By George Blackburne

A borrower can expect to pay between $2,000 and $4,500 for an appraisal, if he needs a commercial loan. Multifamily appraisals are slightly less. The reason why commercial real estate appraisals are so expensive is because each commercial property is unique. In addition, the appraiser has to perform an extensive rental comparable’s analysis, an income and operating cost analysis, a comparable sales analysis, and a cost analysis.

Commercial real estate appraisals can be quite extensive, as thick as thirty to fifty pages. The appraiser needs to determine, for example, if each lease provided to the appraiser reflects the current market rent of the property or whether the rental amount is out-of-date, meaning it is too high or too low.  The lease might even be fraudulent.  This can often only be determined by checking the rents of a number of similar properties nearby.

Did the borrower provide the appraiser with his actual operating expenses or did he fraudulently slip in some understated expense numbers, in order to make his net operating income look higher?

The appraiser also has to carefully analyze the cost of the commercial building’s construction, to help determine the fair market value of the building and to determine if the rental rate is reasonable.

Image if a developer could build an office building for just $1 million and lease it out for $1 million per year.  Clearly something is wrong; otherwise, why aren’t capitalistic developers rushing to build competing office buildings?  That lease for $1 million per year smells awfully fishy.

Whether the borrower pays $2,000 to $2,500 for a commercial appraisal or $4,000 to $4,500 for the appraisal depends on the qualifications of the appraiser.

It is the commercial lender who determines the minimum qualifications of the appraiser.  If the loan amount is small, a bank may only require a General Certified Appraiser.  If the loan amount is large, or if the property type is unusual (think movie complex), the bank will likely require a MAI appraiser.

A General Certified Appraiser is one who has been extensively training in the three approaches to value – the Income Approach, the Sales Comparison Approach, and the Cost Approach.  In order to be awarded the General Certified Appraiser designation, the state will usually require a large number of training courses in the valuation of commercial property, will test the candidate extensively, and will require that he or she have a certain level of appraisal experience.

General Certified Appraisers are usually pretty good, and they typically charge between $2,000 to $2,500 for an appraisal of a commercial property valued up to $6 million or so. Small banks and hard money lenders are the commercial lenders who will most often require just a General Certified Appraiser.

Larger banks, when valuing commercial properties worth more than $6 million to $7 million or so, will usually require a MAI Appraisal.

MAI stands for Member, Appraisal Institute, a private, well-respected professional  association.  The Appraisal Institute defines a MAI Appraiser as an appraiser who is  experienced in the valuation and evaluation of commercial, industrial, residential, and other types of properties, and who advise clients on real estate investment decisions.

MAI Appraisers are like the CPA’s of the appraisal industry.  They are the top of the food chain.  They are most highly trained and experienced commercial real estate appraisers in the industry.

MAI Appraisers will typically charge between $4,000 to $10,000 for an appraisal assignment.  For most commercial property owners, borrowing from a bank, the MAI appraisal will cost you between $4,000 and $4,500.

Borrowers, brokers, and mortgage brokers should never order the appraisal themselves.  If they do, the cheapest commercial lenders will NOT be able to use it.

Do you remember the Savings and Loan Crisis back in 1986, when over 1,000 S&L’s went bankrupt?  They lost billions of dollars, in large part due to bad appraisals.  Developers were ordering the appraisals themselves from crooked MAI appraisers.  They would shop an appraisal assignment until a MAI Appraiser promised to bring in the appraisal at the value the developer wanted.  The joke back in those days was that MAI stood for “Made As Instructed.”

The law that eventually cleaned up the appraisal industry was the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 – pronounced FIRREA (like diarrhea).

After the passage of FIRREA, state laws were passed to license and regulate real estate appraiser.  The appraisal industry became far more professional and ethical, and the prestige of the Appraisal Institute itself recovered its lustrous reputation.

But let’s get back to the issue that a borrower or a broker must never order the appraisal themselves.  Under FIRREA, it is illegal for an insured bank or savings and loan association to accept and use an appraisal ordered by a borrower or a broker.

It is too late?  Are you stuck with a $2,000 or $4,000 appraisal that no bank will accept?  My own hard money shop, Blackburne & Sons, will often accept commercial real estate appraisals ordered by competing lenders.

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When underwriting commercial loans, commercial lenders need to be very careful about properties that are leased out for far more than their fair market value.  A story will make this clear.

GrandpaJack was a brilliant man.  He was also a darned fool.   Forty-five years ago, he spotted the fact that Silicon Valley on the San Francisco Peninsula was inching southward towards the cheaper land in San Jose.

