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   ARTICLE   |   From Scotsman Guide Commercial Edition   |   October 2009

Create Business Through Specialization

Mastering the ins and outs of a specific niche can set brokers apart and deliver referrals

When starting out in commercial mortgage lending, new mortgage brokers often try to finance any type of deal that comes through their door.

By doing this, however, they often spend a great deal of time trying to understand the transaction and the key issues that affect the property type in question. This means sorting through unfamiliar documents, fumbling through questions to their clients and basically learning on the job.

Regardless of the outcome of the deal, when brokers get another commercial loan request for a different property type, this process starts all over. This is not a promising business model for commercial lending.

To avoid this, brokers would benefit from developing a specialization in a particular property type. Here's why.

Be seen as an expert

There are numerous reasons brokers should consider specializing and becoming a true expert in one particular area of commercial lending.

First, you will understand your niche's industry. If you focus on medical properties, for example, you will have better information than a general broker about the issues affecting that type of property and business. You also will be better able to speak the language of medical-related real estate and to attract, advise and service clients in that industry.

You also will understand your niche's lenders. Let's say you decide to specialize in automotive-property clients. You will be more helpful to lenders in this field when screening potential transactions because you can focus on lenders' specific underwriting criteria and deliver higher-quality borrowers. This will increase your funding probability.

In addition, you will better understand your niche's clients. Each industry's commercial real estate clients have specific needs. Understanding those needs better than others is your ticket to major success in commercial lending. If you decide to specialize in multifamily lending, for instance, then you will be able to place clients with the U.S. Department of Housing and Urban Development, Fannie Mae, Freddie Mac, a conduit lender, a major bank or a private lender according to the clients' profile and the project at hand.

Finally, by specializing, referral sources will come to know you as the expert in your niche. In fact, possibly the most important aspect of specialization is your new expert status. If you decide to specialize in small-business loans, such as the U.S. Small Business Administration's 504 program, then your referral sources will think of you when their small-business clients look to expand. And that is the key to specialization -- being foremost in the minds of those with whom you do business.

Your business benefits

One of the key benefits to specializing in a particular property type is that you will get referrals from other industry professionals. This includes residential mortgage brokers, other commercial mortgage brokers, mortgage bankers and even traditional bankers.

In fact, this business comes to you almost competition-free. Granted, it may cost you a referral fee, but you will quickly see that this is a preferred method of obtaining qualified leads.

Also, your prospective clients will be far less likely to shop around. In highly specialized areas of commercial lending, such as small business or hospitality, much more goes into a successful financing transaction. This potentially increases your profits, not to mention your feelings of self-worth when your clients need your advice.

Further, when you receive referrals, your prospects are essentially prequalified. When someone refers a client to you, you typically know that the client most likely meets the minimum criteria and that the client needs your particular brand of advice. These factors can save you time and effort in screening clients.

Another benefit of referrals is that your new clients likely will be more responsive to your direction. A big challenge commercial originators often face is getting prospects to behave like clients. Pulling all the necessary documentation together can be a harrowing experience if your clients don't have complete faith in you. When they have been referred to you, however, clients' faith and respect often are at high levels. Thus, your referred prospects behave more like long-term clients and tend to give you what you need in a timely manner.

Finally, you often will get paid more when you specialize. It is possible to charge higher fees as a specialist, but the quality and frequency of your transactions also are important. Through the referral process, you tend to get higher-quality clients and transactions. This improves your closing ratio, your effectiveness and your bottom line.

Alleviating concerns

Despite the benefits of working in a niche, many new commercial mortgage brokers still may hesitate to do so. They may be concerned that prospects and referral-partners will think they can finance just one type of property.

The opposite is true, however. When you're an expert, people often will ask for your advice on all sorts of things. If you happen to be an expert in retail construction loans, for example, a client or referral source may ask something like, "You don't happen to finance apartment buildings, do you?"

You can say yes and work on the deal. Or you can refer the transaction to an expert in apartment financing, get a referral fee for spending little time on the loan, and still be an expert in the mind of your client or referral source because you knew the right person for the job.

The final piece of becoming a specialist is to create your expert persona. You have far more control over this than you may think.

To create your persona, you must keep in regular contact with your clients and referral sources in a way that promotes your expert status with actionable content and information. You can do this with mailed or electronic newsletters, a blog, e-mail auto-responders that send information over time, webinars and seminars.

If you are starting out as a commercial broker or have had your share of frustrating commercial loan transactions, it's time to get smart, pick a niche and become an expert. Your future in commercial lending may depend upon it.


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