February 5, 2024

JF3441: A Playbook for Working with CRE Lenders in 2024 ft. Kurt Weil




In this episode, Ash Patel discusses real estate investing, lending strategies, and market trends with Kurt Weil. They explore the benefits of using lending brokers, changes in lending practices, and the importance of relationship-building with lenders. The conversation also touches on the challenges and strategies for securing loans in the current economic climate.

Key Takeaways:

  • Leveraging Lending Brokers: Utilizing the expertise of lending brokers to navigate the complex real estate lending environment, ensuring access to superior loan products and terms.

  • Fostering Strong Lender Relationships: The critical role of honesty and reliability in building and maintaining relationships with lenders, and how it impacts the success of real estate investments.

  • Adapting to the Changing Lending Landscape: Understanding the dynamics of the current real estate market and how shifts in lending practices require flexibility and strategic planning from investors.

Kurt Weil | Real Estate Background

  • President of Incline Commercial, LLC
  • Portfolio:
    • Multifamily & industrial/flex
  • Based in:  Cincinnati, OH
  • Say hi to him at: 
  • Best Ever Book: The Encyclopedia of Commercial Real Estate by Terry Painter

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Ash Patel (00:51.574)
Hello, best ever listeners. Welcome to the best real estate investing advice ever show. I'm Ash Patel and I'm with today's guest, Kurt Weil. Kurt is joining us from Cincinnati, Ohio. He is the president of Incline Commercial where he has a strong background of providing individuals and businesses with superior loan products. Kurt's portfolio consists of multifamily industrial flex mortgages in Ohio. Kurt, thank you so much for joining us and how are you?

Kurt Weil (01:23.747)
Doing well, thanks for having me, appreciate it.

Ash Patel (01:25.806)
It's our pleasure. Kurt is also a good friend of mine, and I've known him for a number of years. I've worked with him, and I'm excited for today's conversation. Kurt, if you would, before we get started, can you give the best ever listeners a little bit more about your background and what you're focused on now?

Kurt Weil (01:43.971)
Sure, as you said, I'm the president of Incline Commercial. So my day job is providing commercial loan products to clientele anywhere from commercial mortgages, multifamily, industrial, kind of the whole bit to SBA business loans, things of that nature. Personally, I'm also, like you said, I'm an investor. I have my own portfolio that I self-manage and then also invest in deals with a group of friends and business associates.

Ash Patel (02:15.81)
Kurt, I'm going to be honest with you and I was always against using lending brokers. In my mastermind, I've taught people build relationships with local lenders, do not use lending brokers and do not use lenders as commodities. We see this a lot in the multifamily world because those loans are commoditized, right? They're fairly easy to shop around and there's a secondary market for those loans.

With what I do in non-residential commercial real estate, often these loans, there's no secondary market meaning whichever bank originates the loan, they hold it for the life of the loan. And because we do value add deals, these are not very appealing to most lenders, right? They have high vacancy, maybe high capex. So we really relied on those lending relationships to get some of our deals done.

The climate's changed today, and I am now a huge advocate of using lending brokers because a lot of the lenders that we've used in the past, their lending environment, their lending appetite is changing week by week. What are you seeing with today, with lenders today?

Kurt Weil (03:36.731)
A couple different things. You've kind of hit the spot on a lot of different items of what's being done out there now differently and what's changed. I would agree that the relationship is very important, specifically in a space that you're in, where you're taking something that on paper today, it doesn't look good. And banks, they don't like risk. They don't want risk, but they do want risk, right? They have to invest in risk to be able to make a return and make the bank profitable. So the least amount of risk they could take is the most advantageous.

And typically that's getting a project and booking a project day one that cash flows. Now with a high vacancy or a high capex, if the rents in place are low or very vacant property like you buy, it's not showing today. So then they're going back to the guarantor or the person behind it. And you know, what do they have to wear with all that? If he doesn't get this occupied, can he still repay the loan? Can he still meet those obligations?

And that is where the relationship comes in. I know, I know Ash, I've dealt with him for 20 years. I've taken projects that had no cash flow for millions of dollars and, you know, he made it work in a year. And that is very important to have that relationship because that guy going into that specific lender, whether it be a broker, me going to the bank or the banker itself going to their board and saying that exact thing, goes a long way in getting that approval for the loan.

And I think probably now more than ever with the turbulent time that we're in, and I say turbulent because banks don't know what they want. It's very hard to know what you want when you don't have, a lot of them are strapped liquidity wise. And when they're strapped liquidity wise and they spent the last couple of years booking three, 4% loans, and now with the limited, amount of resources of capital that they have, what do they do with that? Do they want to do an hospital loan?

Because it's great. But if you're rate shopping them, they're going to say, look, I have to be here because I only have so much limited capital left. I have to offset all the lower rates that I did previously to kind of even out my interest income. The same way that we as investors look at our portfolio of what's our cash on cash return? Whatever you look at. The bank says, okay, well, I have $400 million out in loans. My average interest rate is 5%. It takes me one and a half, 2% to keep the lights on. All encumbered. I'm borrowing at this rate, or I'm giving out CD deposits at 3%. That spread is their interest income. That's what they're making as an investor themselves. 

So that's kind of the point where we're at right now, is when you have a liquidity, I should say, limited capital, they're being more selective on either the deal they're doing that they want to home run, because they don't want a delinquency or something to go bad, or they're gonna make sure that they get the higher rate to offset anything that they have left to use or deploy.

Ash Patel (06:57.678)
Why do banks have limited capital now? I would think with the high interest they're paying on savings, everyone's putting their money into the bank.

