This also holds true for commercial mortgage brokers. Having ironclad agreements with borrowers is an essential part of the business. Those who have such agreements must make sure they are enforceable as intended. When it comes to these contracts, the devil is in the details.

“The broker agreement should have a description of the services that will be provided, as well as those that won’t.”

Imagine a mortgage broker who is approached by a developer seeking an eight-figure loan on a commercial property that it’s planning to build. If the broker successfully connects the developer with a funding source and the loan is closed, the fee to the originator is likely to be substantial.

The agreement states, however, that it is not a commitment to fund a loan. After all, that would be the decision of the lender, and the broker might not find a willing money source if there are problems with the deal that are identified during the due-diligence process. Also, the broker might decide after looking closely at the proposed transaction that it’s not worth shopping around.

Nightmare scenario

In an actual legal case that had a similar fact pattern, the court decided that even though the broker connected the borrower with a funding source and the loan closed, the broker was not entitled to compensation. The reason is that, at the last minute, the developer terminated the agreement. As a result, there was no obligation to pay the broker because the agreement was not a commitment.

The moral of this story is that the agreement was unclear about what was (and wasn’t) covered under the contract. Of course, the broker does not commit to fund a loan no matter what. But the agreement should have been clear that the developer, once the broker connected their project with a funding source that led to a closed and funded loan, irrevocably agrees to pay the broker’s fees, even if the agreement is terminated by either party. Crystal-clear agreements are essential for safeguarding each party’s rights.

The business of putting people together to achieve an objective can be ephemeral. Contracts must be clear about which services are being offered and which are not. A broker (usually) does not guarantee that a client will find a lender. But if they do, the broker expects to be paid for the referral.

In the example above, the court determined that the payment of a due-diligence fee (essentially, compensation for the broker’s out-of-pocket expenses in vetting the borrower before approaching any lenders) was the only fee that needed to be paid. Since the agreement was terminated, it was judged that the broker should not profit from the 100-basis-point fee on the closed loan.

Time to act

No one would reasonably argue that this kind of agreement should not have a termination section, or even a term for the length of the services being rendered. After all, nobody wants to be bound forever to support a hopeless case.

In either the term or termination section of the contract, there should also be a survival clause in which each party agrees that the payment of a success fee is required even after the contract expires or terminates. The end of the contract should be the end of the broker’s search for a funding source, but it doesn’t mean that their success in locating a funding source does not merit a fee.

The survival clause needs to be based on any sort of closed transaction between the borrower and lender, or any affiliate of either party. The final deal could turn out much smaller, be unsecured, or even involve a different property that replaced the one originally intended. To ensure there is no confusion, mortgage brokers should make sure their email trails reflect the arrangement. Email is evidence, after all.

When writing a contract, be sure to include the important word “irrevocable.” In other words, the borrower must pay the subject fee without conditions. The broker did his or her job and should be compensated, even if there were five years of starts and stops on the deal. If there are any other fees in the arrangement (such as a due-diligence fee, attorney fees or expenses for lien searches), these should be carefully described as a reimbursement for the broker’s time and labor, rather than any sort of success fee.

Legal details

The broker agreement should have a description of the services that will be provided, as well as those that won’t. For example, the broker could agree to speak to at least 10 funding sources but not more than 15.

The broker may offer a proposed structure to a potential lender, but the final deal could be much different. There should be no implied promise of a lender accepting a proposal. After all, since the funding source bears the risk, it should be allowed to make any changes it finds acceptable.

Beware of applicable laws. For example, if a broker includes an equity component, they need to comply with any laws relating to the solicitation of a securities offering. They must also be aware of usury restrictions or any states with consumer disclosure laws that apply to commercial transactions.

Agreements can address these issues or be silent, depending on a broker’s strategy to govern their services. One approach would be to have both sides promise to obey the law (which they must anyway), and include an indemnification from the borrower if the originator unknowingly and non-negligently incurs civil penalties through the violation of applicable laws.

Whether this is enforceable will depend on the state involved, whether it is the broker’s, the borrower’s or the location of the project. A better approach, potentially, is to include a general indemnification from the borrower that it will reimburse the broker for any losses borne by them in the provisions of their services, except those resulting from the broker’s negligence.

A final piece of caution: Whoever signs the agreement must exist and have assets backing them. A promise of indemnification from an entity that does not yet exist is most likely worthless. If a special-purpose entity without any assets signs the contract, but the ensuing transaction is with a different special-purpose vehicle, legal entity or person, you may have great difficulty in obtaining any fees.

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Many businesspeople think that contracts exist purely to enrich attorneys. That view is, at best, ignorant of the facts. There are plenty of examples of businesses that have entered into oral contracts in which the transaction ended with one side taking advantage of the fact that no written agreement existed. If written properly, the contract binds the parties to the terms of the deal.

