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 serving the needs of commercial clients. Ed Kieser leads First National's commercial mortgage broker business where he has originated more than a billion in commercial financing in partnership with brokers. In this interview, Ed discusses why mortgage professionals should think seriously about participating in commercial deals.
Ed, why would a mortgage broker doing significant residential business want to take the time to do commercial deals?
Three main reasons. By adding a commercial dimension to their business, brokers can be of greater service to their existing clients. Having more financing options at the ready can enhance client retention rates. This is uppermost for many participating brokers.
What's the second reason?
Portfolio expansion and diversification. When a residential broker dives into commercial real estate, they open a channel to lucrative new business and a large market that is itself diverse from the perspective of property types, values and economic drivers and overall, quite a bit different from single family. Through diversification, brokers gain opportunities for growth and layer in some risk mitigation.
You used the word "lucrative." Is financial opportunity the third reason to do commercial business?
Absolutely. Commercial financing can provide mortgage brokers with additional sources of income that can be fairly significant depending on the size of the loan amount and the number of loans funded.
Can you be more specific?
Typical compensation is 0.25-1.0% of the loan amount. For example, on a $2 million apartment financing loan, a mortgage broker could normally expect to receive a referral fee of 0.50-1.0% of the loan amount or $10,000-20,000 for just one transaction. As well, if the mortgage broker does significant residential business and doesn’t have the time to devote to a commercial opportunity, First National will work directly with the client and we still pay the same exact referral fee as if the broker managed the deal themselves. It’s entirely up to our partners on how they would like to work with the client and First National.
It sounds as if you've had some success and experience in working with residential brokers on commercial transactions.
We have. In fact, we long ago identified a need in the market for broker support when it came to commercial financing. In those early days, we started as an extension of our single-family team by providing an additional product option that they could bring to their mortgage broker partners. However, there was such large demand for our offering that we decided to get more serious about serving it. So we expanded our resources and capabilities and made it our mission to enhance broker knowledge so that they could have more confidence to take on commercial financing on a regular basis, rather than just passing on a deal or sharing it with other mortgage brokers.
How will you live your mission in 2019?
One of the ways we intend to deliver on our promise is to offer more detailed insights into our approach through interviews like this so that mortgage brokers have a deeper appreciation for the value of commercial lending and the ease with which they can participate in this important market with First National.
What will future interview installments cover?
We'll talk about what it takes to succeed as a commercial lending service provider, delve into our credit box for commercial loans and provide insights into the timeline to close a typical commercial deal.
Final question: will 2019 be a good year for commercial real estate?
We don't have a crystal ball, but many of the fundamentals are certainly trending in the right direction.
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