Kurt Weil (07:13.271)
Yes and no. There's a lot of factors that go into it. One factor to remember, which a lot of people don't know, and maybe I know this more from my previous past of working inside banks, there's a loan loss reserve. Every time you book a loan, whether it be there's a risk rating associated with each loan. And for you, for example, your particular lender that you have a relationship with may say, you know, hey, given our matrix, our underwriting matrix, he scores out at a 10 scale of two. And one through four is like passable, we're gonna give you a loan. Two is very, very good, right? One is essentially cash secured. Two is like, okay, we can reserve a lot less.

You do a million dollar loan, they're reserving maybe one, two cents on the dollar in reserves for any like it's called a loan loss reserve. So for any loans that go bad, they're supposed to be reserving for that. So part of the liquidity is going to that as well and sitting on their balance sheet. Along with that though, over the good years that we've had, you have to think about, okay, well, we just did our 15th loan with Osh. He's got a hundred million dollars out with us. Then they may say, okay, well, if any of that goes bad, that's a domino effect. And banks have had this happen with some bigger clientele that they had where they may be at their maximum lending limit with one client, they may have to reserve more at the recommendation of their auditors because if that one were to go bad, that's a way bigger hit than just a one off like one million dollar loan here or there. So that is part of it. Go ahead.

Ash Patel (09:33.542)
Kurt, a lot of the larger syndicators always use lending brokers to find the absolute best deals. Why is it that they don't just go back to the same lender and try to get the best deal there?

Kurt Weil (09:51.651)
I think with that, there's probably multiple factors. I would probably give you some examples that I run into personally when I work with syndicators. One is it may be a larger deal, and I may line it up with a smaller lender, like a credit union or a community bank in that particular area. And when I do that, they may only be able to do that one loan. That may be the max that they'll do on, and they may be very agile and very awesome with the rates and terms, flexible if you will, that that's all we can get done because we filled their box.

It may be a footprint issue. For example, you know, I could do a loan for you here in Cincinnati with a lender, same lender we can go do in Indiana, same lender we can go do Kentucky. You get down to Atlanta, they don't follow that footprint. So then we have to use a different lender logistics and size is typically what it comes down to. And again, it may become seasoning, seasoning starting to become something more. This kind of goes back to your other question as well of what are we seeing changes in now? If it's a newer relationship, it comes down to like, okay, we just closed last week, a five unit strip center where there's two tenants, it's not cash. It's not even one-to-one. You're gonna put a half million into it.

If I go to him next week and bring him another deal with the same guy like you, you know, like if we just did that, right? If I just did that for you and then you come back next week and do it again, they're going to say, well, let's see what he does with this one. We're, you know, there's a new relationship. We got to see how it works. I want to see his operations. I want to see, you know, does he do what he say he can do? That I think is becoming more and more important, whereas the last few years have been so good that, yeah, let's take a shot. Yeah, let's keep doing it.

This time, it's more so the higher ups are all say, hey, let's slow it down. Let's let's take it step by step. Let's not push someone into overgrowth, if you will. A lot more of that. How much debt have they accumulated over the past 12, 24 months? How many of these projects are not stabilized? These are questions that are being asked more rather than they were less over the past few years. So I think from a lending standpoint, there's a lot of different questions being asked which leads to the differences that you see for someone like in my place, for example, where I'm like, hey, that lender was great, but on this one, I have an idea. Let's go with this one. Here's why. The last lender I filled his box. He doesn't have any more money to lend. If he does, he's borrowing at the overnight rate. If he does that, you're going to have a higher rate or, you know, et cetera, et cetera.

Ash Patel (12:47.418)
I have a great example to illustrate exactly what you said. So we are in January of 2024. We had a lender that we were building a lot of traction with down south and we did a number of great deals with them. And all of a sudden we bring them another what should have been run of the mill deal. It was cash flowing on day one, great potential. They should have loved it. And they kind of ghosted us.

When we pushed, they said, well, we want a relationship to be a little bit more seasoned. And we were blown away because, you know, a few months prior, they were calling us hungry for more deals, asking what else can we bring them? Is there anything we could bring to them to refi? And now all of a sudden that relationship's gone cold and they want us to be seasoned. And we were like, are you kidding me? Everything that we've done with you is cash flowing great. We've turned these properties around. And that blew us away.

And it was one of the reasons it reinforced my opinion of using lending brokers in the future. Because that, I mean, that was, you know, we were very loyal to them. We didn't rate shop our loans. We wanted to build a relationship. And now all of a sudden, it's like they're breaking up with us.

Yeah, it's interesting how that works because it's very one sided, not just in those terms, but like if they say, oh yeah, we would have done that and you go somewhere else, it's like a bad breakup. They get all, they throw a little fit and they don't like it, you know, like you cheated. It's like you cheated on them. But then when they say, yeah, we can't do it, they're expecting you to 100% understand and say, hey, I'm still going to call you or our box will open back up.

Maybe, you know, we'll do business again next year kind of with the timeline that you just spoke about, it's interesting because I had a particular lender calling me, say, October of last year. And that's one that I did a little bit of business with, not a lot, but it's like, hey, you know, we're in fourth quarter. I had a good year. If I do, you know, five million more, I hit a bonus. So he's like, hey, send me five million. And it's like, now you want it because, you know, you're incentivized.

So, you know, banks all have different criteria of when they're in the game, when they're not in the game, what space they're in, what space they're not in. And with what you said, I was waiting for the one big piece that is, oh, we, you know, we want to kind of wait and see it develop the relationship. I thought they were going to start saying, hey, we want more deposit accounts because that seems to be a big thing now is when you're getting past maybe the initial deal or second deal, then they're like, hey, you want us to give you another commercial real estate loan, we want a bigger depository account, or we want all operating checking accounts.