It is incumbent upon commercial mortgage brokers and the other members of a contractual agreement to ensure that their rights are protected. This requires the development of a properly written contract that clearly outlines all fees to be paid and the circumstances governing their payment. Without these legal protections, you may find yourself out in the cold. ●

The post The Devil Is in the Details appeared first on Scotsman Guide.

These skills enable brokers to estimate and analyze financial performance, return on investment and property value while negotiating deals more effectively. Quick calculations of the net operating income, the capitalization rate or the debt-service-coverage ratio, for instance, will enable the mortgage broker to demonstrate a higher level of professionalism to a potential client.

“There are about 25 commonly used financial ratios. Several of these are regularly employed when analyzing the performance of a potential commercial real estate investment.”

While these skills may be rudimentary for veterans of commercial real estate finance, those who are new to the business — or even a residential mortgage originator who dabbles in commercial deals — will need to immerse themselves in the basics. A solid grasp of accounting is useful when participating in this field.

Investment analysis

At the heart of financial analysis is an understanding of the financial ratios that measure the relationship between two or more components in a company’s financial statements. These ratios provide a way to track a property’s performance compared to industry standards, identify potential problems and offer a basic report card on management.

There are about 25 commonly used financial ratios. Several of these are regularly employed when analyzing the performance of a potential commercial real estate investment. The following list of terms is not all-inclusive but offers some key areas that can greatly benefit commercial mortgage brokers in their day-to-day business endeavors.

The objectives of financial statements are to provide information about the fiscal performance and changes in the financial position of an organization. This information is crucial when making business and investment decisions.

Financial information is presented in a standardized manner through a set of accounting rules and standards for financial reporting known as Generally Accepted Accounting Principles (GAAP). Much of the information about a company will be found in three common financial statements: the balance sheet, income statement and statement of cash flow.

Balance-sheet basics

The balance sheet is one of the most essential tools in the analysis process. It provides a detailed report of a company’s assets, liabilities and shareholder equity at a specific time, such as the end of the year.

This statement, however, does not show the trends playing out over a longer period of time. Consequently, the balance sheet should be compared with previous periods. By using financial ratios to examine the balance-sheet information, additional insights can be uncovered about a property’s financial condition.

The balance sheet places assets on the left side of the equation, with liabilities and shareholder equity on the right. The resulting equation is assets = liabilities + equity. The accounting equation can be read as assets – liabilities = equity.

The balance sheet is divided into current assets (converted into cash in one year) and long-term assets (converted into cash beyond one year). The accounts are arranged according to their liquidity and the ease with which the assets can be converted into cash.

A liability is any debt a company is obligated to pay. This may include debts to lenders and suppliers, rent and salaries. Long-term liabilities include the total amount of any debt due beyond one year. This will include all debt that’s amortized over a multiyear period.

Current liabilities include the portion of debt due within the next 12 months. As an example, if a company has nine years left on a mortgage for its office building, one year of this obligation is classified as a current liability and the remaining eight years as a long-term liability.

Digging deeper

Other aspects of the balance sheet include equity, which is the net asset value for the shareholders of a business. Net assets are the total assets minus liabilities.

Don’t overlook the balance-sheet footnotes. These offer information on assets, debts, accounts, contingent liabilities and background details to explain the financial numbers.

“These skills enable brokers to estimate and analyze financial performance, return on investment and property value while negotiating deals more effectively.”

An income statement is another essential part of reporting a company’s financial performance. The income statement shows the total income generated, all related expenses, and the resulting profit or loss during a particular period (such as a month, quarter or year). This statement provides insightful knowledge of a firm’s operations and performance in relation to prior periods and industry peers.

Also crucial is the cash-flow statement, which is a report that reflects the amount of cash a company generates from its ongoing operations. It might be the most valuable of all statements since it tracks cash flow through the business in three key ways: operations, investments and financing.

Measuring profitability

A key financial metric used to measure the profitability of an investment property is net operating income (NOI). It represents the income generated by the property after the operating expenses are subtracted. To calculate NOI for commercial real estate, subtract the property’s operating expenses from its gross rental income.

Operating expenses include property taxes, insurance, maintenance, repairs, utilities and property management fees. NOI is used by lenders to determine the maximum loan amount they’ll approve based on the property’s income-generating capacity. (In equation form, NOI = gross rental income – operating expenses.)

The debt-service-coverage ratio (DSCR) measures the cash flow available to service the property’s debt. It is calculated by dividing NOI by the annual debt-service payments. A property with NOI of $750,000 per year and debt service of $600,000 per year has a ratio of 1.25 (DSCR = net operating income / total debt service).

