EP 443 – Small Commercial Notes

NCS 443 | Commercial Notes

NCS 443 | Commercial Notes


Commercial notes are meant for immediate needs, which means there has to be an immediate action done before values change. Scott talks about the opportunities in smaller commercial notes and what to look for when performing due diligence on them – from looking up photos online to investigating the area and its neighboring properties. Maximize opportunities with small commercial notes and discover the story behind them and the promise they hold in this episode.

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Small Commercial Notes

We’re going to dive a little bit about some stuff from some small commercial notes and dive into that aspect of things because we’ve been talking about that in a long time. We’re starting to get quite a bit stuff in across our books, so we thought we spent some time talking about that. It’s an interesting time with what banks are doing as far as buying and selling assets. I got an email from somebody who is asking me about our pricing. How are we getting pricing to be where they’re at? This gentleman says, “I’ve read your pricing options blog and you said that you only pay $0.30 to $0.40 on the dollar for nonperforming, so correct me if I’m wrong.” That’s right depending on what blog was done. He goes, “Some of the tapes that we’ve seen for a nonperforming contract for deed have strike prices 60% to 88% of values greater than UPB and equity deals or they don’t accept their bids at 50% of UPB. How do you get that much of a discount buying big trenches at one time, your reputation, what place?”

He also goes on to say he’s new to notes. He’ll be closing his first deal. I’m going to answer this question by saying it depends. If there is a ton of equity on it and an asset above what’s owed, you’re going to pay a higher percentage because there’s all that equity. Let’s say the value of the property that you’re buying the note on is $75,000, but the unpaid balance is $50,000. If you’re going to end up foreclosing and taking that property back, you have to expect that you’re going to get paid off before foreclosure auction or we got all this equity. That’s why a lot of the sellers out there are trying to get 60% to 80% of UPB because there’s a ton of equity in the backside.

It doesn’t mean it makes sense because you have to still look at your numbers and go from there. A lot of people are out there smoking crack. They think they’re going to get something that’s why they price at it and come back. “No, we want $0.80,” so they won’t even counter $50,000. Here’s the situation. If it’s the other way around, your listing is $75,000 and the value is only $50,000, there’s no equity there. It’s upside down. A normal 50% to 60% of price should make sense. When you say you’re brand new to notes, that’s what a lot of people get bogged into. They come from the fix and flip side, the ARV or the After Repair Value. That’s not the case here in the note business. You’re buying off of unpaid balance. You’re hoping that the value is less than the unpaid balance while you’re bidding off of value. If the value is a lot of equity, you have to expect the price to be countered closer to UPB or full payoff. It is what it is in the marketplace.

It’s not saying it’s going to close that way. One of the best things that you can do as a note investor is to follow back up in 30 days, follow back up in 60 days, follow back up in 90 days. That’s why I like following up with bids. You often get bids that you bid on that fell through. Now the seller is much more motivated to move it and you often get it cheaper. Hang in there. One thing to keep in mind is to see where you’re buying that asset. Shawn says he’s from Phoenix. You’re going to have a higher price there because it was in Phoenix. It’s in another area which I’m going to bid for a contract for deeds. You’re probably not seeing a lot in the Phoenix market, but it all depends on where you’re buying and also the eviction laws if the seller is not legal. If it’s performing or semi performing, you’re going to pay a steeper price for that than if it’s totally nonperforming. When I say 30 to 40 stairstep, that’s a fuzzy guide, for the most part. It’s a fuzzy guide depending on the situation of the asset and going from there. Just follow up and look at things. If you’re also dealing with that out there if you’re a note investor and you’re struggling, you need to take a class. If you’ve ever taken one of our note buying workshops or our Note Buying Blueprint, it’s a phenomenal thing for you to get started. There’s a little subtle pitch at NoteBlueprint.com.

Reach Out To Banks

The main topic I want to talk about is what to do when you see commercial notes. If you’re reaching out to banks on a regular basis, you’re calling, you’re following up, you’re doing the things that you should be doing in marketing. Banks are going to be moving a lot of stuff because they expect a downturn that won’t get their stuff off their books before the market turns around or the market rebounded as something strange. A gentleman sent me a list of some nonperforming stuff that came across my books. The thing about commercial notes is the stuff that’s usually held by the bank and the banks are more interested in getting most of their stuff off of their books that is the small stuff. By small stuff, I mean smaller balanced stuff below $1 million in value.