They're starting to ask for things and where they feel very justified. And in some instances, logistically, it just doesn't work. Which again, is back to your other question about why do brokers use different banks. Again, that is becoming a big reason why we're using different banks for particular clients, even syndicators, because certain restrictions or certain conditions or covenants, as you'll call them, where they're requiring certain type of depository accounts or something. And I have one instance locally where it's taking an 80% LTV down to essentially 70. And I just go back to that particular lender and say, no, my client would rather put 10% down than make 5% in the money market when you're giving them seven on the loan. I mean, I'm sitting there thinking to myself, what is waiting a year or two when that's done refinance it somewhere else without a depository relationship. But again, another point in case if you will.

Ash Patel (16:32.374)
Yeah, the lender in particular did that. I think on our second or third deal, they asked us for a deposit account. They didn't ask for a specific dollar amount, but we opened a couple zero interest checking accounts just to throw them a bone. But it was a subsequent deal that they wanted us to, what do they call it, season the relationship.

So I am going to pull my money back out of that lender and put it somewhere else because it's sitting there idle doing them a favor. And, you know, it was a very cold explanation. It wasn't, look, you know, this got handed down from above. You know, I would go to bat for you. It was just cold, man. Like we wanted to season more and that was it. Right. So I wasn't thrilled with that. But under. Yeah.

Kurt Weil (17:28.955)
Yeah, and I run into that as well. And I think that it's interesting because some of the more seasoned LOs, as we'll call them, loan officers inside banks, if you're working with a really good one, they probably started out at a larger institution where they started out in underwriting, like I did. And when you start out in underwriting, you learn the metrics of a deal, right? You learn the five Cs of credit.

You know, you pass the sniff test, you know if this thing's gonna get approved or not, barring like third party or background checks that you don't do upfront. You do when you solidify the deal with the client and start going through. But you know, cashflow works, global works, they have the liquidity, the collateral is good, it's something the bank wants, right? And what happened, I think, over the last few years, a lot of banks have been just adding loan officers and loan officers and loan officers.

And they're not the seasoned guys that have that background. And sometimes they can't even explain why they don't want the deal or why they're denying it. Whether it's the higher ups not giving them a good answer or they don't understand the certain metrics that maybe don't fit inside the box that they had at that standard time. So it's interesting, but you can really, you can talk.

I think you can, you have the acumen in terms of business banking, commercial real estate that we've had enough conversations offline that you can pick out the guy probably in a five minute conversation initially if he's experienced or not. And if you trust him, if he's going to get it done or not. The same way that when I go to these banks, a lot of the banks that I work with are people that I've worked with before in my previous life. And you know, I was some guy's underwriter at one point.

Ash Patel (19:23.055)
Yeah, this guy in particular.

Kurt Weil (19:23.68)
you kind of know if they have it or not, especially by the explanations they give.

Ash Patel (19:27.702)
This guy in particular was high up, just a few levels below the president. But, you know, that was a good lesson for me to learn. You alluded to the five C's of lending. What is that?

Kurt Weil (19:42.519)
The five C's of credit are pretty much the basics of every commercial loan that's looked at. In those five C's is like, for example, the first and most important, everybody hears this, right? Investors, bankers, everybody, cash flow is king, right? So subject property cash flow is number one. Number two is global cash flow. Anybody that owns a piece of it, they're looking globally at them personally. Do these people cash flow?

Do they have a secondary source of income? W-2, other real estate, some type of source, an investment account, whatever it may be. Those are the two main ones, right? So In the world of banking, when I referenced before like that loan loss reserve, that they have a risk matrix and every deal is risk rated of how risky or not risky they assume the deal to be.

That matrix is based upon the five C's of credit. So they're taking like that individual property cash flow, global cash flow, credit worthiness, such as like personal credit, or if it's a true operating commercial business, there's a D&B report, Duns and Bradstreet, which tracks the pay history, just like it would for an individual on a credit report. There's also the collateral itself. Usually that's based on like an LTV.

And then there's a capacity. Capacity is what's the liquidity? How many months in reserves globally? Can this project, along with all the global debts, there are some banks that calculate different. How many months reserves could they service all the debt globally? And if it's, OK, well, this guy only has nine months, that make it a higher rating. When I say higher, like a four or five or something, whereas subject cash flow on this thing day is 
2.0, that's gonna get a 1.

And all of it is weighted. And each bank rate their ratings are weighted differently so you essentially fill out this matrix and then you get an overall score. And it may not necessarily be a number, it may be low, moderate, high, I mean every bank kind of risk rates differently, but typically it's a number system. and then you know it goes from like when you essentially you book it you're like on if it's a typical 8 or 10 scale
one through four, one through five is passable. They're gonna book the loan. Your portfolio, you start missing payments, things like that. You're going from the five to eight.

You're going to loss mitigation, SAG, special assets group. You're getting a problem loan asset report. It gets into the bad stuff, which could lead into what we see here later in 24, early 25, with the way some things people are paid for that were overbooked. And what is it I think? I just read a stat actually in the commercial world that 57% of loans that were booked between 2020 and 2022 could not service the debt in place if the rates were to go to today's rates. So again, kind of that risk rating matrix becomes a big thing, which goes back to the five C's of credit.

And that's kind of the basis of all underwriting at banks and how they look at you as a client.

Ash Patel (23:12.322)
Kurt, let's demystify what it is that you do. Years ago, I thought lending brokers were no different than like a rocket mortgage or quicken loans where you submit your deal, your financials, and a whole bunch of different banks automatically bid on it. And it's all automated, kind of like a stock trade. But that's not really the case. Explain to us what it is that you do. If I have a deal and I say,

Can you walk us through the process of what a lending broker should do?

Kurt Weil (23:49.539)
Sure. My process, and this is just me, I don't know if there's an industry standard. I know a lot of brokers just say, yeah, send me your financials, here's a list, give me all this stuff, just give it to me. And they'll put it in a folder and they'll send it to a bank and say, hey, can you do this, hey, can you do this? And they throw it on and see if it sticks. My particular process, I kind of followed the process that I would do at the bank.