A DSCR of 1.0 means the property generates enough income to cover its debt obligation. A ratio of 1.25 or higher is normally considered an adequate ratio for commercial real estate investments.

Measuring risk

A property’s net operating income is also used to determine the capitalization rate, or cap rate, which measures the anticipated return on a property’s investment income. It is calculated by dividing the property’s NOI by its market value.

Take, for example, an investor who wants to purchase a shopping center that generates $375,000 in net operating income and is valued at $7.5 million. The formula is cap rate = net operating income / property value, which in this example would equal 5%. This means that the property generates a 5% return on investment based on its income.

An investor can also calculate property value based on a desired rate of return. Using a 5% cap rate, the value of the same shopping center can be estimated as follows: value = NOI / cap rate. In this case, the value equates to $7.5 million.

The cap rate is useful for comparing the relative values of different commercial properties. A higher cap rate generally indicates a higher return on investment, but it’s also typically associated with higher risk.

Measuring returns

Two more key terms to remember are return on investment (ROI) and cash-on-cash (CoC) return. ROI is used to measure the profitability of an investment. It is determined by dividing the net income by the total amount invested. The higher the ROI, the better the deal for the owner.

Finally, to measure the cash income earned from invested capital, a broker can use the cash-on-cash return. CoC is calculated by dividing a property’s annual pretax cash flow by the total cash invested.

For instance, let’s say an apartment building costs $7 million with a $1 million downpayment. The building generates $150,000 in annual pretax revenue, so the CoC return is $150,000 divided by $1 million, which equals 15%.

The CoC return means that the cash income earned on the building is 15% per year. Once again, the higher the return, the better the investment.

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The various ratios discussed here are important tools for analyzing the financial performance of commercial real estate. Like all tools, however, there are limitations. They are often based on past performance, may lack comparable data and may not offer enough information to identify an emerging trend. They also don’t reveal all of the relevant information about a company’s past, present or future.

Successful commercial mortgage brokers will use these tools and more to analyze a client’s investment prospects. Brokers need to understand a property’s history and be able to speak the language of financial analysis in the business environment. In other words, to know your numbers is to know your business. ●

The post Know Your Numbers appeared first on Scotsman Guide.

One thing is certain: AI is here to stay — and in a big way. Commercial mortgage originators wondering how they can implement artificial intelligence into their operations have numerous opportunities to embrace these powerful tools. The main reason why AI technology is becoming so prevalent across industries is its ability to process data while making connections more quickly and efficiently.

While the applications of such technology are obvious in more technical industries, some may not realize how this improved data processing could have tremendous impacts for commercial mortgage companies. From research and discovery to marketing and valuable lead generation, virtually every stage of the originator’s job (except for the deal itself) can be streamlined and improved using AI technology.

Efficiency tool

Experts in developing and using AI are commanding seven-figure salaries, with major companies such as Netflix offering salaries of up to $900,000 for an AI product manager. Even traditionally “human” jobs are being transformed by AI’s expanding capabilities in the use of natural language processing (NLP).

Still, it’s important to note that these efforts do not necessarily mean replacing people. In fact, AI itself is playing a role in providing personalized training in India. It also supports reskilling and upskilling of some workers who are learning how to incorporate AI into their workflows to increase output.

Those who embrace this new paradigm can remain ahead of the pack, while those who fail to recognize its potential could struggle to hold their own against competitors who do. This is particularly true in commercial real estate finance and other client-facing roles.

When it comes to the commercial mortgage sector, there’s one main way that artificial intelligence is being implemented — as a tool for employee productivity and efficiency. While these applications are occasionally client-facing, some of the most exciting AI-powered features are those used for administrative tasks.

One interesting use of AI is in the loan underwriting process. The technology can prefill and analyze application forms, saving the originator time and resources. AI can also look for anomalies and alert the originator to any problems.

Because of the improved data processing capabilities of AI compared to humans, such a program can help brokers close more quickly and successfully. Even more exciting is that these programs can reveal the lending opportunities that an originator may have otherwise overlooked or not had access to.

Industrywide impact

Predictive insights are another area in which artificial intelligence could prove particularly useful. Using AI technology, originators can accurately and efficiently comb through large datasets, allowing them to provide the most curated and customized opportunities for their clients. When purchasing commercial real estate, fit is paramount, and these in-depth analytics ensure that originators can provide the best service possible to their clients.

Like many other industries, AI is also being used by commercial mortgage professionals to automate some of the more monotonous tasks of their jobs, such as office work. Leveraging AI and NLP, loan originators can use this technology as knowledge agents or researchers to help them with the earlier stages of finding or marketing opportunities. They can also automate tasks such as customer service and lead generation. By using artificial intelligence in this way, originators can focus more of their time on what they do best: closing deals.

