Commercial Real Estate Loan Brokers Often Pack a Deal to Death

Commercial real estate loan brokers usually add a loan fee of one to two points to the fee charged by the bank making a commercial real estate loan.  This a reasonable fee.

Sometimes, however, a commercial real estate loan broker will take a deal to another loan broker, who takes the deal to a third loan broker.  Then they will all try to add a fee of one to two points to the deal.  When a commercial loan broker, or a series of loan brokers, all try to add a huge fee to the same deal, it’s called packing the deal.

Such deals never close.  Usually the banker working on such a commercial real estate loan will just automatically turn the deal down in order to save time.  The banker knows from experience that there is no way that any decent borrower would ever take a deal that has been packed with more than one or two loan broker points.  If some borrower would ever sit still for three or four broker points, the borrower must either be desperate or just plain stupid.  Either way, such a borrower is a poor risk and a waste of time.

If you’re a commercial real estate broker caught in such a daisy chain, you need to recognize that daisy chains seldom (virtually never) close.

Unless you have the absolutely perfect commercial real estate lender in mind, you should immediately walk away from the deal.  If you should decide to tackle such a deal (your chances suck!), you’ll first need to convince all of the earlier loan brokers to share between them a referral fee of no more than 33 to 50 basis points.  If they want more, run (don’t walk!) away.