The costs of doing this, however, killed the deal. The manufacturer had to move out of Leticia's building to a more accommodating property. Thanks to this domino effect, instead of having a happy tenant occupying two spaces, Leticia now owns a half-empty building.

Borrowers' needs and options

So which type of lender and loan is best for your clients? The answer depends on clients' long-term needs. In the short term, the interest rate usually is the most important factor. In the long term, however, the interest rate may be trumped by the need for a flexible lender that will work with clients as the economy and their situations change. If your borrowers see a future upside in their property, find them a lender that also does.

Run the numbers and ask:

• Is the property fully developed -- does it have upside potential?
• What is the tenant situation?
• Does the lender have the capital to fund any future tenant improvements?
• What are the shortand long-term goals for the property?
• What are your borrowers' goals for their overall commercial real estate portfolio?
• As they build equity, will they want to take some of it out?
• How will changes in the economy affect your clients' goals for the property?

If you determine that a portfolio loan will best suit your clients' needs, bear in mind that not all portfolio lenders are created equal. Look for a lender with:

• Expertise in commercial real estate transactions;
• Flexibility to help create more value in the property;
• Accessible decisionmakers who will work directly with your borrowers;
• Stability in management so that your borrowers will be talking to the same people five years after you negotiated the deal;
• Consistency in policies and business philosophy so that there are no surprises later; and
• Strength in capital so that the lender can meet borrowers' needs.

In addition, be aware that some portfolio lenders continually rebalance their portfolios to ensure that they only keep a certain percentage of their portfolio in any given sector or loan type. What this means for you is that if, for example, your clients want to improve their industrial property in three years, the lender may be unwilling to work with them. At that point, the industrial-property segment of their portfolio may be full.

Having a stable and flexible lender with the financial strength to create portfolio loans can provide great shortand long-term flexibility. If there are any moving parts to the deal -- or if any develop down the road -- the right portfolio lender will be able to work with your clients. When you run the numbers, interest rate isn't always king.

Phil Sblendorio, a 24-year banking veteran, is a senior vice president and regional business manager at Farmers & Merchants Bank (F&M). F&M, California's strongest bank since 1907, specializes in two types of commercial real estate lending: long-term financing for properties less than $5 million and highly creative gap financing to as much as $50 million. Sblendorio can be reached at (310) 265-3201 or Phil.Sblendorio@fmb.com. For more about F&M Bank, an equal housing lender, visit www.fmb.com.

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