Just purchased commercial mortgage note from bank

[Don Konipol]

Thought I would try to kickstart this forum with a success story. A mortgage broker brought us a loan request last month for a refinance of two auto collision properties in which the existing mortgage balance was more than the value of the properties. He had begun negotiations with the bank holding the lien but hadn’t been able to successfully negotiate a significant discounted payoff or note purchase. The balance owed was $3,350,000, the interest rate originally was 5.95% but had gone to 12% in arrears.

During COVID the borrower had fallen behind, but his recent operating statement showed much improved earnings and an ability to service debt. Adding to the mix was that there was an SBA 75% guarantee on much of the principal.

We were able to negotiate a three way agreement with the lending institution and the SBA to sell us the note for $1,775,000, a $1,575,000 discount. We then turned around and signed a note modification with the borrower allowing him a note discount to $2,700,000 and interest rate of 9.5% with the note payable in full in 24 months.

BTW, we paid the broker who brought us the deal a $100,000 finders fee, with $50,000 paid on our purchase, and $50,000 to be paid upon note payoff.

This is why I like note purchases - at a discount - a lot more then originating new loans. However, we end up doing 8 new loans for every discounted note purchase we are able to close.

The nice thing about working the commercial note field is that there’s much less competition, and you can concentrate on single notes and not have to analyze bulk offerings, nor worry about complying with various consumer protection regulations. However, analyzing commercial transactions requires a lot more knowledge, expertise and experience than residential. And possibly more capital investment.

[Don Konipol]

@Christopher Winkler,

$2,770,956.00. My mistake