Commercial Real Estate Notes: How You Can Profit From Them.
A great profit opportunity is being missed by note brokers because they are unfamiliar with commercial real estate notes. It’s easy to assess a note on a home, but if someone calls you with a commercial note you may not know how to price it, who to sell it to and what kind of documents are required. Many note brokers would be hard pressed to define the word “commercial real estate.”
Definition: The most widely accepted definition of “commercial” real estate notes is a negative one. Residential notes are not commercial notes, they are notes on one to four residential units. Commercial notes are not residential, for example commercial notes include notes on: mobile home parks, office buildings, apartment buildings, shopping centers, businesses, parking lots and government buildings.
Finding “Good” Commercial Notes: Several Institutions will buy commercial notes up to $1,000,000. There are many advantages to becoming an expert in commercial transaction notes. You will have very little competition. You can develop a steady source of notes by working with professionals who will refer business to you. Commercial real estate brokers, developers and contractors see many such notes. If you pay them a finder’s fee you can open a veritable pipeline of notes. This is far more efficient than dealing with one note seller, who only has one note to sell.
Selling Commercial Notes: There are not many buyers of commercial notes. You want to develop a relationship with an institution that understands how to quickly underwrite your commercial deal. You can use your Direct Connect Data Base, or visit our data base of corporate note buyers at www.nbdc.net.
To sell a commercial note you need to develop a professional “package” to submit to the note buyer. The more information you can provide the more quickly they can fund and close the deal. Your package should include the standard information, including a copy of the note or mortgage, a copy of the closing statement, any appraisals, pictures, insurance information, etc. In addition, you should try to obtain a Dunn & Bradstreet report on the business, a profit and loss statement depending on the payor’s credit, tax returns if possible. On apartments, commercial note buyers will need information on expenses on the building, gross income, seller’s purchase price, and date purchased. On a business, we will want information on the new buyer: how experienced is he or she in the business? Why did the seller sell the business? What is the local competition?
While we do not need all of this information, the more you know about the payor, the business and the property, the greater is the likelihood that we can buy the note. Complete informational packages are what separate the amateur note broker from the professional.
Problem Commercial Notes There are commercial notes that note buyers generally cannot buy. Although, with the competition growing among note buyers, who knows? Commercial notes that are hard to sell include:
- Notes where the payor is charitable organization.
- Night Clubs
- Any property that may have potential EPA, hazardous waste problems, such as gas stations.
- Commercial farms and orchards.