You know, the loan officer brings in the deal, collects all the financials, stacks it nice and neatly. Then they give it to the underwriter to look at. Excuse me. And the underwriter will go and start running the five Cs of credit. You're looking at the property, you're doing the cash flow, you're going to do a global, you're looking at the liquidity reserves post down payment, you're looking at the collateral itself, and then you're also, you know, looking at them character. They always joke character is the hardest thing to underrate.

Again, that's where that LO that says, I worked with Ash Patel for 22 years, he's never defaulted on loan. That's where that comes in. Which again, goes into experience. If you have experience doing this, if this is your first time ever even rehabbing a deal, they get nervous. So you look at all that and that's kind of what I do. When I get a package in, I say, hey, let me know when you uploaded everything in my secure link, I'll go in and underwrite it. And then based on my underwriting, it's like, hey, we have a few problems.

Because of the lack of occupancy, I need all these leases, or I need this, or this. Or do you have any LOs out right now? So I can say, hey, this is 25% occupied, but there's three LOs out right now that will put it at 55. This is going to give more validity to pro forma. It's more so upfront, I'm painting the picture, but then I'm also trying to mitigate any weaknesses that the bank is going to find and address them upfront.

Because a lot of times, and this may not, people may not know this because this is kind of getting into the weeds of it, but that's kind of what I feel like my job is. My job is to get in the weeds and then interpret what is there and what it's going to be and make sure the bank understands that. Because if the bank goes on the backend and finds out, hey, we're in underwriting.

We almost have this to approval, we're going to board, but we just found out this guy has a judgment or this property has another lien. Is there a third mortgage on this that we don't know about? And that's the kind of things that you have to get in front of. And when you bring it all in front, it makes them more comfortable. Like, hey, he told us everything we knew about this. But when they find something, they almost look at it as like an aha moment, gotcha. You're trying to pull one over on me. So just kind of taking any of those weaknesses, mitigating them and just putting it all up front.

I share my underwriting with the bank, all my calculations. I do a summary, which is called like a lender's analysis. And you're, again, you're hitting with the words, the five Cs of credit, and then putting all the stats in there that you calculated, and then backing it up with your stat sheet, right? Or as we call spreads. And then you're telling the bank, hey, take a look at this, this fits your box. I know that you like multifamily. I know you go up to 90% on a rehab loan of total project cost. This is an experienced client.

As I underwrite, I start to see, okay, this is of my lender group. This would be a good fit for this banker. This would be a good fit. This is what the client wants. And try and find the best mix of what's the best deal for the client and what bank do I know will approve this. And kind of meet both boxes. Get as close as possible.

Ash Patel (28:31.154)
One of the things I'm hearing is when you qualify a loan broker, it would be ideal to find somebody that came from the banking environment and ideally that was an underwriter at some point in their career.

Kurt Weil (28:48.203)
I mean, I'm biased towards that because that's what's worked for me. Um, yes, ideally if I was to hire someone within my business, that's what I would be looking for. It's very hard to find somebody who did the analytics, uh, that was an underwriter and then also be able to go out and sell and have the personality of a loan officer.

So you have very different type of dynamics, the stereotypical number cruncher, if you've ever heard someone, a loan officer, someone at the bank say, oh, my underwriter won't approve this. He won't approve this. But then you can't get the underwriter on the phone because, oh, they don't want to talk to you. So if you can find someone that has the mix and really knows the bucket, you know, I call it the bucket, what exactly their bank wants, and I'll have some lenders like, hey, we love this deal, let's do it. But to get an approval, Kurt, I know I'm gonna need this. My board's gonna want this to be able to get it approved.

You know, it's great. I love working more with those loan officers and not all of them were probably necessarily underwriters at one point, but they, they were, they've either, most of the ones that do that have been there long enough to know the personalities involved in the approval process, which I think is a big piece of it as well, so not necessarily, but sure. That's my preference. Cause I have a bias.

Ash Patel (30:13.778)
What do lenders think of you people, you loan brokers? Are you a necessary evil? Are you dipping into their potential fee structure or commissions? Or are you truly cohesive and they enjoy working with loanbrokers?

Kurt Weil (30:36.508)
It varies. And again, there's just like you have a life cycle as an investor. You're young, you're hungry, you don't have anything, you're going after it all. Some banks that never did commercial lending or never really did or never really had the expertise on staff to do it that are starting up, they may be more hungry and have to put it on their books because there's better spreads than car loans, home loans, things like that.

And they may look at you as a necessary evil where they'll use you, abuse you, and stack their books and lend out all their money and then be done with you and say, hey, thanks, we're done with brokers. I mean, there's some lenders locally that have done that. And then they wanna go back and contact your book of business that you brought them. There's some that I've worked with for years that just have a cohesive relationship that say, Kurt, I'm not going to call your clients.

They don't mind lowering their origination fee or their fees to provide me to charge. So it's no different if the client walked in the door by himself or with me. The difference is with me, I know if they're juicing the raid or if their spreads higher or call out, hey, this is kind of the deal that we have. Don't give them the front door deal, you know, and juice everything up. So it's a mix. It just depends on the one itself.

Ash Patel (32:07.459)
Let's dive into that. Hold on a second. Sorry.

Sorry, sorry to cut you off. But let's dive into that. In terms of owning a relationship, if I use you as a lending broker and you introduce me to a bank that I never would have found on my own, it's in a different state, local lender, you got the loan done. Now next time I've already got this relationship with this bank, why do I go through you? Why should the lender pay your fees?

Can I just go directly to that lender next time?

Kurt Weil (32:50.167)
I mean, you can, as a broker, I like to think that I bring value to you as the investor. That there's banking things that I know that you don't know. And as you go through that process, there's probably a lot of things that I negotiate throughout the process that you don't know that I do either.