This technology is not just for filling out forms either. Many believe AI will revolutionize commercial real estate by integrating the technology into every facet of the industry, including interactions with customers, predictive analytics and automated property management systems.

The transaction experience could be improved significantly due to the proliferation of AI-powered tools, such as chatbots like ChatGPT. By setting up chatbots for prospective clients to interact with, mortgage brokers can create a 24/7 resource that offers clients the basic information and answers they may be looking for. These tools can also collect client information for the originator to use in the future.

Human element

As is the case in virtually every industry, the human element will have to remain involved. A big part of what makes for successful commercial real estate deals is an originator’s ability to form connections and relationships with their clients, and AI is unable to replicate this human factor. AI is also ineffective at accurately timing the life of a deal, which is where brokers bring their edge through intuition and experience.

Thus, it’s best for originators to look at AI as a supplemental tool they can use to make their jobs easier and more efficient, rather than as a replacement for their profession. By implementing these tools into their daily operations, commercial mortgage originators can waste less time on paperwork, empowering them to spend more time focusing on their strategies, negotiations and client relationships.

It will also be interesting to see how artificial intelligence can improve the experiences of people purchasing commercial real estate as the market heads into more uncertain economic times. With higher interest rates and lower demand in some real estate sectors, originators can use these powerful AI tools to ensure the best possible opportunities for their clients. In this way, originators can remain a few steps ahead of their competition and the market at large.

More commercial real estate transactions bring value not only to the broker and borrower but also to surrounding businesses. For example, if an office building is occupied, local restaurants will benefit through increased customer traffic from these workers. Beyond the commercial real estate industry itself, the use of AI could have profound implications for the broader economy. Enterprise AI systems could enhance employee efficiency and happiness, leading to better retention and overall output.

● ● ●

Like other businesses, it’s critical for commercial mortgage companies to understand the edge that artificial intelligence will give them over their competition. They should begin investing time and energy to improve their current workflows. In doing so, loan originators will not only improve their own experiences but those of their clients too. This could benefit many others given the important role that commercial real estate plays in the broader economy. ●

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In Episode 016 of the Scotsman Guide Author Showcase, Carl White interviews Eric Simantel of Ryder Mortgage Group about his article, “Put the Cold Calls on Ice,” in the September 2023 issue of Scotsman Guide Residential Edition.

Eric Simantel is a branch manager and mortgage originator for the Ryder Mortgage Group (dba C2 Financial) in Portland, Oregon. Simantel spent more than 17 years in the sponsorship and advertising world prior to getting his mortgage license in 2020. He received his MBA from the University of Oregon in 2002. He also earned a bachelor’s degree in marketing from San Diego State University in 2000.

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It’s very likely that 2023 has been one of the toughest years to get organic leads into your sales funnel. That frigid feeling of calling strangers isn’t helping either.

Yes, there are companies that sell leads. The credit bureaus will even sell you trigger leads. You might have told yourself that your business isn’t set up that way. Maybe you don’t want to throw your hat in the ring for a lead that has already entered the sales funnel. Likely, and intuitively speaking, it’s because if the prospect or lead doesn’t know you, then almost certainly the only point of differentiation you have to negotiate against is price.

Consumers who don’t have a preference for a specific mortgage originator, bank or retail lender just do an internet search for “lenders near me” or “best rates on a 30-year loan.” How do you get these leads into your funnel before you have to compete and pay for them? The answer that you may already know is that you need more referral partners. And these primary referral partners are real estate agents.

Expanded network

Let’s understand more about the sales funnel inside the mortgage world. Do borrowers start daydreaming about a 30-year fixed mortgage, or do they start dreaming about seeing themselves inside of a beautiful home that they found online?

As much as mortgage professionals want to think borrowers are going to a lender first, they are unequivocally starting with home search websites, finding a property, then poking their real estate agent (or finding one, if they didn’t like their previous one or are first-time buyers). The first question the agent is asking them is, “Are you preapproved?”

Granted, it’s an older survey (from 2016), but Freddie Mac reported that 84% of real estate professionals have a select group of lenders to which they generally refer their clients. Of these, 73% have one to three lenders in their network, while 24% work with four to six lenders. More than three-quarters (76%) say their clients always or often use their recommended lender referral. This figure climbs to 87% among agents who sell more than 20 properties per year.

Wait, what? You thought your real estate agent was only loyal to you? Statistics don’t lie and you are likely only one of the choices on your real estate agent’s cell phone contact list.