Look At Small Retails On The List

You’ve got small retail. You’ve got funeral homes, strip mall, free-standing office, motel, hotel, restaurant bar, mixed-use restaurant, residential and self-storage warehouse. The great thing with stuff like this is every commercial deal is going to have a different story just like in a nonperforming. The thing that’s different about the commercial is it’s going to be harder to find comps because of two things. A vacant commercial property is not as attractive as ones occupied. Why is it one that’s occupied is more attractive? You’ve got rent. That’s what commercial loans are all based on. It’s on the cashflow. It’s on the capital rates. You’ll have somebody tries to sell capital rate on a vacant property with what you could get if you moved in or off of square footage if you’re going to rental rates in an area per square foot. What’s nice about getting these directly from a bank is often you will have the original financials on this stuff.

They have appraisals all over the place so that’s not a good thing. All these are due for 2018 and 2017. Some of these are behind. Cayson was telling you that the bank was one par for a big chunk of these. I’m like, “They got par in the past.” I love how bankers often think that what they got in the past is what they’re going to get now with sellers or what buyers paid for. That’s not the case. You always have to look at where the assets are now. Is it occupied? How far in the lease are these tenants? Are they paying on time? What’s going on with the market? You’ve got stuff in Pennsylvania, Illinois, New Jersey, Philadelphia, PA, Chicago, North Carolina, California, PA, Hemingway, South Carolina, High Point, North Carolina, Cleveland, Hempstead, New York, Raymondville, Texas, Big Bend, Wisconsin, Freeport, PA and back in Chicago. You can’t run a stairstep on a commercial asset list. There’s no way you can do that because it’s all the way off. Some of these have values and some of these don’t. If we look down the line, we might see some of these that were previously listed for sale. You might find some commercial assets on LoopNet. That’s a great place to find previous financials if the seller is looking to sell that stuff off, which is great.

What’s nice in commercial notes is once you buy the note on a commercial deal and if there are tenants, oftentimes in the mortgage or the loan agreements, you’ll see a right to collect rents once the borrower goes in default. That takes away a lot of the whole, “Borrow from Peter to pay Paul,” aspect or the borrower using the commercial property or commercial rents its own personal ATM without paying the mortgage or paying the bank in this case. What we do when we have a spreadsheet in like this is you have to become Sherlock Holmes. You’ve got to first see what the property looks like. You probably need to talk to a commercial agent in the area. You need to get pricing expectations. What is the seller looking for on these? If there is a ton of equity, that’s great. You are going to be close to a payoff or close to UPB. You should never go off a payoff because that payoff is in your right to collect on. Hopefully, if there is a big payoff compare to UPB, it does make sense paying it off of UPB at that point. You’re going to bid off of UPB anyway, whether it’s equity or not. It’s going to be a higher percentage if there’s a lot of equity behind the loan.

NCS 443 | Commercial Notes

Commercial Notes: Commercial rents are basically its own personal ATM without paying.


What Sellers, Commercial Lenders, And Commercial Banks are Looking For

If they finance these commercial loans at $70,000 to $75,000 and there’s 20% to 40% of equity, you’re going to have to come in pretty close to the unpaid balance to do that. If it’s vacant and it’s not the same type of asset that it was when it was originated back in 2015 or 2012 or whatever like that, you have to look at it and justify your bid. When you’re dealing with a commercial lender or commercial bank, what you have to realize is it’s a little bit more formal process than you just submitting a spreadsheet with bids. They’re usually going to want a true letter of intent. It’s a two-page document talking about what you’re looking for as far as, “I’m going to need this. Here’s my bid. If this works out, here’s one I need to close and go from there.” It’s going to take a little bit longer for due diligence on commercial notes than a residential deal.