Whether it be specific third party work order, specific language written into the loan agreement or not written into the loan agreement, waving potential covenants that they may come up with, depository relationships, if I'm negotiating those, escrows, and again, just overall structure, term, rate, IO period, all those kinds of things, prepayment penalties are a big one that we're negotiating. So really, I think comes down to negotiations and kind of having that advisory role. If the bank comes back to you, if you go around the second time, the bank goes, I don't know, Ash.

Cash flow is tight on the last one. It's going to be tight on this one. I can do it, but I'm going to do it at a higher rate, where I'm like, well, if I underwrote the second one, I'm like, it wasn't tight last time. And this one's not tight either. No, we're going to want the same rate, or else we'll go somewhere else. So the power of leverage too, knowing that I can take it somewhere else and get it done, and they know that too, can change a lot of things. In terms of the fees, you're going to pay the same, regardless if you use me or not.

So in terms of bank fees.

Ash Patel (34:20.426)
Yeah, what is your fee typically? What am I paying for these services?

Kurt Weil (34:27.804)
Typically, I've been told to raise numerous times, but I'm cheap. I'm a half percent. Typical broker structures, they get 1% no matter what. I don't do that. I believe in when I majority of the lenders that I work with, I lower their, like they lower their originations to leave room for me to charge if they don't pay me, which most of them got away from that model of paying the broker direct because I don't have any money to pay people direct right now. 

So what happens is they lower the fees that they would charge you directly. And then I charge based on my agreement, the difference. And it keeps it under 1% of the total loan amount. A lot of brokers, if you get them on the phone right now, they'll say, I charge 1% no matter what the bank charges. Sign my agreement and we can start the process. Mine is send me your stuff. I'm telling you right now, I'm half point upfront.

But I don't get my agreement signed until I actually bring you a deal and you say, yeah, I like that. Let's do it. Because I feel like there's got to be some type of performance for payment.

Ash Patel (35:35.782)
Okay, are you saying that there are certain brokers that you give them the 1% upfront, even if they don't secure the deal?

Kurt Weil (35:44.619)
They will make you sign their agreement upfront to exclusively go through them. But if they ask you for some of that fee upfront, I never agreed with that and I wouldn't. It's only at the time of commitment. If a bank issues a commitment with a loan approved, are they allowed to ask for it? But typically, it's collected on the, it's put on the closing statement and it's collected by the title company.

Ash Patel (35:47.305)
Understood. Okay.

Kurt Weil (36:13.811)
as part of the closing. If they're asking for you at Upfront, I'm not a fan of that, and I haven't seen that work out well for people.

Ash Patel (36:15.678)
OK, so there's lenders. Yeah.

Ash Patel (36:22.482)
So there's lending brokers out there that want to own an exclusive relationship. So if I engage with that lending broker, but I find my own lender come, I still owe them that fee. Is that how those are written?

Kurt Weil (36:40.491)
You, it depends how they're written. They're written many different ways, but a lot of times you'll owe them at least something for their time. They want you to sign their broker agreement upfront because they want you to exclusively go through them. Because, I mean, essentially they're shopping for you. Now, when I bring you a deal, like if I bring you a term sheet that says, hey, this is a good lender, let's go with this, that's when I make you sign mine and say, stop shopping. Let's go because if you shop it and try to get, down the road with someone else, but we're going through the actual approval process, you can really screw the deal up.

And I've had some, I've had a particular case where that happened and you know, the banks call me saying, Hey, we just pulled his credit. Why did such a such bank just pull his credit yesterday? And I'm like, I don't know. And he goes, Oh, well, I thought I would get approved by your bank and this other bank in case one of them didn't work out.

One of these banks might pull out now. Because no one kind of want. This was a time when it was. God.

Ash Patel (37:39.207)
We had a...

We had a commercial broker down south that made an introduction to a lender, and we ended up using that lender. Unbeknownst to us, this person was also a loan broker. So he was a commercial real estate broker and a loan broker. And just making that introduction, he ended up charging us fees on that loan, right?

What we didn't know was the three or four subsequent loans that we did with that lender, this broker came back and said, hey, I made the introduction, so I own that relationship. You owe me commission on all of these deals that you've done. And we were blown away that people would operate in that manner. Obviously, we were not on board with that. The lender thought it was silly and it didn't fly. But that was a pretty bold thing he tried to do.

Is that common where brokers will try to permanently own a relationship between a borrower and a lender?

Kurt Weil (38:51.131)
It can be. Yeah, it sounds like he had some type of clawback in his broker agreement. If you sign one, a clawback period is a time of period of, hey, I introduce you to this lender, say it's Navy Federal Credit Union. You never use them. I have a relationship. I placed this deal with them. You would have never found them without me. If you do any subsequent deal with them from the time this loan closes up to like the next 12, 18, typically, I think it's, they'll say you need to go through me to cultivate that relationship. And that is relatively common.

I have in my agreement, I have a clawback for 12 months on the specific property and only the specific property I just financed. If you turn around and want to do something with the same property, I just place with the bank in less than 12 months. You didn't even give them a chance to make interest income for all the work they did up front.

So it's kind of a net loss for them. That's kind of why I put it in there. Just, you know, I always ask, I keep it for 12 months. I mean, even if I'm not getting paid on the deal because my banking relationships are as important as my client relationships. It works both ways. With that being said, you know, it's not typical. I wouldn't go after anyone, but I would be not wanting to work with them again because I would expect them to come back to me and wanna use my expertise.

Ash Patel (40:19.03)
Yeah, it's a good way to burn lending relationships also. If you are planning on holding something for a quick flip under a year, by all means, be honest with the lender and let them know that. But if you're going in there telling them, oh yeah, I'm a long-term buy and hold, I'm going to keep this and gift it to my grandkids, and you flip it in six months, I mean, that, you ruined your integrity and the future of that relationship.

