Mitch Ginsberg is the CEO of CommLoan, a FinTech company that gives commercial borrowers access to over 700 top commercial and multifamily lenders. In this episode, Mitch discusses the importance of empowering borrowers with unprecedented access to capital markets, the 30 key variables that lenders use to size up a loan, and how developing a relationship with a lender may not be as important as many say it is.
Mitch Ginsberg | Real Estate Background
- CEO of CommLoan, a FinTech company with up-to-date data of over 700 top Commercial and Multifamily Lenders
- Based in Scottsdale, AZ
- Say hi to him at:
- Best Ever Book: Long Walk to Freedom: The Autobiography of Nelson Mandela
- Greatest Lesson: Keep going no matter what the obstacle is. If you believe in something, just do it.
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Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed and I'm here with Mitch Ginsberg. Mitch is joining us from Scottsdale, Arizona. He's the CEO of Comm Loan, a fintech company with up to date data of over 700 top commercial and multifamily lenders, giving commercial borrowers unprecedented access to the capital markets. Mitch, can you tell us a little bit more about your background and what you're currently focused on?
Mitch Ginsberg: Sure, absolutely. Well, I certainly appreciate you guys having me on board. Currently, I'm the CEO, as you indicated, off Comm Loan. We're a online marketplace for commercial real estate lending, and really have solved an issue of empowering the borrower getting better access to commercial lenders. commercial lending, unlike residential lending, is very complex. There are multiple different types of lenders, ranging from banks, CMBS, the Agency for Multifamily, life companies, and even all the banks aren't created equal. You've got federally chartered bank, state chartered banks, credit unions, you've got private money lenders, you've got debt funds... So needless to say, it's a very, very complicated market for borrowers.
And then to add to the complexity, there's so many different kinds of properties; you've got, obviously, multifamily, but then you have your other members of the four main food groups, which would be retail, industrial and office. But then you have hotels, you have single-use properties like car washes, or gas stations, or self-storage... So in the current environment, needless to say, the borrower truly hasn't been well served. And what we were able to do is identify approximately 30 key variables that are common, that any lender would use to size up a loan. By capturing those three key variables in a data place, we're able to match a borrower with the perfect lender that best fits their needs.
I'm sure you've heard of the golden rule, "He who has the gold makes the rules." And up till now the lenders have had the gold, and they've made the rules. What we've done by creating this platform is really turn that golden rule on its head, and a really cool thing - we've got a poster of the golden rule in our office, framed upside down, because we're really looking to empower the consumer, and the borrower in this case, and giving them the choice. Money is a commodity and it's going to be the same, whether it comes from lender A, B, C, D. The key is to have the best lender that fits that particular borrower's needs.
Slocomb Reed: Mitch, I have lots of questions coming from your explanation thus far. First, succinctly for the sake of our listeners, myself being key among them on this question, could you please list those 30 key variables for sizing up a commercial loan?
Mitch Ginsberg: Sure. I'll give you certainly the majority of them. The first variable that a lender would use to size up a loan would be where is the property located. Every lender has a particular lending footprint; that could be by state, by county, by city, by metro area, but we could clearly define where any particular lender is willing to lend. So lending footprint is the first.
The second would be loan size; every lender is going to have a minimum or maximum loan size on a particular product. The third variable would be property type; every lender will lend on a particular property type, and that could get into even some of the subcategories. For example, on hospitality, you have full-service, you have limited service, you have flagged, you have unflagged, you have open corridor... So we able to drill into all the subcategories that ultimately will define what that particular lender is willing to lend up.
The next variable would be getting into some of those algorithms or some of those metrics that the lenders use, like debt coverage ratio, or global debt coverage ratio, or debt yield, which are simply mathematical calculations that we're able to capture what the respective lending requirements would be for any particular lender. So for example, one lender might have a 1.25 debt coverage ratio, another lender might have a 1.3 debt coverage ratio for a particular property type... So we able to capture those particular metrics that the lenders use for their own sizing up purposes.
And then you get into what is the lenders time to close. Is it recourse and non-recourse? If it's recourse, that opens up certain variables that a lender will look at - the borrower's citizenship, their credit score, their annual income, their annual expenses, their net worth and liquidity, have they declared bankruptcy in the last seven years? If so, when? Or have had property foreclosed in the last several years? If so, when? So these are all the different variables that can clearly define how a lender would size up a loan. We capture those variables.
