Commercial appeal

Could it be that home ownership is not now within everyone’s grasp?

Regardless, planning policies, property prices, changing demographics and more have altered the process for achieving that dream.

But the notions of security, stability and success are not confined to the residential market. Australia has approximately 2.1 million self-employed workers, according to Independent Contractors Australia, and many of these need premises from which to run their businesses. Ownership is frequently an attractive option.

Larger corporations also need offices, garages, storage facilities, factories and warehouses – all of which require finance.

It might therefore seem surprising that more brokers are not taking advantage of the commercial property sector.

THE COMMERCIAL MARKET
Suresh Pillai, Liberty Financial’s general manager for commercial finance, says the commercial market has countless opportunities for brokers.

Aside from borrowers running small family businesses and Australia’s self-employed sector, brokers can also target investors to secure commercial deals.

“The other opportunity is high net worth individuals who may be looking to diversify their portfolio by acquiring high-yielding commercial properties,” Mr Pillai says.

Sintex’s general manager, Cathy Dimarchos, adds that the number of people who require commercial finance is something about which to get excited.

“Commercial loans are typically sought by investors or business owners,” she says. “Start with the smaller types of securities, the retail stores, hairdressers, solicitors, small business operators ... The list is really quite endless.”

ANZ’s head of commercial broker, Cosi De Angelis, says the commercial market will always need capital.

“Business owners are always looking for financial solutions that help them better manage their cash flow – this can range from transaction accounts to commercial lending products,” Mr De Angelis says.

“January sales figures suggest small businesses across the country have experienced a good start to the year. Obviously it’s still early days and it’s not unusual to see a spike in January sales, but these are positive signs and we’re hopeful this is the beginning of a solid year in trading for business owners.

“As business owners remain vigilant around costs, they are looking to optimise their cash flow, through both lending and savings solutions.”

ING DIRECT’s head of broker distribution, Mark Woolnough, agrees that despite a difficult market, there are still opportunities in the commercial lending sector.

“At ING DIRECT, we have seen significant growth in commercial lending throughout 2012,” he says. “Since making a number of enhancements to our commercial offering last year, we saw our commercial lending portfolio increase quite significantly.

“Nonetheless, the commercial market is following trends with the slower residential market overall. Slower credit growth and static consumer sentiment has also had an impact on both residential and commercial broking.”

Think Tank’s executive director, Peter Kearns, goes as far as to say the market is bouncing back: “The commercial market is beginning to gradually show signs of improvement after a very quiet period stretching back to the first half of 2011,” he says.

“The impact of lower interest rates has certainly had a role to play in the return of confidence to the sector for both investors and owner-occupiers.

“For investors, relative yields on commercial property are far more attractive at around eight per cent, compared to cash or even residential property, where rental yields are typically below five per cent and the prospects for near-term capital appreciation are debatable.

“For owner-occupiers, low interest rates make the purchase of larger or better premises more affordable, while businesses that are currently renting might look to buy their property instead of continuing to rent.”

THE OPPORTUNITY
ANZ’s Mr De Angelis says breaking into commercial lending sits well with current industry trends.

“Customers are increasingly looking to their broker for a full financial solution. This may include their home loan, insurance products, asset finance, and business lending,” he says.

“By offering a one-stop shop, brokers are not only providing their customers with a better service, they’re diversifying their own revenue stream and evolving from a single product to a multi-product focus.

“Over the last four years in particular, the broker model has really moved in this direction.”

Think Tank’s Mr Kearns says brokers who offer commercial loans will likely see two very tangible benefits: more remuneration and better client relationships.

“For many brokers who don’t regularly source finance for commercial property, it can offer a significant additional revenue opportunity simply by touching base with their existing client group,” he says.

“There is likely to be a solid hit-rate amongst self-employed people who already have sourced a home or residential investment loan through a broker with the need for commercial property finance.

“A vast majority of our borrowers also have one or more residential loans, with the vast bulk of those being arranged by a finance broker. It doesn’t just mean extra revenue for brokers, but adding extra value to their clients and strengthening the relationship.”

ING DIRECT’s Mr Woolnough agrees, explaining that offering commercial products is all about growth.

“Commercial lending presents brokers with opportunities for additional and alternative income streams to complement their residential offering.

Brokers who broaden their revenue streams by writing commercial loans [have] a great opportunity to grow their business and client base.

ALL TOO HARD?
Unfortunately, despite these opportunities, it is common for brokers to think commercial loans are complex, requiring a different skill set from residential mortgages.

“Stepping outside your comfort zone is the most difficult process,” says Sintex’s Ms Dimarchos. “These days, commercial lending does not need to be complicated and Sintex proves this. Most of the process is similar to that of residential lending, and in some instances is a lot simpler.”

Liberty Financial’s Mr Pillai says he has seen many residential brokers easily make the transition into commercial lending.

“I don’t believe brokers need a new or different skill set to break into commercial lending,” he says. “The vast majority of finance professionals that we deal with are predominately residential brokers who come across and, from time to time, do commercial transactions.”

According to Mr Pillai, if any additional skills or knowledge are needed to complete a transaction, the lender should be there to support the broker.

“That’s what we’re here for,” he says. “We have a team of underwriters and business development managers whose job is to work with the broker to deal with anything that’s complicated. But we’ve found that if you do one or two transactions, then it becomes relatively straightforward.”

Indeed, Think Tank’s Mr Kearns says commercial and residential deals are starting to demonstrate similarities.

