Over the past 30 years, mortgage broker professionals have become a force in the residential housing market in Canada with the help of non-bank lenders such as First National. Now, First National is working hard to bring more brokers into the commercial mortgage market as a means of generating mutually beneficial growth while better serving the needs of commercial clients. Ed Kieser leads First National's Commercial Financing & Broker Services business where he has originated more than $1 billion in commercial financing in partnership with brokers. In this interview, Ed offers his thoughts on how mortgage professionals can increase their odds of success in winning commercial financing deals.
Ed, when you think about residential brokers who have created commercial practices, how did they go about securing new business?
Generally, I would say they cultivate business through their existing residential client data base, referrals, networking partners, memberships in associations and to some extent, advertisements. Really, it's about doing all the basics of marketing and sales but doing so diligently and with purpose.
How difficult is it for a mortgage broker who specializes in single-family to build a commercial practice?
Not overly difficult because the key skills of a residential mortgage broker are somewhat transferable to commercial financing. I'm referring to communication, negotiation, number calculation and people/relationship building. These skills and capabilities are fundamental to success in both markets. But just like anything else, entering a new business requires drive, a commitment to learn and the patience to succeed.
What should a broker focus on learning?
They need to educate themselves on the types of commercial products that are available – conventional and insured, bridge and term – and the process of commercial financing. The process to complete a commercial deal is different than in residential, and it requires some patience because commercial loans are typically larger, a little more complex and take more time to fund.
What does it take for a broker to find success in the commercial market?
In my view, the most successful mortgage brokers are those who are informed intermediaries and deal champions. These are the professionals with the ability to educate and navigate their clients through the financing process. The best practices I see are from mortgage brokers who know their client, and the story behind the deal, understand what the client is truly seeking in terms of financing, and similarly, have a good level of knowledge about the lender they are approaching, the lender's products and the lender's underwriting parameters.
So knowledge is key?
Yes, but so is diligence and management. The most successful brokers know the value of collecting all requested documentation upfront or in a timely manner from the borrower. They also have the skills and discipline to keep the lines of communication open among all parties at all times and are able to set realistic expectations for their clients.
How do “Know Your Client” rules affect a commercial borrowing transaction – and is there anything brokers can do to prepare clients for this?
On all commercial loans, “Know Your Client” is a large and crucial part of our underwriting process and a prerequisite to obtaining approval from our credit and investment committee and third-party partners such as CMHC. That's why, as I mentioned, we request all the required and necessary information early in our process to avoid unnecessary delays and processing costs. Our partners and clients can expect us to provide a detailed list of the documentation required at the beginning of the process in order to meet KYC requirements. Mortgage brokers can prepare their clients by informing them at the start of the importance of providing accurate, full disclosure of the ownership structure including shareholders, beneficial owners and trusts.
You also mentioned being a deal champion. What does that mean?
It goes without saying that a broker will be a never-ending advocate for their client, which is a good thing. But championing a deal also means having the ability to present the pros and cons of the transaction to the lender. Through our due diligence, we're going to uncover the risks in any event, so we find it far more productive when our broker partners are upfront about the cons as much as the pros of the transaction and remain open to finding workable solutions.
Is the onus all on the broker, or can a broker expect First National to provide any assistance?
We pride ourselves on our ability to find workable alternatives as well as in our ability to walk our partners and their clients through the process step by step. We build a plan together, we explain each of the stages involved, we help to set expectations and we outline the closing process along with what’s required to achieve a successful closing.
Can you talk about a best practice lending process?
Sure. Best practice is when a broker approaches First National even prior to their client placing an offer on a property. We find that commercial financing is usually most successful in avoiding delays, hiccups and unnecessary costs when its planned and informed though early-stage financing consultations.
What happens next in the lending process?
That's the subject of our next interview.
If you have a question or a commercial deal to make with First National, you can reach Ed and his team at:
Ed Kieser, Assistant VP, Commercial Financing
Devin Sembaluk, Senior Analyst, Commercial Mortgages
Lisa Wright, Analyst, Commercial Mortgages