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   ARTICLE   |   From Scotsman Guide Residential Edition   |   August 2007

Stand Out When You Cross Over

Mold your business around specialty-property types to differentiate yourself in the small-balance commercial market

r_2007-08_Wancier_spotWhether you are a residential broker starting to break into the small-balance commercial market or have already gotten your feet wet, you can benefit from taking your small-balance business to the next level.

Many successful mortgage professionals have discovered that it pays to be an expert in small-balance, specialty commercial property types. All share the common technique of focusing on a specific target, developing their expertise in the niche and working with commercial lenders that cater to specialty-property types.

Specialty commercial properties can provide differentiation for mortgage professionals. By focusing on property types that are not well-served through traditional commercial financing means, you can build a profitable business.

For example, bed-and-breakfasts and mobile home parks likely are small-balance commercial property types that are underserved by traditional banks and financial institutions. Gas stations also can fall into this category, as they are challenging to finance through bank programs because of environmental concerns or other nuances.

Some small-balance commercial lenders, however, offer financing on these and other property types that make them more accessible to borrowers. Mortgage professionals can develop a competitive advantage by offering solutions not readily available through conventional sources.

Finding the right fit

Think about how a specialty-property type could fit into your product mix based on your market, referral network and book of business. Then become an expert by seeking education about the property type or types. You can find these through your lender, trade association and other sources. The owners or investors for many of these property types often belong to clubs or associations that can also be a great resource for more information — and for potential borrowers.

Below are some specialty-property types you might consider adding to your portfolio.

  • Self-storage: Self-storage properties are essentially mini-warehouses. They are warehouses that are subdivided into a mixture of small cubicles, which are primarily designed to be rented for small noncommercial usage or self-storage. They also may include some office-living space.
  • Bed-and-breakfasts: Bed-and-breakfast inns are residential-type buildings designed for transient boarding and are family-style in character. They are consist of one structure, but some include an adjacent guest cottage with amenities similar to the main unit. Owner-operators live onsite, usually in the main building.
  • Automotive properties: This is a somewhat-broad category that encompasses a variety of uses. Included in this category are auto-repair shops, used-car lots, oil-change facilities and tire-repair shops. The type and size of a building varies with its use. Many buildings are designed specifically for the auto trade, characterized by overhead doors, car lifts and usually, a small office area.
  • Gas stations: Gas stations are automotive properties or other properties that dispense any amount of fuel for retail sale. They may have an auto mechanic, convenience store and/or carwash component.
  • Mobile home parks: Lenders may differ in how they define mobile home parks as related to program guidelines. But this category generally includes sites where the mobile homes are permanently affixed to the ground and are taxed as real estate by the municipality. If trailers are not permanent, they can be moved at will (often referred to as “chattel” or personal property). Therefore, a mobile home park’s real estate value typically is figured from the pad rental income, not from the homes that occupy the property. In some cases, a small percentage of the total spaces can be used for recreational vehicles. Mobile home parks vary in quality and amenities.
  • Restaurants: Restaurants are constructed for preparation and sale of food and/or beverages. This type includes cafeterias, bars and taverns. Furniture, fixtures and equipment, if included with a property, are also factored into the equation for many restaurants. Lenders also will determine how much the value changes when these factors are removed from the subject property.
  • Flagged and unflagged hospitality properties: Hotels with national-franchise affiliations are considered “flagged.” They must be in good standing with their affiliated franchise for lenders to consider financing them. Hotels or motels with no national-franchise affiliation are considered “unflagged.” Mom-and-pop-style operators typically run these types of facilities, and the quality and level of service varies considerably.
  • Funeral homes: This includes those used for viewing purposes, as well as those with embalming services.
  • Day cares: Day-care centers range from early childhood, handicapped, adult and senior-care facilities to developmental centers, such as kindergartens, nurseries or preschools. They typically have light kitchen facilities, activity rooms and multiple restrooms and are often more residential in character than schools.
  • Health care: The health-care category includes all assisted-living or nursing-home operations where a license is required to operate the business. Quality and service levels vary considerably. Hospitals and medical-treatment facilities, such as outpatient care or walk-in emergency medicine, would also fall under this category.

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Focusing on specialty commercial properties allows you to be targeted and creative in how you serve borrowers and market your business. By working with a lender that finances a range of small-commercial properties, you can provide an alternative to bank financing with more-flexible options for your borrowers’ needs.


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