Grandpa Jack therefore bought a large, vacant lot on the corner of First Street and Trimble Road, where it approached Milpitas, figuring it would be great location someday for R&D and flex space.

Thirty years later, the world was beating a path to his doorstep, begging to build and lease back a 200,000 square foot high-tech manufacturing facility.  Anxious to provide for his family for several generations into the future, Grandpa Jack leased the entire facility in 2004 to Oracle Corporation for a flat fee of $1.92 million per year ($9.6 per square foot per year).

When discussing commercial lease rates, it is customary to always speak in terms of rent per square foot per year.

Judging by his vision, Grandpa Jack was brilliant.  Judging by his choice of Oracle as his tenant, Grandpa Jack showed even more brilliance.  Oracle Corporation, the financial behemoth, sailed comfortably through the Great Recession.  Grandpa Jack’s three children got every single rent payment on time.

Why do almost all gas stations now have convenience stores?  Answer:  A convenience store is an extra profit center.  The gas pumps pull in the customers, and while they are waiting for their tanks to fill, the convenience store sell them sodas, snacks, lotto tickets, and hot dogs.

Right now your real estate web site is like a gas station without a convenience store.  You are leaving all kinds of dough on the table.  Over the next five to six years, C-Loans.com could pay you enough dough to pay for a year of college for one of your kids.

But what I am asking you to do is a lot of hard work.  You might have to spend up to… gasp… two whole minutes on this project.  It’s exhausting work earning that kind of money.  Phew.

Just send an email to your web site guru.  “Hey [Steve], please create three new hyperlinks on my home page.  Please find a place to put one at the top, one in the middle, and one at the bottom.  The top link should say, ‘Commercial Loans’.  The middle link should say, ‘Commercial Real Estate Loans’.  The bottom link should say, ‘Commercial Financing’.  Please point all three links to C-Loans.com.”

Just cut and paste the above paragraph and send it to your webmaster.  Voila.  You’re done.  You’ve just added a convenience store to your gas station – a new profit center.

Now here is what happens:  C-Loans is programmed to automatically capture the URL of the referring site and print it at the bottom of our loan application.  It’s automatic.  We don’t have to think.  Bam!  Right there at the bottom of our loan application are the words, “This loan was referred by billsmithrealty.com.”

When the deal closes, we look up the owner of Bill Smith Realty and send him a check for 12.5 basis points.  That’s what happened a few years ago with Alan Dunn, the owner of a site named SpyderCube.  We ended up closing a $17 million commercial loan for Alan’s customer, so we sent Alan a check for a whopping $21,250.

Alan was even asleep when he made that $21,250.  The deal came in late at night.  Can you imagine the thrill of getting a call, “Hey, Alan, I have some good news for you.”  Hot snot, I’ll bet that we made his whole day.

And here’s the thing.  That potential borrower is your referral forever.  Maybe the first deal falls out, but the borrower comes back and applies for a different loan two years later.  You still get paid.  He’s your guy.

Here is another wonderful thing.  C-Loans is not a commercial real estate lender, limited to its own lending programs.  C-Loans does not make loans.  C-Loans.com is merely a  commercial mortgage portal where borrowers can submit their deals to 750 different lenders.  We have life companies, conduits, banks, credit unions, savings banks (S&L’s), REIT’s, hard money lenders, SBA lenders and USDA business and industry specialty lenders.

C-Loans lenders will make permanent loans, construction loans, bridge loans, SBA loans, USDA B&I loans, mezzanine loans, preferred equity investments, SBA construction loans, and USDA construction loans.  A link to C-Loans gives you a chance to earn a big referral fee on ANY kind and size of commercial real estate loan, from $100,000 to $500 million.  Yes, our conduit lenders have made loans of this size on chains of major hotel franchises or portfolios of office buildings.

Important note:  C-Loans usually earns at least 37.5 bps. per closing, so we can afford to pay you 12.5 bps.  On deals of greater than $5 million, our best-rate lenders only pay us 25 bps., so your referral fee would be 8.33 bps.

“Gee, George, this all sounds great and everything, but how do I know that you won’t cheat me?”  For one thing, we didn’t cheat Alan Dunn, and there was no way he would have known that we had closed that big deal.  I am also an attorney, licensed in both California and Indiana.