In a residential deal, you’re pulling comps, you’re having a realtor drive by, you’re looking at the payment history, and you’re going from there. With the commercial, you’re going to look at the rent rates if you can find out, the rent rolls if they were provided, the value, and what’s going on in the market. I’ll give you an example. They’ve got a couple of self-storage units on this list. What you’re going to do is a little due diligence, call up the self-storage, act like you’re trying to rent a spot, ask somebody to drive by the property if you’re not there, find out what the rent rates are, how busy are they, how occupied are they. A lot of banks, especially in the self-storage side, when you’re looking at self-storage, you want to look what’s available within a five-mile radius of your location because that’s going to tell you how full you’re going to get. It’s also going to tell you what the appropriate rent rates are for a unit or one of your tenants. You’ll also have to look at the expense ratios on things like that.

An apartment complex, you’re going to see somewhere between 45% to 55% expense ratio depending on whether it’s individually metered or not individually metered. That’s a big difference especially on smaller apartment complexes. You see larger apartment complexes are usually individually metered. It’s a little lower expense rate because you do not have to collect. If it’s not individually metered in an apartment complex, you’re having to either collect on the gas. The utilities are trying to split that up. That’ll be a bit more of an expense for you that’s why your expense ratio is going to 55% versus 45%. Self-storage is somewhere between 28% and 35% based on the size of the operation. The bigger the number of doors in a self-storage facility, the lower the expense ratios are because you’ve got dollar cost averaging, or you’ve got the costs being spread out further across the board. It makes sense that way. Also, you don’t have a lot of onsite living. You may not have a lot of the other stuff. You may not have a lot of utilities obviously because it’s covered all in the one spot. If it’s the climate control, you’ve got to look at that and be a little bit more expensive than something that’s just sitting outside.

There are a lot of moving parts. This is why I like commercial because it’s a little rare error. You want to reach out to a commercial title company in that city to have them pull title report, not only in the property but also in the borrower if you can track down who the borrower is. A lot of times, especially small commercial, it’s easy to do that. With bigger commercial, sometimes you’ll have smart people that are using and creating separate LLCs or separate entities just for that one commercial property, which is smart. In smaller commercial stuff, oftentimes the borrowers may have multiple properties which work in your favor. If you don’t get hold the foreclosure auction or by getting a hold and take the property back, you can slap a deficiency judgment against their other properties. That’s the thing to keep in mind. When I look at the spreadsheet, the first thing that pops up is to look at the borrower’s names. It gives last names.

There is one in an auto auction. That’s an entity name. It looks like last names are what it says as far as the loan name. You’re going to have to double check to see how that property is titled over. You also want to make sure you have the property on the loan, not a business loan. I see that happening quite a bit like, “Here are all the assets.” I don’t want to buy a cherry picker or a backhoe or your receivables. If I’m looking at commercial note business, I like the property if I’m on the real estate. I also don’t want to buy unique properties that are going to end up being vacant. I don’t want to own something that I can’t use. I’ll give an example. I don’t necessarily want to buy an auto bay or a gas station. There are some people out there that love gas stations and that’s why it makes sense to market these days. If you find somebody that makes sense and the numbers look like it would make sense, I would reach out to people on your network that may be already are gas station owners in the area or they’re self-storage owners in the area. Maybe they’ve got an opportunity to take over on the property.

Assess The Financials

The beautiful thing is if you can find the financials because that’s what it’s all going to end up coming down to. What are the financials? What’s it going to look like? That adds value to the loan sale. If the bank’s got occurring financials, that’s great. That helps you to do due diligence, that helps you look at the numbers. It’s not estimated financial, but actual financials from the borrower. Oftentimes, banks will require that from an annual basis. They are a regular basis from the borrower, so they know everything is rocking and rolling. I don’t know if these are not all nonperforming. That’s one thing too that’s important to take a look at. This spreadsheet looks like it was marketed loans for sale at $325,000. I like to see who the creator is of that spreadsheet. It often tells me that the author of the spreadsheet is often the person who works for us. Now I have that person’s name here if I have questions. I’m going to reach back out to the person who sent me the spreadsheet. That’s the first and foremost. If he doesn’t have any questions or any answers to my questions, I want to go directly to the bank. I’ll go directly to the source.