For example, we have 700+ lenders on the platform. That represents 168,000 loan products. That's huge. These products are kept up to date on a daily basis. How do we keep the rates current? Most lenders will have their rates linked to a particular index. They will have a margin which will be added to that particular index. So we capture what that margin is, and then link that particular loan product to that index. Our system will ping the various indices on a daily basis, several times through the day, in order to keep the rates current.
As far as the CMBS and the agency rates, we've developed algorithms which essentially match the movement in the bond market, that will mimic how the CMBS or agency lenders would adjust their respective rates. So we do have the ability of keeping rates current on 168,000 loan products.
In addition to that, the lender has a portal that they work from, where they can go ahead and update any other sizing of variables. So for example, if they want to cut back their loan to value on a particular product, they can go into the portal real time, adjust that particular loan to value, and publish it. So we give the lenders the ability to constantly be revising and updating their profile, to ensure they get loans that truly fit their needs. If we do not hear from a lender in 90 days, we will contact that lender to ensure that their profile is current.
Slocomb Reed: Mitch, hearing you talk, I have a voice in the back of my head; a friend of mine who is a non residential commercial investor, who's nagging at me with something he's been saying to me, and to a lot of our real estate investor friends, especially the residential investors, for quite a while now. I want your response to these remarks, particularly because of the platform that you have created.
This friend of mine likes to say that in the residential real estate investing space, single-families, two to four families, anything that's going to qualify for a Fannie Mae or Freddie Mac-backed 30-year conventional fixed rate mortgage, those lenders are a commodity. You can look at however many of them you want; one, three, a hundred. And you can pick the best rate and the best terms, because the loan product doesn't have all that many variables, and the qualifications for those loans are not that complex. Plus, anybody will write it for you, and all the terms are fairly similar. What he will say is that commercial lenders are not a commodity, they are a relationship. That you should find the commercial lenders, likely local lenders, especially with smaller loan amounts, you should find the local lenders with whom you can build a relationship and trust over time, so that those banks are more willing to do for you unconventional things, unconventional loan types and lines of credit as you develop trust with them, making payments, executing on your business plan and delivering the results that you told them you would in your loan application.
That nagging in the back of my head, Mitch... My response is that one of the things that you've done with your platform is commoditize commercial lending, where I can take my loan, my property business plan, and I can cross-reference it with hundreds of potential lenders for it, and cherry pick the one that I want. And the next time I'm looking for a loan, I can come back and cherry pick from hundreds of options again. I don't have a question here other than what are your thoughts on what I've just said?
Mitch Ginsberg: Absolutely. I think there's been this perception all along that "Relationship, relationship, relationship." But unfortunately, I think the relationship has been very much one-sided. And I'll give you a great example. We did a loan for a borrower - very strong borrower; just had exited out of a tech company, and substantial deposits with a particular bank, seven figures, and had done several -- well, at least probably three or four office building purchases and financed them with that particular bank. So probably a relationship couldn't get deeper than that. Great deposits, already demonstrated and had done multiple real estate transactions with them. That particular borrower was referred to us by a commercial real estate broker. Having exited out of a tech company, he was intrigued by our platform; his bank was on our system, and even though the bank that he had the relationship with was on the Comm Loan platform, he said, "I'm willing to sign up with you guys. Let's take a look and see what you can do." The long and the short of it is his bank had already quoted him on a particular transaction that he was now working with us. As I said, the long and the short of it was that we ended up getting him 50 basis points cheaper, on a $5 million transaction, than his bank originally had offered him. That's huge on a $5 million transaction.
Slocomb Reed: From the same bank, or from a different one?
Mitch Ginsberg: From the same bank, from his bank. Because his bank was on our platform, they obviously saw the loan and they were bidding on it... And because there were one or two other banks that were very interested in the relationship and very interested in this particular borrower, they drove the rate down. Now, why didn't his bank give him the 50 basis points cheaper from the get-go? Because they took the relationship for granted.