Kurt Weil (40:32.523)

Yes, I've been caught on deals like that before where the buyer or borrower, I should say, didn't tell me during that time, like, hey, I sold this and they did. And the bank's like, hey, we just got to pay off for this. We just did this like six months ago with you. What the heck? So I've been in those situations before. And one of them was actually a good client of mine that I've done like seven or eight deals with. And he's like, dude, I have literally got like the like the screw you price. Like somebody gave me a price like, screw it. I got to take it. Right.

And I told the lender, I'm like, dude, he's six months, this guy's making like $3 million on a $3 million purchase. Like he doubled his money and it's like he didn't do much. I'm like, he didn't even have to finish his, his rent out money loan. And they're like, okay, well, we don't like it, but he's got to obviously 1031 bring us the next deal. So, you know, that's kind of the other thing. It's like, all right, good borrower. He just got a bunch more capital. He can get into a better LTV position on a new property and we can book a bigger loan.

So there is some offset with that. And that's the ideal case. Now, again, example between 20 and 22, right, where things were really good. But you can offset those things. But yeah, just like you said, be totally honest. And there's some that did that before. And I'm like, dude, why didn't you just tell me? We would have set this up as a short-term note. Why did you go and try and do like, oh, I want a 10-year fix? It's like, you know, I'm never really, play the game, like, oh, I know it's always flipping this.

And it's like, well, we probably would have went to a different lender with no prepay, but whatever. But yeah, that chaps. That chaps bankers as well. Yes. Again, that's one of the five Cs. It goes back to one of the five Cs, character. You can't underwrite character. Character issues.

Ash Patel (42:19.294)
Yeah. Integrity, right? It just comes back to it. Yeah, it comes back to integrity.

Kurt, one of the things that I'm an advocate of now today, because I've heard so many people on social media, friends of mine, people in my network where the lender pulls the deal just before the closing. They got cold feet, whatever, and these are lenders that people have established relationships with and all of a sudden, maybe one of the higher ups said, okay, we're freezing lending or we're not doing this deal, whatever it may be.

Great deals, incredible deals are getting pulled at the last minute. I am an advocate of always having two lenders ready to go. If I use you as a lending broker, are you able to, in good faith, have two lenders on the hook pretty much all the way through?

Kurt Weil (43:26.057)
To an extent, yes. There's at some point where you stop the process with your backup. If you know what your backup is going to do, if you know that they would do the deal, and and you know what terms they're offering, like, hey, we got to go back up if this one pulls the plug. Again, to be honest with you, in 2023, I only had to have in one deal with one lender.

And it was a lender where the higher ups go, no, we're not doing that. Even though I've had very seasoned people that worked there that I've worked with for a very long time, like, yeah, we love this deal, let's do it. When you get to the point of kind of like that final approval process. That's where you kind of got to pull the plug. You can't have the other bank go and pull their credit, you know, a couple of weeks after you've already been through underwriting with this lender or whatnot.

You make sure like, if you're going with the foremost lender, right, that you're scared is going to pull the plug. You still let them order all the third party work, let it get assigned to them, kind of that whole process. You just have to know that if you've got a backup lender, they like the deal, you know their terms that they offered on it, they offered and they did offer on it.

And it's like, OK, this is subject to final underwriting. I went back to them and said, hey, you guys are up. The other bank pulled out. Why? Well, they pulled out because the higher up said they're not in that sector anymore. OK, fine. Let's take your terms. You guys can go ahead and pull credit now. We accept the terms. I'm going to send you the appraisal environmental. And you guys will get the appraiser and the environmental company online and have the reports signed over to you. So there's the back work to do.

But again, with your backup, you can only go so far. But yes, personally, I do keep backups kind of in my back pocket, just in case if that happens. But again, I've had it rarely happen. Like I said, last year it only happened one time. And I could see it happening more now as time goes on, especially with the change in the market. So I'm a lot more cognizant of it. But.

Yes, there's only a certain point you want to, if that makes sense, I guess the point that I'm trying to get across is there's only a certain point that you want to go to with it. You don't, if you want to go full blown approval with two banks at the same time, that's tough. Cause you don't really want to screw up or give the first bank a reason to say no.

Ash Patel (46:01.386)
Understood. Yeah, I really, what I was after was having a lender on standby that is intimately aware of the details of the deal and are ready to go pending a few final checks. So, okay, good to know that. We talked about lending appetites changing week by week, and you mentioned some of the newer lenders are hungrier. How do you keep up with the lending appetite of each of these lenders?

Kurt Weil (46:16.203)

A massive Excel sheet. I have my list of lenders and when some will send you rate sheets, some will only buy phone calls, say, hey, this is kind of where I'm pricing things today. It's just, it's different all over. And then, you know, when you call them or talk to them, I'm on the phone a lot probably with lenders, maybe more than I am clients now, especially now. Like, is there anything you guys aren't doing? Is there anything new you guys aren't doing? Do you have a new program?

A lot of banks are like, hey, we have this great platform for owner. We want owner occupied business. You know, they'll tell you what they want. They'll tell you what they're going after. And you know, if you bring it, if you have it, that kind of thing. So kind of putting those details with each bank, you know, like every lender I have, it's what's your minimum loan amount that you'll accept? What's the maximum you can do? Where are you priced at today? Are you one and a half, two, three percent over the five-year treasury? Are you bracing on prime for draw notes? Do you do lines of credit? Do you not? Kind of all that whole gamut of what do you do? What are your parameters? And then what specific property types?

Because I'm primarily, the bulk of my business is investment real estate. So it's what real estate asset classes are you after and what are you not after? And keeping kind of the details with each one is what I track specifically. Like I said, when I'm underwriting a deal, I'm thinking in my head, OK, this apartment, OK, this is this LTV. They need this rate to make it work. Oh, it's syndicated. They don't want anybody 20% less to sign. OK, well, then we should go to this lender and this lender. These two will take that. The other ones won't because they want everybody to sign. So it's just kind of all those factors of understanding the nitty gritty is what I detail and track because it's important.