There are a few people that pop up on this with that same name on LinkedIn, which was okay. I’m going to type in that person’s name and type in commercial. I could reach out to my local title representative and say, “Who is the most recent lender on this one?” or I could jump on and take a look at that on the county records. That’s easy enough to do. I’m just trying to see if I can save me some time and energy by looking at this. The thing you’ve got to keep in mind is that the spreadsheet doesn’t tell the whole story of what’s going on, are they months behind, and what happened? Some of these that I look at is you’re not going to find out until you start googling and looking at some of these assets. It’s the same thing when you get a spreadsheet. I usually want to avoid the areas that I don’t want to buy for the most part, but it’s different with commercial loans. With commercial loans, you don’t have a lot of the same restrictions you do have with a residential loan. You don’t have the same type of license requirements or things like that as long as it is a true commercial loan.

How To Pick Up A Decent Property

I have seen some residential properties that were financed with a residential loan when they should’ve been a commercial loan before. That throws a whole wrench in the machine. The thing to keep in mind as well is that not many people are looking at this stuff. You have an opportunity to pick up a decent property in some different areas that would make sense. There is a free-standing strip mall and I’m going to google this address down on Raymondville, Texas. When I type in the address, it’s a church. What first pops up is a church. When I googled it, I looked at the street map view. It shows it being listed for sale. It’s a commercial for sale. $125,000 is listed for sale, which is funny although they dropped the price on this one. The unpaid balance on this one is only $30,000. That’s the sad thing. The interest rate is at 13.5%. The borrower is two months behind.

NCS 443 | Commercial Notes

Commercial Notes: One reason why people stop paying notes is because they can’t sell them.


It was originally appraised at $435,000 but that goes back to 2008. They’re trying to sell it for $125,000 right now. They’re trying to sell and make some profit on this. In this situation, this would be not something that would make sense because look at it this way. There are only two months behind. They owe $30,000 on a property. Let’s say they’re trying to sell for $125,000. There’s $95,000 in the equity. You’re not going to get this reperforming. If you did get it reperforming and you paid par and went and sold it off, you wouldn’t make that much besides two months of payments, which is a dead end at this point. The only way this would make sense is if they were to take a discount on this asset. I will be willing to bet in Raymondville, Texas, this has been listed for a while. The nice thing that they do have is a lot of photos on this property online, which is nice. It’s occupied or vacant and they’ve got an older photo. It’s still on operations, which is funny.

It’s been on the MLS. They dropped it down to $125,000. This doesn’t make sense. There’s a ton of equity on this asset. The loan is at $30,000. If they’re one par for this, that’s great. It doesn’t make any sense because you’re not going to make any profit on this stuff. I don’t necessarily want to run a convenience store down in Raymondville, Texas either. It’s usually an owner-operator on this stuff. If you were to buy the note, there’s no guarantee that they’re going to be paying. It’s why they stopped paying because they can’t sell it and they’re probably not making that much. It’s not bad looking little property, but it’s too far remote. It doesn’t look like there are a lot of shells. There are not a lot of displays on the photos. They’re basically showing us the restaurant. It’s mostly barbacoa and masa restaurants. They try to make some other stuff, but it’s just a restaurant for the most part so it doesn’t make sense.

They’re trying to sell the thing at $125,000. They dropped the price down already. This is a no go on this one even with the equity. Taking over the property along when somebody is trying to sell, you’re going to do more work and due diligence is not going to make it back so let’s just kill that one. That doesn’t make any sense. Let’s look at one self-storage unit. This one has an entity name. The unpaid balance is $76,000, the due date was December 18, 2018. They gave original appraisal $155,000 back in 2015. They say it’s valued at $130,000. They’ve got 100% equity on this thing based on value. They say the appraisal from January of 2018 was $130,000. They owe only $76,000. Why don’t we do the same thing? Let’s google the address. The property is for lease. There’s a property for sale. It’s not a self-storage. It looks like it’s more a commercial building.