To make it through the rest of this year, you need to put yourself on more agents’ contact lists. There are an infinite number of strategies out there to meet new agents. It can be through cold calling, LinkedIn messaging, email lists or professional referral groups. The list goes on and on.

The cold, hard truth to 2023 is that the real estate agent’s business is down too. It’s really tough to tell an agent with whom you have no prior relationship that you want to become their referral partner. This is simply because there isn’t any working history or trust between the two of you. So, what is a better lead-in?

Practical results

In many sales trainings, one of the first things you are taught is to answer this question in 20 seconds or less: Who are you and why should someone care about you? In other words, why should that real estate agent care more about you than the 20 other originators who have reached out this year and are trying to do the same thing? What is your valid business reason for contacting them out of blue?

The agent isn’t going to refer business to you because you offered to buy them a cup of coffee. Chances are, your first communication with them is likely to be a little clunky.

Once you get the agent’s attention, the way you pique their interest is by having a cure to a problem that ails them. Their biggest problem this year is they don’t have enough closings. So, do they have clients who have fallen out of their sales funnel that you might be able to entice? Do you have a unique lending program that others may not?

Equally as important, you should have case studies that explain how you or your team have solved a similar problem for someone else. A real estate agent doesn’t want to leave the conversation thinking they are your guinea pig. They won’t willingly hand over leads they hold near and dear to their heart.

From there, if you’ve shown your worth, you’ll get them to send you more clients. This can still be a good year. But you need to make the connections that will let you leave the cold calls in the freezer. ●

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Too many loan originators spend too little time effectively working on this strategy. Oh sure, originators will set up an email drip campaign or some social media efforts, but it’s also well known that making outbound calls is what the vast majority of top producers do to keep their pipelines full. In many cases, this results in closing dozens of loans per month.

“The smallest businesses — forced to do what it takes to survive and unburdened by the expectations of stakeholders or large investors — are being forced to get creative.”

What holds most originators back from the very thing they know will produce the most amount of closed loans? Call reluctance. Yep, that little culprit has forced droves of sales professionals to leave their mortgage careers over the past couple of years.

Originators can’t simply blame their lower production numbers on the market. Many experienced originators are still closing dozens upon dozens of loans each month. And many newcomers to the business are doing quite well. Call reluctance is the elephant in the room that needs to be outed.

Proper perspective

Always keep in mind that the top-producing real estate agents you are calling likely became top producers by making calls of their own. So, when you call them, they recognize what you’re doing is the very thing that got them to where they are.

The problem is that many originators aren’t consistent with their prospecting. You have to accept that the first call is not likely to generate a referral. Expect to take until the fifth or sixth weekly call — and a coffee appointment to boot — to get your first referral from a real estate agent. (Some will take more calls, others less.)

“It makes a lot of sense, then, to forecast that the next wave of success stories in the mortgage industry will involve those who develop, improve or deploy innovative technologies and business models.”

Those who give up after the first or second call — or more likely, don’t make a substantial number of prospecting calls at all — are likely having a hard time these days. It’s that dreaded fear of rejection that is the stealer of dreams. But here’s the thing with rejection: Always keep in mind that they aren’t rejecting you; they’re rejecting your offer.

Imagine you’re having dinner with your spouse at your favorite restaurant and being served by your favorite waiter. The fish dinner is amazing, as is the service. At the end of the meal, the waiter asks if you want to order a piece of the delicious key lime pie for dessert. Because you are both already full, you say no. You didn’t say no because the food or the service was bad. You just didn’t want any pie.

When an agent doesn’t give you a referral, they aren’t saying they don’t like you or that you’re a bad salesperson. They are simply saying they are full now. They have a current relationship with an originator that is working well for them.

Systematic approach

Keep things in perspective when you tell yourself that phone calls are hard. After all, you are sitting in a comfortable chair, a glass of cool water sitting beside you, in an air-conditioned or heated room, making some very simple phone calls that can result in an income you could’ve only dreamed about in the past. There are a lot tougher jobs out there.

There are a couple of tricks. First, have a regularly scheduled time to make these calls. For instance, try 9 to 11 a.m. Monday through Thursday. Instead of waiting until you’re ready, just have it as a set appointment on your calendar. It also helps to have it be your very first task of the workday.

Make the easy calls at first. For instance, on Tuesdays, call the two agents involved in each purchase loan you’re working on. Give them an update on how the file is progressing, and let them know that you’re still on track for an on-time and flawless closing. At the end of the call, simply ask if there’s anyone else in their pipeline who needs help getting to the closing table.

These are the easiest calls of all, since one of the biggest complaints from real estate agents is that originators don’t give them weekly updates. You can close a significant number of loans each month from the referrals you get on these super easy update calls.