The reason why relationship doesn't work is there's really no constant in what a bank is willing to offer. And I think in this rising interest rate environment, it's probably more evident than ever. A bank could have done a particular loan, and a particular loan to value for a period of time, and you could go up and just re-up that loan. And in this environment, with capital requirements changing at the banks, and interest rates changing, no matter how deep that relationship is, that bank may not be willing or able to do the loan that you want. Just simply that they've redefined the credit box, they've redefined their capital requirements, and as a result, that relationship means nothing.
So I think what it really comes down to is the banks are going to do what they can do, what fits within their particular credit box, with the deep relationships or without the deep relationships. They're not going to go out of their credit box, no matter how deep the relationship is; they're not going to do a loan that doesn't fit within the desired return, no matter how deep the relationship is.
So with this environment where things are changing so fast as far as interest rates and credit boxes, having access to the capital markets is really critical for any commercial real estate investor to ensure they're getting the best terms. And because debt is such a huge component of any commercial real estate transaction, it's critical that the borrower is going to get the loan to value, the interest rate, the amortization, the pre-pay, whether it should be recourse or non-recourse... Ultimately, the terms that best meet their needs at any point in time.
Slocomb Reed: Mitch, as an active owner-operator in commercial real estate, when we have vendors and service providers on the podcast, I often put myself in the position of being a prospective client of the lender, and vetting them in such a manner that it brings value to our listeners, but also thinking about myself, of course, because I understand my circumstances and the questions that I would want to ask better than I understand anyone else's... That being said, a couple of questions here; first, is there a minimum loan amount for using your platform?
Mitch Ginsberg: Yeah, there is a minimum of a million dollars. There is no maximum; we are closing several transactions that are between the 20 million $30 million range. Generally, we noticed that the minute loan transactions get probably above the $50 million range, they become very structured, and there's various layers in the capital stack. So our platform is very transactional; certainly, anywhere a million up to 20, it makes phenomenal sense for the borrower, because they truly are going to be getting the best terms.
We generally take the loan out to several lenders simultaneously, generally about six plus, we package the loan, we hold the borrowers hand all the way through to closing. So we have a loan consultant and a transaction manager who works with the borrower throughout the transaction. So really, we're combining the best of technology and the concierge service to mirror that borrower experience as if they were working with their favorite banker, yet giving them unprecedented access to the capital markets, and the best possible terms that fit their needs.
The real exciting part - the borrower works from a portal where they can upload documents, download forms, review all the terms that are coming from the respective lenders through the portal, but it really is a value to the lenders as well. I don't know if you're aware of an MBA statistic from a couple of years back that two thirds of all commercial real estate loans funded are originated by third parties. So the banks are used to getting their loans from somebody else, from a group of different mortgage brokers at different levels of professionalism... And the packages certainly vary from broker to broker. Our packages are very standardized; they're all technology-driven, they are very complete, we have all the key milestones or tombstones that that particular lender is looking for. They have a package with all the underlying documents, be it the T-12s, and the rent rolls, and the personal financials.... Everything that's needed for that lender to put in front of a credit committee.
So we're actually providing an enormous value to the lenders, because they're getting loans that they know size up according to their profile, they know they want to see that loan, they know that we are the only one working on that transaction, because the borrower does sign an exclusive with us for a short term until we can provide them term sheets... So the lenders take us seriously. So they're willing to put their best foot forward, they're really not putting an enormous amount of effort into trying to understand what the transaction is, because it's very well packaged. So it's a win for the lender, it's a win for the borrower, and ultimately, the lender is going to get a loan that they really value and they want, and the borrower is ultimately going to get the best possible terms that fit their needs.
Slocomb Reed: Mitch, when new client signs up for your platform, are they paying any fees up front, and what is it that you charge?
Mitch Ginsberg: No, there's no fee upfront; we only get paid part of the origination when we're successful in the transaction funds. And it varies. On a really small transaction, the borrower pays a maximum of a point, and then it scales up, and on a very large transaction it could be as low as 35 basis points that the borrower pays. Generally, because we're providing the lender with a fully processed, very complete package, the lender will waive any origination fees on their side. So take into account the Comm Loan fee, plus the lender fee, in many cases it's less than the borrower would pay if they went to that lender directly. We don't have any upfront fee that they have to pay... And what we'll also do is generally they're going to sign a short-term exclusive, normally not more than 30 days, but we will release them from that exclusive even within the 30 days if they don't like any of the term sheets we provide.