There are two decks at the front of the building and one drive-up ramp at the rear of the building. There are renovated office and restroom in the common area. The lower level basement space with two restrooms and shower are available. Secure storage is what it is. It’s a 5,000 square foot of first-floor office and warehouse along with 2,000 square foot of lower level office. Storage space is great, a storage yard for a contractor to operate a business. The office is in the lower level. There are no interior photos. They’ve got some exterior photos. It’s not the greatest of buildings. You have to look at what part of Cleveland it looks like. That’s a little rougher in the back, particularly older commercial building. You’ve got a basement they said as well too. It has five photos online and that one. That’s the same thing. It’s not a storage unit. It’s just a commercial warehouse with some office on it.

The thing about the office is you could sublet those off and sublet them out to somebody who’s looking for an office. What screams to me on this thing is not a gas station, but most of the square footage on it is not bad if you will want to live in Cleveland. It’s off of East 55th Street. It’s off of I-90 so it’s on the north side of town. It’s north of downtown Cleveland. It’s halfway between East Cleveland and downtown Cleveland. Maybe not the greatest of areas, but not the worst of areas either. You’ve got to find something who wants that asset for the most part. They say it’s valued at $130,000. They owe $76,000. Some of these has been for a while so probably the business has changed, or they stopped the business and went out of business. That’s what jumps to my mind. It used to be a restoration company or Ohio trucking.

It was an Ohio trucking company. It’s a warehouse. It was listed on RealtyTrac. It’s probably the same general information. They’ve got some equity, but it’s just not that desirable. There’s not an operating business in there. If you knew somebody in that neck of the woods, what I would do is I’ll call the listing agent in the area and see if he’s got anybody else that’s bought stuff in that neck of the woods or anybody else who came and made some bids and some stuff because that would be an easy thing. You can’t be paying par for this one if the bank wants a par because it’s been sitting there vacant for a while. It says it’s appraised at $130,000 it doesn’t mean it’s worth $130,000. It means it’s going to be a little tougher to move as well.

You would not be paying par on that one. That’s the thing to look at. When you’re looking at the spreadsheet and when you’re making your offers in, sometimes when you submit your bid, you have to say why it’s lower. Here’s a reason we’re making a bid off around this one at $76,000. We’re making an offer at $40,000 on this one for the note. It would be nice though if you bought this cheap enough that you could turn around and lease it out to somebody, become an operator in that area and rent it out. If you bought it at $40,000, that’s great. You’re into an asset for $0.33 on the dollar for the most part or $0.30 on the dollar. It’s not a bad deal as long as you can justify renting it to somebody who’s going to make some money for you. It’s a good yield on that aspect of things because you can offer up a deed and lieu Cash for Keys to the entity or the borrower’s name on that stuff as well.

Let’s look at the apartment complex in Chicago. It’s probably not the most desirable area. It’s a three-story house. It has three beds, 3,800 square foot. It’s a twelve-unit building rehab for sale. It has four studios for one and for two if you’re looking for a great investment. That’s the old listing. Maybe this property has been renovated and we’ve got twelve-unit apartment complex that you can pick up. The unpaid balance is $205,000 and it’s four months behind. They don’t have a current appraised value. They finance it at $365,000 it looks like on this one. This would have been an apartment complex that was renovated. It looked like they renovated it and sold it. The person is robbing from Peter to pay Paul. It is individually metered. It is multifamily. It’s twelve units.

NCS 443 | Commercial Notes

Commercial Notes: Do a deed in lieu if the property is occupied. If it is bringing in rents, offer cash for keys.


It was originally sold in 2013 for $365,000 so they’ve had the mortgage for several years. They paid it down. On this one, you’d want to check the rent rates. They’ve got six one-bedroom and six two ones, 625 square foot so then you would run comps. What market rent rates to look at? Maybe if it was listed for sale, you can see what it looks like. It’s not a bad looking little property. It looks like it’s on a corner street. It’s three stories so it’s four units of four. You can get some opportunity on this. There is some equity. It’s gone up in value because it’s $365,000. You’re going to take twelve months of your rental rates. You have twelve months of the six units, twelve months of the six two ones and one ones. You’ve got twelve units figuring out what your gross rents would be roughly and then multiply it by the expense ratios. Its individual meter would be 45% and that will give you a rough estimate on your net operating income. That’s not including debt and taxes. It gives you a rough estimate on that aspect of it and divide it by a capital rate.