Lastly, my hard money commercial lending shop, Blackburne & Sons, has been in business for 40 years now.  The average daily balance in our trust accounts is $400,000; and after a loan payoff, there could be several million dollars in that account.  If I ever decide to go bad, I am gonna steal the millions in that trust account, not your stinky ‘ole referral fee.  🙂  Fortunately, I have managed to resist the temptation for 40 years.  I am proud to say that both of my sons and I are Eagle Scouts.  There was a time when that mattered.

But hey, while 100,000 people in this industry may know me, I might be a complete stranger to you.  Trust but verify, some would say.  So here is my proposition:  If you create five or more commercial financing links across your real estate web site, we will create for you a special partner link.  With a special partner link, you will get a copy of every deal that comes from your site.  Just create the five (or fifteen) commercial loans links on your real estate website, and we will create this special partner link for you.  It takes us about 30 minutes to create such as a partner link, so we obviously don’t want to have to create the link unless we are getting some really good visibility.

Now back to the good stuff.  After awhile, you are going to have several hundred of your loan clients registered on C-Loans as your guys, and you are likely to close two or three deals every year going forward.  Every year going forward – think about that.  You will have your old referrals and then you will add to that base of potential referral fees even more clients every year.

And if you create at least five links on your website to C-Loans, you can also use your partner link to imbed commercial real estate loan links in your regular newsletters to your clients.  Remember, with a partner link, you get a copy of every commercial loan application generated by your site or one of your newsletters.

I could see a time when one of your clients applies for a purchase money loan using C-Loans, and you suddenly realize that he is looking to buy another apartment building.  (Please read that last sentence again.)

Important note:  We cannot track links inside of newsletters because there is no referring URL.  To embed commercial financing links in your newsletters, you will need for us to prepare a partner link for you.  Therefore, please create your five referral links to C-Loans.com right away and then contact Tom Blackburne at 574-210-6686.

Now some real estate brokers only like a little bit of referral income, so they only create one Commercial Loans link to C-Loans.com on their home page.  Smarter real estate brokers like to make a TON of referral fee income, so they put three links to C-Loans on every one of their interior web pages.

The way you can easily do this is to have your website guru edit the template of your pages to add these three links.  Then, whenever your webmaster creates a new web page for you, the links automatically appear on the new page, without anyone having to think about adding them.  The more links to C-Loans, the more chances you have have of earning a $21,250 referral fee.

In conclusion, I urge you to add a convenience store to your gas station.  Just cut and paste the following message into an email to your webmaster:

“Hey, [Steve], please create three new hyperlinks on my home page. Please find a place to put a link at the top, one in the middle, and one at the bottom. The top link should say, ‘Commercial Loans’.  The middle link should say, ‘Commercial Real Estate Loans’.  The bottom link should say, ‘Commercial Financing’.  Please point all three links to C-Loans.com.”

Now, the really, really smart guys will add the following:

“In addition, [Steve], would you please edit the template you use to create new web pages for our site to add these three links (top, middle, bottom)?  This way, the next time you create a new web page for us, the new page will automatically contain these three links.”

Voila!  You have now added a convenience store to your gas station.  I said it would take a whopping two minutes, and you did it in just 97 seconds.  🙂

By George Blackburne

Questions:  Call Tom Blackburne at 574-210-6686.

The opposing side is claiming that obtaining an MAI appraisal is not enough when making a commercial real estate loan.  They are claiming that every commercial lender should obtain two additional broker’s professional opinions, in addition to the expensive MAI appraisal.

If you currently work as a commercial real estate loan officer or as a senior commercial real estate lending executive for either (1) a commercial bank; (2) a credit union; (3) a nonprime ABS/Wall Street lender, such as Silverhill, Cherrywood, Velocity, etc.; or (4) a hard money commercial lending shop, you might be a good candidate to testify in this case as an expert.

Sorry, guys, but the testimony of a typical commercial loan broker might not help, unless have been an unusually successful commercial loan broker for more than twenty years.

The good news is that you will almost certainly not have to travel anywhere.  In this time of COVID, the entire case will probably be held using Zoom, so we are just talking about three or four hours of depositions and testimony before a computer screen.

Obviously you will receive an expert witness fee for your time, and having testified as an expert witness looks great on a resume and your website.

Will you serve a good cause?  If so, would you kindly write to me at the email address below, telling me of your current employment, your commercial real estate lending experience, and to what you might testify on the subject of the standard of care for commercial real estate lenders in connection with MAI appraisals.

I receive on average 1,350 emails per day, so it is critical that your Subject line please read exactly as follows, “Expert Witness.”

Thank you.

George Blackburne III, Esq.
george@blackburne.com

By George Blackburne