How understanding market data provides you with specific deal opportunities

In the last article we've introduced our unique types of sales professionals, their challenges and some methods to broaden your world of opportunities. They were attending conferences or networking events, making sure to read the news articles to be at the pulse of the market and learning about current market trends, utilizing the social online networks that best fit your market segment, becoming a thought leader that allow people to "pick your brain" and think of yourself as their primary information source. And of course nothing compensates for hard work and diligence. In this article we will discuss how understanding market data provides you with specific deal opportunities on a regular basis. We will focus on commercial mortgage and finance. For Commercial Mortgage Finance professionals The obvious opportunity is to identify mortgages coming due. The objective is to identify properties with a mortgage that is either expiring or has decreasing scale prepayment penalty. The terms of a mortgage vary but typically are either a 5-year fixed with a 5-year option that has a floor and ceiling. After 10 years the loan balloons and gets stuck with the current rate. Or, a 7-year fixed with a 5-year option, a straight 10 year deal, and finally 15-year self-liquidating loan (15-year amortization,). During the initial period there is a prepayment penalty to get out of the loan that may be decreasing scale (for example first 5 years 54,321 second 5 years 54321). This means an owner will pay 5% of the outstanding balance of the loan if he decides to prepay the loan in year 1. It is vital to catch the loan either at the end of the initial 5 years (for instance in year 5 when the prepayment penalty is 1%) before it goes back to 5% in year 6 or in year 10. You will want to call the owner of the property around 6-8 months before the prepayment will be effective to get into the game before the owner is in process with a competitor. You will want to consider what they will need to prepay and if you know the rate they are paying you can calculate how long it will take them to break even, how much they will have saved 5, 10, 15 years into the new loan. Knowing the prepayment penalty of a loan is critical to reaching out for new business. Secondary opportunities will be identifying loans where the owner financed with a "private lender." They may not have been able to qualify for a mortgage when they financed and may be paying a high rate. Things may have changed and you only know that by talking to the owner. The owner may be in a "bridge loan" or a loan for short-term financing and now is looking for permanent financing. If you know the rate they are paying it will help you to know what you can offer them and save them money. What you also want to look at is what their current loan to value is. Let's suppose the borrower purchased the property 5 years ago and got financing at the time that was 75% of their purchase price (which is the industry standard). They bought a multifamily building that was 40% vacant. Their NOI (Net Operating Income, which is a calculation of their income minus expenses) was not impressive. Well, 5 years later they brought their NOI higher by bringing the vacancy rate down to 25%. They should be entitled to borrow more funds now. The bank will review their numbers and very likely will refinance their loan by giving them more money and a lower rate to boot! If you have the information handy and are armed with the options before you get on the phone its much more likely the owner will find your offers intriguing. Now that we have gotten you to think about the possibilities, remember, "knowledge is power!" Next time we will discuss opportunities for commercial real estate investment sales professional and deal syndication. Jonathan Ingber is the president and founder of Actovia Commercial Mortgage and Real Estate Intelligence, New York, N.Y.