Another successful and easy-to-do activity is to hold a Zoom meeting with other originators where you make your calls together. Spend the first 10 minutes discussing your success stories after the previous session to get enthused. Go over your scripts and rebuttals. Then make the calls.

Turn on your cameras so you can see each other, kind of like “The Brady Bunch,” then turn off the sound so you don’t hear each other. You can even be in different states while making calls together. The power and confidence you’ll get by seeing other originators making their calls, and knowing that they’re watching you, is absolute magic.

Confidence builder

The worn-out phrases “begging for business” and “chasing real estate agents” are made-up stuff from someone trying to sell you something you don’t need. This never happens. You won’t see a real estate agent running down the hallway to get away from an originator. These lines are simply recycled by unsuccessful salespeople.

Asking for business is just called “sales.” You’ll find that as you make more calls, it gets easier over time. The thing is, you can’t wait until you’re ready. The confidence only happens after you do something, not before. Everybody feels fear. It’s just that successful people feel the fear and do it anyway.

Realize that the vast majority of real estate agents will not send their leads to you on an ongoing basis. But also realize you can make a seven-figure income if only a fraction of these agents send their homebuyers to you.

So, block out your calendar for two hours per workday at least four days a week. Grab a list of a few hundred agents who have closed at least eight buyer-side deals in the past 12 months, get a proven script from somebody who is already successful and start dialing.

There’s nothing in this business that compares to good old-fashioned phone work. You’ve got this. ●

The post Staring at the Phone Won’t Win You Any Business appeared first on Scotsman Guide.

In Episode 010 of the Scotsman Guide Author Showcase, Carl White interviews Rob Finlay about his article, “Sharpening the Technology Edge,” in the August 2023 issue of Scotsman Guide Commercial Edition.

Rob Finlay is founder and CEO of Thirty Capital, an advisory, investment and technology firm serving growth-minded real estate operators and investors. He is a forward-thinking entrepreneur devoted to building companies that support and advance the commercial real estate industry. Finlay has expertise in tech-enabled asset management and capital markets services and solutions. He recently authored the book “Beyond the Building,” an operator’s guide to building a competitive advantage through innovation. Visit robfinlay.com, or connect with him on LinkedIn.

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When evaluating a potential borrower or supporting a current lender, mortgage brokers who offer advice on leveraging widely available and cost-efficient technology can help ensure their ability to meet debt-service requirements and contribute to a lower lending risk. For instance, there are technologies and strategies to monitor, control and optimize operating expenses. These include tracking of property costs, management of building maintenance and improvements, and optimization of energy and water consumption.

“Asset, data and project management platforms can be used to automate tasks, help team members interact seamlessly and find important information quickly.”

Commercial mortgage originators can reduce lending risks, avoid bad deals, support the success of their clients and build lifelong relationships. This is possible by evaluating and advising new and repeat borrowers on tech-enabled strategies to control expenses and increase positive leverage.

Tracking and benchmarking

When values are rising and rent growth is strong, owners don’t have to work too hard to generate margins, deliver returns and keep their leverage positive. Fast forward to today as interest rates are well above the historic lows of 2021. Capitalization rates are rising and pushing down valuations as rent growth has cooled.

At the same time, inflation has slowed but is still swelling. This translates into higher operating costs, higher vacancy rates and more competition for tenants, as well as additional pressure on purchase, development and refinance candidates.

Property owners must be more mindful and proactive in controlling and optimizing expenses to stay in the black. To accomplish this, they must first develop an awareness of cash inflows and outflows. Once expenses are known, asset operators need a basis of comparison to determine if and by how much expenses exceed the norm. In other words, how do their properties compare to similar types of assets? These are two purposes for which technology creates cost and time efficiencies.

“The ability to ensure that a commercial real estate company remains a leader over the long term by leveraging innovation throughout its project life cycles assures growth and solvency well into the future.”

Web-based data management software can collect expense and income data from assets across a portfolio. Some specialized platforms also integrate external benchmark data to provide operators with dashboards that display expense data by category. This allows borrowers to compare their assets side by side with data for comparable assets. This insight and frame of reference allows operators to pinpoint where expenses need to be optimized and by how much. Budget or labor cuts can be arbitrary without data to inform decisions, and they may not produce the intended outcome.

Integrative technology isn’t mandatory. After all, an operator could have each property management team assemble and submit data via spreadsheet or PDF. But the unnecessary labor expense and delayed information can hinder a property owner’s profits, margins, situational awareness and ability to make timely decisions.

Mortgage originators need to explain to clients that a commitment to innovation as a value proposition is a major draw for investors and tenants. The ability to ensure that a commercial real estate company remains a leader over the long term by leveraging innovation throughout its project life cycles assures growth and solvency well into the future.

