Commercial broking - Commercial sense

Some worried brokers are therefore starting to weigh up their options and the pros and cons of expanding their core service offering.

Many are toying with the idea of tapping into the commercial property market – and why not?

Characterised by major deals and sizeable commissions, the commercial mortgage market is

offering brokers, both specialised and diversified, solid income potential.

Those who move into the commercial space often find their clients are stickier and offer more regular repeat business opportunities.

With significant benefits associated with diversifying into the commercial market, can brokers still afford to ignore this sector?

Sintex general manager Cathy Dimarchos thinks not. According to Ms Dimarchos, being able to offer clients more than just a home loan is key to ensuring a regular, long-term income.

“If you can offer your client a long-term solution for their long-term asset, then they will stay on your books longer, and this of course secures your income,” she says.

“Short-term finance only enables the banks to increase margin and make additional income at each review period. It is time brokers kept their clients’ needs top of mind and offered a stream of products with solutions that meet their needs.”

However, while there are many and varied benefits awaiting brokers who decide to tap into the commercial market, some believe breaking into this space is not as simple as it might initially appear.

CRACKING THE BUSINESS

Tim Oliver, Banksia’s general manager, lending says brokers cannot decide to tap into the commercial space simply on a whim.

Commercial transactions are more complex than a traditional ‘mum and dad’ home loan, Mr Oliver says – and they have a higher failure rate.

“To sell a commercial product, brokers need to have a clear understanding of all the products on the market, just like a residential broker,” he says.

“The only difference is, commercial mortgages are historically very complex and time consuming. You need to know what you are doing or you will sink.”

For this reason, a great many brokers choose to refer their commercial mortgages on to a specialist.

Some specialists, such as Acuity Group, not only will handle all the leg work and find the client the most suitable commercial mortgage, but also they will pay the broker a referral fee or split the upfront and the trailing commission.

In Acuity Group’s case, the brokerage splits the commission it receives from the lender with its referral broker partner.

The company adds that it does not steal clients: “If a client is referred to us by a broker, then that client belongs to the broker today and tomorrow,” Acuity Group’s managing director Ranjit Thambyrajah says.

“Sometimes residential brokers will be presented with commercial business opportunities by one of their existing clients,” he says. “Having not specialised in this area previously, they can find the whole process overwhelming. So we encourage these brokers to refer their business to those in the know.”

Acuity offers the company’s clients a very comprehensive panel of lenders as well as 25 years’ experience in commercial broking, he says. “It is not possible to be an expert in every field, so why not outsource it to someone that is,” he adds.

The Sydney-based broker, who writes more than $80 million per year, used to write residential loans as well, before finding his niche in commercial finance.

“I found an area I was good at and decided to specialise in it,” he says. “You can’t be all things to all people and nor should you try to be. Outsourcing is a great way to diversify your core offering without spreading yourself too thin.”

IN-HOUSE OR OUTSOURCE

While some brokers will therefore prefer to outsource their commercial clients, others see merit in broadening their in-house services.

“Just don’t pretend to be an expert in commercial lending from day dot,” says Cathy Dimarchos.

The key is to be up-front and honest. Say something like: ‘I am a broker who has in the past specialised in home loans, but I am able to help you with your commercial loan if you could provide me with more details so that I can get the best outcome for you’.

“Clients will respect this up-front honesty,” she says.

“Often the client already has a relationship with the broker, so they are happy to provide the necessary information to ensure the loan is approved.”

Ms Dimarchos suggests brokers who are just starting out in commercial lending draw themselves up a ‘check list’ to ensure they ask their clients the right questions and establish how best to meet their financial needs.

Ask questions like: What type of building is it? Will you be leasing it or moving in? Where is it located? Is there a current tenant in there? How much would you like to borrow?

BREAKING IN

For residential brokers who are looking to crack the commercial market, knowing what to say and to ask a client understandably is critical.

Perhaps even more important, however, is knowing where to find the clients in the first place.

IMB’s senior manager of direct and third party channels, George Sotiros, says the best place to find potential leads is in a broker’s existing client database.

Brokers may be surprised at just how many of their existing clients would be interested in investing in the commercial sector or in purchasing business premises.

Failing that, he says, accountants and solicitors make excellent referral sources.

“I have seen a number of residential brokers move into the commercial space as a result of their referral partners’ requests,” Mr Sotiros says.

“I am also a strong believer in the opportunities local business events hold – these provide the golden opportunity for brokers to talk with business owners and likely business investors.

“You can get your name out there without even venturing down the expensive advertising campaigns and promotions channels,” he says.

Distributing pamphlets in industrial areas is another prospecting tool Mr Sotiros says works well for brokers.

“The key is to not be perturbed from writing commercial business because of their perceived complexity.

“Commercial deals need not be hard. In fact, some are very easy to write, provided a broker has the right client information as well as the right support channels in place,” he says.

THE RIGHT LOAN

Like residential lending, the easiest deals to get across the line are the ones that have all the necessary documents and the right information when submitting to the lender or funder.

“Having the borrower’s full details and any supporting details, including tax returns, PAYG details and/or leases is inevitably the best way forward,” Mr Sotiros says.

But for brokers who are looking to target a particular market segment, Think Tank’s Jonathan Street says the SME sector is hard to ignore.

“A great number of small business owners already have relationships with brokers on a home loan basis,” Mr Street says. “We recommend brokers target existing clients who already own their business premises or might be renting a commercial property and are thinking about buying.

“Any commercial property transaction requiring finance of less than $2 million is in the sweet spot for brokers.”