Too many times do you get, oh, I sent ex-bank, ex-national bank, I won't say that name. I've had so many people go, well, yeah, I sent to them, they said they could do it. And then all of a sudden, nah, my underwriter looked at it, it's just not in our wheelhouse. And it's like, well, that was two weeks. You just wasted two weeks on a purchase contract. You're killing me. So I like to have that kind of vetted out front.

Because if you know they're not going to take it or it's not in their appetite, there's no point in even wasting the time.

Ash Patel (49:06.07)
Kurt, is there a deal that's too small for you? So let's take a $300,000 mixed use building. It's not residential, it's commercial. And you're only getting a half point on the deal, but you're putting in essentially the same amount of work. Is there a minimum threshold to have you do a deal?

Kurt Weil (49:30.195)
I've been trying to like give a minimum standard for years of like, hey, I'm not going to do anything under 250. That usually seems to be about the mark. To me, it's not so much about the deal size. Specifically, if it's a repeat client and it's like, hey, I found this small deal, but man, I just can't pass it up. It's a good deal. Okay. I already have your global. I've already underwritten you. I have a lot of your financials. Like it's not as much more work for me. So, it's like, yeah, of course I'll do it.

To me, once a client, always a client. So I'm willing to always go the distance with you. In terms of like, if people are like, hey, I got the single family, I just bought it a year ago. I just rehabbed it. It's like, dude, the one to fours right now are like, no bank wants them, not even as like, hey, do me a favor. Can you do this for me based on our relationship? No, man. There's so many lenders that are just closed.

Like, they're just not even, it's not just me. They're just not doing one to fours. Like they're, everybody's got their fill. They had guys walking in the bank every day. They have their own clients that have a blanket of 50 single family homes, you know, like, so those are, I would probably say more asset class wise. The one to fours is just something I'm not really into because banks don't want them. And even my go-tos, like I have to do a big favor to get them to take it on the commercial side because essentially is because they're purchasing something that needs an empty transfer, et cetera, et cetera. But with my clients, if I did a deal for you, there's no threshold, but 250 is what I tried.

Ash Patel (51:06.926)
Why is that? You would think that those one to fours are safe, easy to underwrite, little risk of foreclosure. Why is there no appetite for those?

Kurt Weil (51:20.547)
Because they have their fill. So again, much like the bank looks at their interest income off their book portfolio, they also manage the risk. How much do we have in one to four residential habitation? How much do we have in office? How much do we have in hospitality? And they break down their portfolio as a percentage. And that stuff comes in all the time to an extent where everybody has more than the allotted percentage of their portfolio that they want. So again, they manage their portfolio much more than

Ash Patel (51:47.182)
I didn't know that was a thing.

Kurt Weil (51:50.995)
Oh yeah, there's risk, they have concentrations. And if you have a concentration of more than X amount of your portfolio in this specific sector, specifically say office right now or hospitality, if you got 50% of your portfolio in office and hospitality right now, those auditors are probably gonna come knocking on your door for a special audit next week. The FDIC, NCUA, ASI, the state auditors, ODFI.

They all come in and audit every lending institutional every year. In your portfolio as a lender gets stress tested. Can you support rates going up? If these guys can't pay off what you booked at and had to refinance today with you, or their arm adjusts with you in five years, based on the term, is it a balloon or is it a readjustment? And they'll stress your portfolio. They'll look at your concentrations in your portfolio.

And then every bank has their own internal auditors too. They'll get a CPA for them to come in and do the same thing. So it's very important for them to manage not just portfolio size of how much they can have of a commercial portfolio, but then also concentrations in their portfolio of each specific category.

Ash Patel (53:08.334)
Kurt, if our best ever listeners are looking for a lending broker, how do they go about finding one? What are questions to ask?

Kurt Weil (53:21.415)
If I was going to go find one, I would ask them their background. How long have they been in the business?

Kurt Weil (53:32.787)
And then kind of just ask them what their process is, because I think you'll find out very quickly. Yeah, man, I got dirty banks I work with. Just send me your financials. I'll get them out to them and we'll see what happens. To me, that's like, you didn't give me any detail. Not sure. You know what I mean? Like, I look more for the details. Maybe that's the analytic training in me or something, but I like when they provide more details of upfront like, hey, this is what I need. This is why I need it.

I know lenders that are going to require three years of tax returns, not two or all that kind of jazz. And I think it's very important when you have that initial conversation. Everybody gets so, in my opinion, so caught up on rate. And rate, yes, I understand it's important. I'm an investor. I get it. But if you're going to sit there and say, this deal works at seven, but it doesn't work at seven and a quarter.

One, you should probably walk away because you don't even have meat on the bone. Number two, like if rate is the main concern, but you don't have any other metrics to measure by, again, if you're like we were talking about before, be honest, if you're gonna flip it, now I gotta have a better rate, I gotta have a better rate. I would rather take the lender with a seven and a half percent rate that has no prepayment penalty, then go with the lender at 7% that has a prepayment penalty in place because you're going to pay more.

And I think there's a lot of that people don't understand. So if you're working with a broker and you tell them your initial story, you know, my first question as a broker is, and this is what I want to hear if I was going to call a broker, what's your goal? With this property, what's your goal? And if you say long-term appreciation, you want to put a good loan product in place.

Okay, well now as a broker, I'm thinking exactly what product you should have. We should go look for a 10-year fix, 25-year am, cash flow the crap out of this thing. If you're like, hey, I'm going to sell it probably in three to five years. All right, let's look at five and seven-year arms, depending on how risk adverse you are and lock something in with probably a minimal prepayment penalty of a 321. Because if you're not going to sell for three to five years, prepayment drops off.