Automating processes

Management functions are typically significant expenses for commercial real estate operators. The labor required to screen and interact with tenants, collect rents, prepare rent rolls, complete leases and maintain books adds up to a substantial amount of money and time. On top of these chores, staff must complete many other tasks, such as compliance, data collection, and analysis and reporting of results.

While no one is advocating for fewer jobs, technology offers the opportunity to streamline and automate many tasks that introduce bottlenecks and occupy staff members with busywork. Individual and organizational productivity improves when team members focus on work that more directly contributes to increasing revenue, such as sourcing acquisition opportunities, improving tenant satisfaction, strategic marketing and more.

When a property company can use enhanced productivity and efficiency to scale up, more work opportunities are created for the community. Asset, data and project management platforms can be used to automate tasks, help team members interact seamlessly and find important information quickly. The technology can also help organize their efforts, bolstering productivity and generating greater net operating income.

Managing the property

Keeping facilities energy efficient and in top condition are additional areas where technology offers support. On the front end of the development cycle, as well as when planning improvements, software programs such as building information modeling (BIM) can be used. This modeling tool helps stakeholders visualize various aspects of the future project, including everything from how the building will operate, serve users, and consume energy and water.

When the project is complete, facilities management (FM) platforms help track utility usage, user behavior and maintenance requests. Automated building data collection, monitoring and reporting — as well as online tools where tenants can self-schedule service requests — help management and maintenance staffs work more quickly, understand property conditions in real time and control costs.

Mortgage brokers can show clients how BIM and FM, in conjunction with asset and data management systems, provide greater perceived and actual value to stakeholders. This is particularly true of tenants and lenders that appreciate transparency, up-to-date insights, convenience and pass-through value.

New systems can be installed to minimize waste and long-term operating costs for newly constructed, renovated and redeveloped assets. Utilizing sustainable building materials and design strategies can also contribute to reducing water and energy consumption. Moreover, sustainable design technology promotes healthy building conditions, such as air quality and thermal comfort. These factors promote physical and mental well-being that fosters tenant loyalty, top-of-market rents, low vacancies and community goodwill.

A big plus provided by sustainable technology on a project’s maintenance side is durability. Part of what makes a material or design approach “green” is the capacity of the finished product to withstand years of wear and tear due to typical usage and environmental conditions. Leveraging durable materials significantly reduces planned and unexpected capital expenditures while extending the project’s useful life and marketability, including its appeal and demand.

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In the current economic environment, it’s prudent and crucial to survival for commercial mortgage borrowers to leverage the most innovative technology available to maximize profits and keep a competitive edge. As the competition for tenants gets tougher due to ample inventories of vacant space and downward rent pressures, owners and operators must concentrate on efficiency and optimization to meet the repayment expectations of lenders and investors. Mortgage originators can help clients find success in the current commercial real estate environment by advising them on the potential and promise to be found in the latest technology advancements surrounding automation and property management. ●

The post Sharpening the Technology Edge appeared first on Scotsman Guide.

This workplace struggle is resulting in real opportunities for commercial mortgage brokers to help their clients develop new strategies in how they think about the office sector, including the concept of hybrid work. In recent years, returning to the office has been a different experience for those who have been resistant to change and those who have embraced it. The companies that are thriving are those that have seized this time of change to rethink how they grow and manage their teams — and how they use the space that their teams need to operate effectively.

“This unprecedented era of change means that mortgage brokers have an opportunity to transform their relationships with business clients.”

Those who are entrenched in a pre-pandemic mindset may be missing out. Stubbornly focused on traditional ideas of team management, they are not embracing a new approach. In so doing, they may be falling behind their competitors.

This unprecedented era of change means that mortgage brokers have an opportunity to transform their relationships with business clients and help those eager to embrace opportunity to find new office space options. It is also a chance to help those who are resistant to such changes in facing a new reality.

Acknowledge the fear

The clients who are resistant to a more permanent shift in their return-to-office strategy have legitimate fears and concerns. Mortgage brokers must recognize and validate these feelings.

Businesses that require employees to return to the office in a pre-pandemic style often cite a desire to increase productivity, enhance corporate culture, create opportunities for junior staff to learn from peers, and other logical business reasons. Executives fear their staff members will miss out on these opportunities by shifting into any new variation of hybrid working.

Others may see the opportunity but fear their ability to manage hybrid working equitably. Lacking traditional and consistent human resources policies around hybrid working, they simply discard it from consideration. It is not too difficult for them to imagine future lawsuits where workers allege favoritism or discrimination based on unenforceable hybrid working guidelines.