Our objective is we just don't want the borrower out there shopping with other lenders while we've taken this out to market. And it's really twofold. Number one, we're investing an enormous amount of resources upfront in packaging the loan and putting together the package for the particular borrower. The second reason is if a lender gets a loan from multiple sources, they're not going to take anybody seriously, because they don't believe anybody's controlling the transaction, and the loan's just getting shopped around. So it really doesn't serve the borrower well for the lenders to be getting multiple packages from different brokers or different lenders. And when they receive a package from us, they know we control the transaction. They take the loan very, very seriously, and as a result, they are able to put their best foot forward, they put the time energy and effort into their term sheet, really to try and win the transaction.
So there's really no downside for the borrower. If we're able to secure the best transaction for them, we get paid. They generally don't pay any more than if they went to the lender directly. If we're not able to secure the best terms for them, we release them -- generally, it could be as little as within 10 days to two weeks, and they can go off and do whatever fits their needs.
Slocomb Reed: Last question, Mitch, before we transition the episode... Have you had any borrowers sign up for your platform, and then be able to find better terms outside of Comm Loan?
Mitch Ginsberg: God, it's a tough one. We've obviously closed hundreds and hundreds of transactions. Do we have every single lender on our platform? No. There's thousands of lenders out there. So I have no doubt, it's probably happened from time to time. But I would imagine it's a miniscule percentage; it's probably less than 1% of the transactions that we've processed, that that has ever happened. We are very diligent on how we onboard lenders. So we don't just bring on lenders for the sake of bringing on lenders. We'll look at a particular geographic area. So for example, California might be broken up into six regions. So for example, Northern California - we will go and see who are the most active lenders, and particularly banks and credit unions... Who are the most active banks and credit unions in that Northern California area for multifamily, for industrial, for office, for retail, for hotels, and we bring them on.
As far as the national lenders, we've got all the big national lenders on the platform. We've got all the major CMBS lenders on the platform. We have all the major multifamily lenders on the platform. So there is the slight opportunity that there might be a bank or a life company out there that we haven't yet on boarded, that have slightly better terms for the borrower, than we can, but it's extremely unlikely. I think, once again, in the 99 percentile by the borrower working through our platform, they're going to get the best possible terms to fit their needs.
Slocomb Reed: That makes a lot of sense. Mitch, are you ready for the Best Ever lightning round?
Mitch Ginsberg: Absolutely.
Slocomb Reed: What is the best ever book you recently read?
Mitch Ginsberg: The best book that I've read, and I've actually read a couple times, is "The Long Walk to Freedom", the biography of Nelson Mandela. And having come from South Africa - and obviously, my accent gives that away - I just feel... It almost gives one hope in humanity. There's a man that went through unbelievable hardships, was in prison for many, many years, in really harsh conditions... And who could have come out of jail extremely bitter, and vengeful, yet he was the most humble and forgiving human being, and truly probably will go down as being one of the greatest leaders of all time, certainly within our generation. Just a remarkable human being. And truly was a beacon, a shining star for South Africa. I think had he not been the person to transition South Africa from that repressive apartheid regime to a more democratic, just society, I think there was a potential for enormous bloodshed and in Civil War. A remarkable human being, and truly has been an inspiration to me; once again, just really gave me a lot of hope for humanity that there are people like that out there.
Slocomb Reed: Unfortunately, we have to abbreviate the lightning round this episode... But Mitch, what is your best ever advice?
Mitch Ginsberg: My best ever advice is just to keep going; no matter what the obstacle is, just keep going. Keep your head down. And if you believe in something, just do it.
Slocomb Reed: I have read "The Long Walk to Freedom." That's a very Nelson Mandela answer. Last question, where can people get in touch with you?
Mitch Ginsberg: People can contact me at my email, mginsberg [at] commloan.com. That would probably be the best way to reach me.
Slocomb Reed: That link is in the show notes. Mitch, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show, leave us a five star review and share this episode with a friend you know we can add value to our conversation about commercial lending today. Thank you, and have a best ever day.
Mitch Ginsberg: Thank you for having me.
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