You know what I mean? So like you start to size it in your head of based on this person's goal because you don't expect every individual to know all the different types of loan products out there. So I think it's key kind of upfront to explain to the individual. They can tell you what their goal is and then you can think in your head, okay, well, this is the product that's gonna fit you best that's out there.

So I think them helping guide you through that on the initial conversation is very important. So if you can find that, you probably found someone that.

Ash Patel (56:30.57)
Kurt, what does it take to be a loan broker? Do you have to be licensed?

Kurt Weil (56:39.743)
It depends. If you're going to do residential deals and book 15 year, 30 year mortgages, government backed mortgages, you have to get what's called an NMLS license. And it's provided per state. I used to have one at my previous brokerage that I was at before I started my own brokerage. And I didn't do it because you have to be bonded when I started Incline.

And I never did enough of that residential book of business. I always did commercial. In commercial, there's not as much licensing requirements. I think it's more experience-based, because bankers will either work with you or not work with you. But it's not as rigid as state-regulated. There is some states, like for example, even if you're going to do a commercial loan, you still have to have a residential license in certain states.

Ash Patel (57:38.858)
Okay, so the reason I asked that was I wanted to see if anybody could become a commercial loan broker. And if that is the case, if the barrier to entry is minimal, it's even more important to qualify the person you're working with.

Kurt Weil (57:57.695)
Absolutely. Yeah. It's technically it's pretty minimal in terms of requirements. But again, all I can say personally is that you're either going to make it or break it up based on reputation. Reputation is everything. And you have nothing but your name and what you say you're going to do. And you have to come through. It's a service based business. So.

Ash Patel (58:23.798)
Got it Kurt.

What is your best real estate investing advice ever?

Kurt Weil (58:36.223)
I would say right now, especially in this time, be patient. Don't jump on a deal. I shouldn't say don't jump on a deal. Don't try and make a deal work. This goes back to, I need 7%. Seven and a quarter doesn't get, that deal doesn't work for you. Don't do it. Don't take the risk when the market's on its way down in terms of a lot of things because as you build your real estate portfolio, you are building your resume for banks.

If you don't make it on your first one or your second one and have hiccups, a lot of banks are not gonna be willing to invest in you as the borrower later. So be patient, make sure you find the right deal, even if it's a single or double, but you know it's stable, do a good deal, especially if you're starting out. A good stable deal and be patient and make sure you stick to the metrics you're looking for.

Ash Patel (59:28.802)
You know, a total side note on that note, we have a we have a deal that we're working on, that I was brought into at the last minute, and it's a new lender. And they don't know anything about me. So I have to put together my bio for them. And it's you know, we don't have a lot of time on this deal. It's a huge deal. So I can't just send them a simple bio, I had to put, but I included a lot of historical high profile properties that I've done and the metrics on them.

So you're right, it's important to have that ready to go. And really a lot of it was copying pasting, but having your entire portfolio of real estate deals in a nice, easy to read PDF, where the lender can see a picture of the property, date purchased, plan, disposition, or current status.

Kurt Weil (01:00:02.134)
I swear to you, I'm lying.

Ash Patel (01:00:28.67)
So all the best ever listeners have that instead of a resume that you would do for your W2, have your resume ready to go for all of your historic properties. So Kurt, thank you for sharing that. Are you ready for the best ever lightning round?

Kurt Weil (01:00:44.577)

Ash Patel (01:00:45.866)
All right, Kurt, what's the best ever book you recently read?

Kurt Weil (01:00:53.295)
I'm actually reading the Encyclopedia of Commercial Real Estate by Terry Painter right now. And he is, like me, he's a commercial loan broker. And he's more seasoned, older in age than I. He's definitely been around the block. I mean, he's a contributor to Forbes on the real estate piece. I mean, he's very well known. And I think that it's a great book. Really covers not just a lot of terminology, but real world examples. He's also an investor. So I kind of, I very much relate to him. So I really, really like it and suggest anybody that is looking for a book to read. If you, anything commercial, it's gonna give you more aptitude to your commercial intelligence.

Ash Patel (01:01:42.062)
Kurt, what's the best ever way you like to give back?

Kurt Weil (01:01:49.375)
I think the hardest thing for me to do right now in my career is to give back time. And when I'm able to do that, I really enjoy it because it's kind of like a sacrifice, right? People always look at giving money or time and being middle-aged and building my company the way I have and still being the only employee for, you know, how long, giving my time back. So I coach, I still coach high school sports on the side and then like to volunteer when I can. To me, that's a sacrifice. So because I know it takes a lot for me to be able to make that obligation and do it, that's how I like to give back.

Ash Patel (01:02:37.098)
And Kurt, how can the best ever listeners reach out to you?

Kurt Weil (01:02:44.359)
You can, I'm on LinkedIn. That's pretty much my only social media internet exposure. I think after that you'll have my information. You can email me or call my cell. Those are pretty much the ways to get through to me. Majority of my business has been organic. It's always from clientele, refer me out. It's all word of mouth. I don't advertise online or try and bring in millions of hits, whatnot. But those are the best ways LinkedIn, social media wise, and then just email me or call me.

Ash Patel (01:03:25.73)
What's your email address if you don't mind?

Kurt Weil (01:03:30.305)
It's incline commercial at Outlook.com.

Ash Patel (01:03:35.242)
Well, Kurt, thank you for your time today, man. It was great catching up with you, learned a few things, and I'm glad. Hopefully we demystified lending brokers for the best ever listeners. So again, man, thank you for your time today.

Kurt Weil (01:03:50.999)
Thank you, I appreciate it. Hope everybody enjoys, thank you.

Ash Patel (01:03:53.622)
Best ever listeners, thank you for joining us. If you enjoyed this episode, please leave us a five star review. Share this podcast with someone you think can benefit from it. Also follow, subscribe and have a best ever day.

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