you. 
 

Keith: [00:18:07] Yeah, I'm going to say. Right, this is a challenging market. Right. And 22. Right. Is challenging across the board with rates and what's going on, liquidity. And for the broker base, I think to be successful in 22 and 23, I think it's a mix of a couple of things. I think the first thing I'll start with what you put in is what you're going to get out, right? So if you're complaining that you're not getting a lot of volume, I'll throw back. Are you working hard enough? Right, or are you trying to find those leads? Are you looking at new products? And I truly think that's super important. And then I think moving forward is transparency. When you're when you are in difficult markets like this, being transparent, being able to deliver good news and bad news in the same manner because that's what you have to do with your clients. I think if you do that, if they do do that, I think it goes a very long way and it'll help them build their business moving forward. 
 

Paul: [00:19:04] Some good tips for life there as well. Jeff, I'll come to you as well. 
 

Jeffrey: [00:19:08] Sure. You know, I would encourage the brokers out there, especially those that have built their business on the residential side of the world. Take a shot. Just take a shot with a product that you haven't thought before. Now, obviously, as as a as a lender that focuses on investors, we've built our business over the last 12 years from every every corner of this country on investors. And I would tell you, a broker team out there, take a shot. You don't have to roll out an entire new product suite, bring in one product, teach your internal folks how to sell that product and get a little taste for it, see how it works internally. You don't have to go out and start spending thousands on Google AdWords or that. Just bring it in, have your team talk about it, and then if you get some adoption, add another and another. That diversification ball will pay dividends for years to come. And I urge all the brokers out there, just take a shot. 
 

Paul: [00:20:14] Yeah, love it. Fantastic stuff from both of you, Keith and Jeff. Huge thanks for your time. And many thanks to Acra lending and RCN Capital as well. Remember, we do have a dedicated commercial mortgages newsletter running every Thursday on mortgage professional America. So sign up for that. Now it's free, everybody. And we'll see you next time here on MPA TV.