These are all legitimate fears, especially for large multinational businesses with complex work dynamics. But fear-based decisionmaking seldom leads to progress in business or life. And while they may resist change for these reasons, various studies have found no evidence to support these positions.

Presenting the facts

Once the fears of clients are acknowledged, they can then be presented with information that can help them find solutions. But first, they need to know what employees expect today in their work environment.

Research shows that a hybrid work schedule is much more popular than working from the office. According to the business consulting firm McKinsey & Co., 87% of employees will work flexibly when given the chance. The consulting company Accenture has reported similar survey results.

The research is clear that most employees want more agency over their time and where they work. Some executives may argue that they are not in business to serve their employees. They may think their companies are either too big or too unique to need to address the fact that the vast majority of their employees expect to have some form of hybrid work option. But when fundamental shifts in human behavior and expectations become this evident, ignoring the trend would be akin to telling the now-defunct Blockbuster Corp. it was right to turn down the chance to buy Netflix’s mail-order DVD business.

If recognizing these trends in human behavior isn’t enough, looking at the performance of businesses that are adopting strategic changes may hit harder. Job recruitment website Zippia estimates that 74% of U.S. companies are currently using or planning to implement a permanent hybrid work model. What’s more, 63% of “high-growth” companies use a “productivity anywhere” work model, a hybrid approach that combines the benefits of remote and in-office work.

In other words, the majority of the companies that are growing the fastest are doing so by adopting a hybrid work model, which means they are adjusting their commercial real estate strategy. If they use less traditional space, they use the space they have more effectively and strategically. Blending on-site offices and meeting spaces with off-site workplaces is a tricky needle to thread, but it’s one that experienced real estate and mortgage professionals are able to accomplish.

Finding solutions

Once clients understand the facts about changing workforce attitudes and the success of other businesses in adapting to the reality of hybrid work, it’s time to get specific about finding solutions. It can seem counterintuitive for mortgage brokers, whose livelihoods depend upon clients using commercial real estate, to suggest that clients might use less of it or use it differently.

The reality, however, is that when the real estate finance industry can deliver solutions that truly meet clients’ business objectives, everyone wins. There isn’t necessarily less pie to go around. The pie is just valued differently. Your business depends upon your clients’ use of commercial real estate, but you need to help them do so strategically and to create tailored solutions.

For instance, a Seattle-based biotechnology company experiencing rapid growth needed to expand its space to accommodate both lab and office needs. Because their mortgage brokerage took the time to understand the business and the technical requirements necessary for complex genetic research, they were able to find a property that consisted of 30% office space and 70% lab space.

The broker then worked with the owner and landlord to ensure that current and future equipment, as well as the power supply, would be available for work that could not be done remotely. Meanwhile, accommodations could be made for those who were utilizing a hybrid work model. Thinking about current and future needs gave the broker the opportunity to provide a long-term solution that could meet the evolving needs of the client.

New spaces

No matter who the client is, the broker’s focus remains on solutions for physical spaces. This can look differently for different clients. Here are some approaches that have proven successful:

• Providing dynamic designs and exciting spaces can accommodate both collaborative and individual work.

• Using technology to track patterns of usage can inform your clients’ approach to hybrid work.

• Embrace sustainability as an opportunity, not a compliance process. By reducing environmental impacts and the associated costs in one area, a business might be able to reinvest in space improvements or a more desirable location.

Rethinking the use of space will open up new opportunities for mortgage brokers and their clients. Since much of the research can point to irrefutable facts about the future of work, sharing personal success stories and the success of clients makes it real. So, find your personal stories and point to ways you or your clients have personally thrived in this new approach to working.

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In the end, mortgage brokers are in this business to serve the best interests of their borrowers. This means providing modern thinking and informed strategies for improving a client’s workplace. Remember, success isn’t found in the amount of space you broker but in helping your clients use space wisely. ●

The post Embracing the New Office Model appeared first on Scotsman Guide.

In Episode 007 of the Scotsman Guide Author Showcase, Carl White interviews Rachael Sokolowski of Magnolia Technologies LLC about her article, “The Promise of AI,” in the July 2023 issue of Scotsman Guide Commercial Edition.

Rachael Sokolowski is president of Magnolia Technologies LLC. She is a recognized leader, technology evangelist, trusted adviser and author in the mortgage banking industry. Sokolowski is currently co-chair of the MISMO eMortgage Community of Practice and is certified by MISMO as a Mortgage Standards Professional (CMSP). In 2016, Sokolowski received the MISMO Chairman’s Award and was named by Mortgage Women Magazine as a technology leader and entrepreneur in the industry.

The post Author Showcase: Rachael Sokolowski, Magnolia Technologies LLC appeared first on Scotsman Guide.