It’d be nice to reach out to the apartment broker in that neck of the woods to find out what a twelve-unit apartment complex is going for. It’s a good starter. They probably aren’t paying because they’ve either fallen behind or maybe they’ve got some rougher tenants in there. Chicago is a rougher area. If you’ve got tenants in the other system, I would want to buy it. There are plenty of people in the neck of the woods that like that neck of the woods. It’s the same thing if it’s worth at least $300,000, there’s some equity since the unpaid balance is $205,000. I’m sure the bank doesn’t want close to the payoff on this one or close to the UPB. You’ve just got to get negotiated back and forth, but they’re no longer going to do all this stuff. It’s going to take some time. It’s not necessarily something that you want to deal with especially if you’re not in Chicago. The first thing I would do is I’m going to email this out to one of my Chicago agents and say, “I found a twelve unit that you can pick up the note for.” In this case, you can do a deed in lieu if it’s occupied and if it is bringing in the rents. Offer Cash for Keys and deed in lieu for the borrower. Otherwise, you wouldn’t want them in and go after the rents.

They’ll go after the rents for sure trying to get that occupied. That all depends, if you could take it over, if you did buy this close to $200,000, find out somehow if the borrower who’s interested is walking away from the property. If it is fully leased and you’ve got paying tenants, that’s great. Take it over. Walk away after a deed in lieu and Cash for Keys. You’ve got an apartment complex there if it makes sense with the $200,000 to buy. There are a lot of moving parts. You’ve still got to talk to agents. You’re not going to see interior inspections on a lot of these things, so that’s nice that you’ve got older photos. What is also nice is if you’re dealing directly with the bank, they have the old appraisal. You could see what it would look like, see what the work was done when they finance it at $365,000 and see what the condition was. You can see how long the tenants are in place for. You can also see if it’s above or below market rents. The lease is expiring, and you have the opportunity to come back and bump rents up.

One of the great things I would look at is you could figure this out real fast by just going to Rentometer, paste in the address and type in one bedroom or two bedrooms and see what rent rates are. This is at 619 area with one bedroom. The median rent range is somewhere between $640 and $760. The 80% mark is yes. That’s where the one bedroom was changed into two bedrooms. It’s now at $850. It bumps up by $100 a month. The median is $858. You’re going to get let’s say $800 times twelve units is $9,600 gross range roughly on a monthly basis. $9,600 times twelve months, it means you’ve got $115,000 roughly coming in gross rents multiply that times its individually meters. You’re going to take 45% off or multiply it times 0.55. It means you analyze roughly around $63,000 a year after you sell that by figuring out an eight cap with $792,000 value. I can see that being close to it if it is fully occupied if you do have those rent rates going. Now you have an idea of why the bank would say, “We want to sell this thing at par. We’re going to take a big discount on as well.”

If they’re three months behind, there shouldn’t take some discount. There’s a 10% or something in there because the fact is it is nonperforming. You’re also figuring for them to foreclose and for them to do a lot of work. To take the property back, it’s been costing a lot of money. Figure out that in your bid. It might work out to something that makes sense and make an offer. Go back and forth and see if it makes sense in doing that work. This is why it’s so important to know your network. It’s also why it’s so important to be able to work the numbers and be able to show that stuff. If I was interested, I’m reaching out to realtors, I’m trying to pull comps, I’m trying to see if the property is listed for or if it’s listed recently. That’s what I’m willing to bet. Somebody who has built this up, got it going, got rents going on, they’re trying to sell the asset off if they can and make a bunch of money without having to pay their mortgage. They’re enjoying their free cashflow that’s coming in. It’s not free, but you’d get what I’m saying.

Commercial notes are the same thing. It’s more due diligence and checking the Zillow or Zestimate or CMA. There are a lot of moving parts. You’ve got to see what is available and what’s moved in the market in the neck of the woods. This is why you need your commercial agents. You can’t do it all yourself at all. You can get a good idea of some stuff, but you still want to reach out and talk to a drive and play the sleuth. Pick up and call and see if there are any units available for rent. In some cases, you may jump on a plane and fly there, drive by or walk and see what’s going on. We had found some stuff that we’ve done when we got started and we would see for rent signs. I would pick up the phone and call and talk to the landlord, “What do you have available for rent? You’ve only got one available. Are all of the units the same?” I’m asking simple questions like this. It’s not to show your hand like, “I’m buying your note.” You don’t want to do that. That’s not the smart thing to do.