“The skills required for commercial loans up to $2 million are not altogether different from home loans,” he says. “It still primarily involves putting together a standard home loan application and succinctly communicating the applicant’s needs to the lender.

“Commercial lending products are tending to be much closer in style and structure to home loans these days, with the differences generally being quite straightforward to grasp. Where a broker needs a bit of assistance to put the application together and gather the necessary information for serviceability around the property, there are several lenders who will lend that expertise and training.

“Most aggregation groups also have commercial champions and support available to assist in practically all cases.”

According to Ms Dimarchos, expanding your offering to include commercial loans is actually a simple matter: “Complementing your existing product offering is something that all brokers need to review regularly,” she says.

“It’s like any business. If you rely on one line and there is a shift in that product, you are limited in what you can do and where you can go.

“The key is to make a start and be committed to making two phone calls a day to look for a new referral base and two phone calls a day to speak to potential customers.”

TOP TIPS - GETTING STARTED IN COMMERCIAL LENDING
Decided to jump on board, but not sure how or where to secure your first commercial deal? Or maybe you just want to increase your commercial loan book. Below, The Adviser offers some tips to get you started

SPEAK TO BROKERS WHO ARE ALREADY SUCCESSFUL IN THIS SPACE: “Just like in any business, find out who is doing what you would like to do, and ask questions,” says Sintex’s Cathy Dimarchos. “Don’t be afraid to seek out assistance. We have all, at some stage, been in those very shoes, and I am sure that most people are more than happy to pass on their tips and to offer support.”
 
TAKE A LOOK AT YOUR EXISTING CLIENT BASE: Think Tank’s Peter Kearns says if you’re looking for commercial clients, you should look at previous loan interviews and financial statements from your information gathering. From there, you’ll be able to see which of your existing residential clients may need help with a commercial loan.

NETWORK: Mr Kearns says brokers should network with professional service providers, such as accountants, lawyers, financial planners, valuers, real estate agents, property conveyancers and strata managers. “They will all likely have not only a need for commercial premises themselves, but they in turn will know a number of other people and businesses who do as well,” he says.

GET ON THE PHONE: If you want to take it even further, there are plenty of people out there who could potentially need help, Mr Kearns says. “In every city and suburban area, just take a look around at every shopfront, factory unit, office complex etc. Nearly all will have finance needs and at a time of low interest rates, many will be looking to refinance to a better deal and many who are renting might be looking to buy while values are low and affordability is high.” So, give them a call.

SEEK HELP FROM YOUR AGGREGATOR: Aggregators are there to help you, and they want to see you write more business. They may have educational material or particularly experienced BDMs who can help you get started. If you don’t know any successful commercial brokers, they may also be able to organise a mentor for you.

GIVE IT A GO! Liberty Financial’s Suresh Pillai says brokers just need to give it a go. “The ability to add more value to your client far exceeds some of the difficulties you may experience when doing your first or second deal, and ultimately that’s what lenders such as us are here for.”

WHAT’S ON OFFER?
If you’ve decided to take advantage of the opportunities that commercial lending offers, you will need to familiarise yourself with the lenders, products and offerings out there. The Adviser speaks to some key commercial lenders...

COSI DE ANGELIS, ANZ BANK
“ANZ supports commercial brokers through a two-tiered model:

•   A commercial referrer, also known as a ‘spotter’, is a broker who has undergone a limited accreditation process and who refers potential lending opportunities to ANZ by providing the customer’s name and contact details. This is a simpler option for brokers wanting to break into this market segment. If a referral results in a loan being drawn down, then an upfront fee is paid to the broker based on the total amount of the loan
•   ANZ-accredited brokers have undergone specific training and have the skills to prepare credit applications that can be easily assessed against ANZ credit guidelines”

MARK WOOLNOUGH, ING DIRECT
“ING DIRECT offers commercial lending to all accredited brokers. We offer commercial lending to personal, company and trust borrowers. Some of ING DIRECT’s recent initiatives and benefits of our products in the commercial space include:

•   Commercial customers with an LVR of 60 per cent or less will be eligible for even more competitive interest rates
•   An increase to the maximum commercial loan amount from $2 million to $3 million
•   Improved service levels for commercial property valuations”

SURESH PILLAI, LIBERTY FINANCIAL
“Our two differentiators would be the width of our product range and the flexibility of our approach. We have a couple of products that address the market slightly differently. We have a commercial self-managed super fund product called Super Credit, which allows property investors looking to buy a commercial property to use their SMSF. It’s a product that’s got a lot of traction recently in the marketplace.

The other product that we find a lot of interest in is our LeaseStream product, which allows property investors to acquire property using their rental stream from that commercial property. It avoids the need for lots of onerous paperwork.”

PETER KEARNS, THINK TANK
“Think Tank offers a non-bank solution where the client relationship remains with the introducing broker – and that line is never crossed. We not only offer fast turnaround and flexible financial solutions for first mortgage finance up to 75 per cent LVR and $5 million in loan size, but we also offer alternately verified and quick doc loans for those with complex financial structures or financial statements that are not fully up to date at the time of applying. Our BDMs are also skilled in helping brokers who don’t have a great deal of commercial lending experience to put the loan together and liaise closely with the credit team.”

CATHY DIMARCHOS, SINTEX
“As Sintex focuses solely on commercial lending, it now has opened the doors to brokers who hold an Australian Credit Licence as well as the mortgage manager. Our products are over a 20-year term, with very competitive pricing and exceptional service with turnaround times. If you are looking to offer your clients a product that gives them and yourself peace of mind, then Sintex is who you should call.”