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   ARTICLE   |   From Scotsman Guide Residential Edition   |   May 2007

A Niche Within a Niche

Targeting small-commercial properties and borrowers? Go a step further

With an increasing number of residential brokers noticing the positive impact of adding small-balance-commercial loans to their product portfolio, the commercial mortgage market is already getting crowded. Finding a niche within the small-balance-commercial niche is a smart way to stay ahead of the competition.

For instance, if you’ve decided to broker small-balance-commercial loans that are less than $1.5 million, consider positioning yourself as an expert in high loan-to-value (LTV) loans or in a specific property type. In doing so, you can pinpoint your marketing efforts and become the broker of choice for borrowers in the market for these properties or loan types. This also helps you put your marketing dollars to a far more productive use than attempting to reach all borrowers for all property types.

Here are tips for selecting niche lenders, becoming knowledgeable about a niche market and positioning yourself as a niche broker through marketing.

Selecting partners

The most important part of becoming an expert in a niche small-commercial market is to understand the audience you’ve chosen and to team with a lender that meets borrowers’ needs in that niche. A commercial lender focused in the small-balance niche, for instance, can be a better match than one that offers small-balance as a product in a long list of offerings.

Brokers are also wise to select a lender that offers specific program features that will make their services more attractive to niche borrowers. For example, certain property types may be less favorable to finance with traditional commercial debt-service or cash-flow underwriting, whereas a small-balance program that offers flexible underwriting can offer other opportunities.

Brokers can leverage a commercial program with a debt-to-income (DTI) approach (i.e., the ability to look at a borrower’s personal financial strength) to offer financing options for traditionally hard-to-finance properties, such as gas stations or mobile-home parks. This underwriting approach also works well for financially strong borrowers who would qualify based on credit score, assets and other DTI requirements — as opposed to only the property’s cash-flow or debt-service requirements.

Another tip to keep in mind: Full-doc programs typically provide more flexibility in the underwriting process and present more financing options for self-employed borrowers and small-business-owners.

Here are some examples of small-balance niches you might consider:

  • Property type: The small-balance-commercial market includes more property types than any other segment of the mortgage industry, and brokers can use this to their advantage. By focusing on property types that are not well-served through traditional commercial financing means, you can build a profitable business.

    For example, gas stations are challenging to finance through bank programs because of environmental concerns and other nuances. But this property type is an emerging program offering from some small-balance lenders. Mobile-home parks are another example of a niche where brokers have found tremendous success. You can stand out by offering specialty-property financing, and innovative lenders have designed programs to help you thrive at doing just that.

  • Borrower profile: With niche lenders, certain small-balance programs are built to serve borrowers who would qualify for equivalent financing in the residential world but who may not meet traditional commercial standards. These borrowers are often entrepreneurs, small-business-owners, professionals with their own practice and first-time investors. Most brokers already are aware that they can find small-balance borrowers in their residential book of business. Many, however, likely have not fully leveraged the opportunity.

    But by becoming an expert in financing for small-business-owners and working with the right lender, you can position yourself as a source for commercial financing that is faster and more streamlined than Small Business Administration or traditional bank loans. Or you might consider specializing in commercial refinances; some small-balance lenders offer cash-out refis, for example, that many small-business-owners could find beneficial.

Getting educated

Becoming an expert in your niche goes hand-in-hand with selecting a lender. Find out everything you can about your target niche— whether it’s a specific property type, borrower profile, underwriting style or a combination of these.

For example, if you want to specialize in mobile-home parks, your goal would be to learn as much as possible about the property type and typical investor. Questions to ask include: Is the real estate value figured from the pad rental income rather than the homes that occupy the property? What percentage of the space can be used for recreational vehicles? Are there organizations and/or publications for owners of mobile-home parks? What challenges occur with traditional financing for these properties? How can you position yourself as an advantageous alternative resource?

Each niche will have its own set of considerations, but these are the types of questions an expert can answer.

To gain this knowledge and the tools needed to become a niche expert, you often can look to your lender, industry training and research. Live trainings, online modules and Web seminars are just some of the educational opportunities lenders might offer. Articles and white papers also are valuable tools that can give you an inside look at your target borrowers’ opinions and needs.

 In addition, clubs and organizations can offer more information about the profile or habits of small-commercial borrowers in your niche.

Once you have gathered enough information on your small-balance-commercial niche, it’s time to get the word out and start transacting.

Marketing your niche

Educated brokers realize that their success within a niche market depends on smart marketing. Becoming the go-to broker in your niche is a mix of looking for your target borrowers in the right place and using the appropriate marketing tools to get those borrowers to do business with you.

For example, if your target borrowers are small-business-owners looking to finance or refinance their office or retail space, then the local chamber of commerce is a great place to start. Attend meetings, look into purchasing a list of members and/or give a presentation on commercial real estate investing.

If your expertise is gas station or automotive-property financing, talk to referral sources such as loan officers at local banks. Most financial institutions require more-strenuous environmental reviews for such property types than a niche lender and therefore have to pass on financing even for their depositor customers. By developing relationships with these sources, however, brokers can become the go-to contact for turn-down business. Soon, deals that do not qualify at the bank may be the same ones that can be passed along to your desk and approved by your niche lender.

Some lenders give you access to professional marketing campaigns that include postcards, fliers and e-mails. If your lender offers these types of materials, ask your account manager which pieces are best for your target audience. Some lenders may even separate these campaigns into categories that specify the ideal target for each.

Remember that the more specific your target audience is, the more you can customize your marketing to reach that audience.

•  •  •

Being knowledgeable about a specific program or the nuances of a specific property type will not only make you a valuable resource to borrowers in that niche market, but it also will help in closing loans more efficiently. Working with the right lender and determining what can separate you from the competition will be the keys to your “niche within a niche” success.


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