You want to play your cards close to your chest. You want to have somebody calling or calling from a different number on your cell phone just so that when you’re talking to the borrower or talking to the management, you’ve got some things. One of the things that would be nice to do is I’ve used the address and I will find tenants in the building or anybody else that has an address because you’ve got to realize that there are twelve units. You can probably find some tenants there. Pick up the phone and call the tenant and say, “I’m sorry. I’m trying to track down the property manager for this unit. I’m interested in the area and see if there’s anything available.”

Usually, in a twelve-unit, they often will know what’s going on in the complex. “It’s a great area. It’s a great rehab. It’s a crap hole. We’ve got water coming in. We’ve got leaks.” The tenants will tell you exactly what’s going on with the complex. You’ll get so much information on there. You wouldn’t want to be writing notes as much and them some questions like, “Was it great? Do you like living there? Do you dislike it? Is it a rougher area?” Those kinds of things. This asset is on the south of East 79th Street. It’s right by the Illinois Department of Human Services and east of Avalon Park. It’s not the best of areas, but also not the worst of areas. There is a funeral home just down the street. All that stuff pulled up and it gives you the comps in the area on what’s going on and last seen dates. A lot of these are all marked. It gives you a property board to nearby rentals so you can see the square footage. Rentometer is well worth it out there.

NCS 443 | Commercial Notes

Commercial Notes: Each asset has a different story. Judge the merits of each asset for itself.


There’s a lot of the smaller unit stuff that you’ll see, small commercial stuff, some million-dollar UPBs that banks are often willing to get off their books because it’s just not worth their time. They don’t mind originating side, but at some point, a lot of banks realize they want to move this stuff especially now. They got through their fiscal year. They’re ready to move the stuff off. They can be able to conserve it, but if you follow up with asset managers at banks, especially the commercial side. If your first round is not accepted, follow up with them every 30 days like, “Did you end up selling that asset? Did you end up selling that note? Is my bid still available?” It’s all in a follow-up system when it comes to commercial notes. In residential, everybody understands that they like to touch it, squeeze it in and be a part of it. If you find an asset on a tape that you know somebody is interested, why not get it to the person who’s used to doing that and make a percentage? Stay involved and learn the process. Don’t be afraid to reach out and say, “I’ve got a deal. I don’t know if it makes sense.” Put the deals together, reach out, talk to the bank and get the information.

Put the deal together. Do the due diligence and try to find as much information as you can. That’s the big thing you’ve got to look at. Look to see what’s going on more than anything else and see if it’s an actual deal. If it makes sense and the bank is willing to negotiate, get in touch with somebody else’s hands. Put the deal in somebody else’s hands which is an expert versus sitting there and letting it rot on the vine. That’s what it comes all about networking. There are hedge funds out there specialized in every specific type of class. You will find some interesting stuff when we’re looking at commercial notes, but it’s a different story for each asset. You have to judge the merits of each asset for itself, but some of that doesn’t make any sense, just move on and have the next atmosphere. Don’t get so bogged down like, “This is a cool deal.” Coolness doesn’t pay bills. Coolness does not make things happen. The most important thing I can tell you is to look at something, spend some time, spend a couple of minutes on each asset and if it makes sense, that’s great. If it doesn’t, kill it and move on and go from there.

The last thing you want to do is waste hours and hours of time because that’s the one thing about commercial notes. They take more time to get done than a residential deal. You’re going to spend several months in a commercial asset before we close 30 to 90 days or more depending on the deal. Take some time if you’re interested in commercial deals. Reach out. I guarantee you can find something that you take a look at. It’s a matter of just your negotiating skills and going from there. We’re looking at putting together commercial note workshop here for a lot of people because we’ve been getting a lot more requests from people asking and inquiring about commercial assets. Go out and make something happen and I will see you all the top.

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