The value of a commercial mortgage broker
When you buy a home, you usually get a mortgage to help pay for the purchase. The vast majority of home mortgages are securitized – guaranteed by the government and sold to investors. Banks underwrite those loans to a standard set of criteria so the home mortgage product you get from Wells Fargo, Bank of America or your local bank are nearly identical. It is pretty much a commodity.
With a commercial mortgage, that’s not the case at all. Every lender looks at each loan differently, and you’ll see a huge variety of options for any commercial real estate financing you work on. This variety and range of preference, which are not published by most lenders, means that commercial real estate investors or owners benefit greatly by getting the right lender for each particular deal.
That’s where commercial mortgage brokers or commercial real estate finance (CREF) advisors come in. Their role is to advise on the best option for financing and negotiate on the borrowers’ behalf to find the truly best loan for each deal. As compensation, they get paid a fee. The broker gets paid for getting you a better loan – that’s fair and makes sense.
While sometimes, the term “broker” has a bad connotation, we believe in the value of an educated, hard working human, dedicated to helping a great deal get over the finish line. We considered alternate titles, but we ultimately decided against it. That’s what we are, and we’re proud to bring the value of a broker to our clients.
While starting Lev, we spoke with hundreds of commercial real estate investors. One question we always asked was “are you absolutely sure you got the right deal?” Right may mean the lowest rate, or it might be one of a dozen factors on the loan such as term, amortization, prepayment penalty or debt service covenants. Knowing you got the right deal is what matters as an investor and that’s what you pay your broker for.
The answer we always get from them is no.
Why? Because, in fact, they often did not get the right loan. Most brokers send the deal to a couple of their close friends for a quote, and end it there, regardless of who the right lender is for that deal. Most brokers want to spend the least amount of time on a deal so they can move on to the next one. They get you something they think is just good enough that you'll take it, and they move on.
Did you know that in commercial real estate, a lender can legally offer the intermediary (read: broker, advisor) what is referred to as “yield spread premium”? Say you were buying a house. You told your broker to put an offer in for the house and he did, for $500,000. Now imagine, the seller tells your broker, “you know what? I’d do this for $500k, but if you tell the customer to buy it for $510,000, I’ll give you back $5,000”. That’s called a kickback - it's illegal.
Well, in commercial mortgages, this happens all the time. You entrust your broker to find you the best quote, but all you get back is a term sheet and a phone call that “this is definitely the best you’re going to get, take it.” Or, you get one terrible term sheet and one ‘okay’ one, just to convince you that the broker did his or her job. Whether it's the yield spread premium, a half point at closing that gets passed along or just not showing your deal to the right lenders, usually the borrower gets the short end of the stick when their trusted party, their fiduciary, doesn't dedicate themselves to doing their best job.
The excuse that brokers give is that it takes too much time and work to find the “absolute best” loan on any deal. At Lev, we decided to build the tools, the ecosystem and the workflow to make it attainable for every single deal. Our tools help us instantly analyze the deal, find the right lender and reach out to them. Our systems ensure every step of the deal is being tracked and every term sheet we receive is communicated to the borrower quickly. We’re not replacing the broker and making clients rely on complex, confusing software. We are arming our broker to do his or her job better, more accurately, more completely and more quickly. We refer to it as giving our brokers “superpowers.”
At Lev, we are completely transparent about how much we get paid per deal. We will never make more than 1% on your financing.
We’ve built a commercial mortgage brokerage from the ground up with a focus on the client. We assembled a team of unbelievably talented CREF experts, and empowered them with an army of wizard-like engineers to ensure that our clients are getting the best deal every single time.
- We make a fair fee on every deal – a flat 1% of the loan amount at closing. Any yield spread premium, origination fee credits, securitization fee or other dollars coming back to us, we pass to our clients.
- We guide our clients with bespoke financing advice and tools to help them model the perfect solution to their financing needs. Then, we back it up with the work and relationships needed to get those deals done.
- We run every single deal against millions of historical financing data points to surface the right lenders for the situation, every time.
- We work on the behalf of our clients, day and night, to fight for their deal.
- We provide a real-time dashboard for our clients. You’ll see every single lender we are speaking with on your behalf, why we are speaking with them, and what they are saying. This allows our clients to understand and compare every offer without bias or pressure.
The fact is that it works. In fact, we consistently beat other players with better term sheets in less time.
Technology to deliver and scale
The way we're able to deliver on these promises is our technology. We started Lev with a team of engineering experts focused on understanding the entire financing process, end to end. We invested tens of thousands of hours in identifying the biggest bottlenecks in the financing process. We compiled tens of thousands of lender profiles and contacts, and built deal tracking and acceleration tools to get your deal done with the right lender, faster.
Every financing broker who sees these tools asks to use them. We've been offered hundreds of thousands of dollars per year to just license the software, but the answer is always no. It's proprietary, and it’s for our clients. The technology we built is what gives us our advantage, our ability to deliver for clients. We have less overhead and better execution because of that investment, and we are excited to continue to invest in our ability to scale through proprietary technology and tools.
We see these tools as our unique competitive advantage in the market. The systems we’ve built are self-improving - as more deals happen, we are able to offer a better and better experience to clients. We don’t sell the data or share client information externally for a few extra bucks - we keep it in our ecosystem to help us execute better on your next deal.
We are proud to announce that we’ve raised a seed round of $2.5 million from our friends at ANIMO Ventures, Ludlow Ventures, the founder of Dwight Capital and other real estate and technology executives, and we are on track to exceed half a billion dollars in loans closed.
If you are a lender and would like to review or adjust your profile of loans that are interesting to you, please email our Lender Relations team here.
If you’re working on a deal, Experience Lev here and let us show you what we can do.