RE Debt: Brokered vs Direct
For those of you that work on the debt side (debt funds, commercial banking, credit HFs), what percentage of your flow comes direct from sponsor vs are brokered processes? At mine it’s about 80% brokered (from JLL/CB/eastdil) and 20% direct to sponsor. Curious what the ratio is for others.
Similar % at my fund too
Interested
80 to 90% Direct at my bank. They have a culture of disdain for mortgage brokers. If we proceed with a broker package, we have to meet the sponsor early in the process and dress it up as direct-ish.
Interesting. Typical loan sizes?
Range about $3 to $30 million, with most between about $7 to $15 MM.
We are closer to 50/50, but in my experience it generally has more to do with sponsor size that anything else.
Most of our brokered deals are from small to medium sized borrowers that need/want help running a process where the large institutional shops have dedicated financing staff in house and go direct.
Also, some borrowers start brokered but end up direct on repeat deals. We had a borrower that we did 10 deals in 2 years. The first was brokered and they liked us so much they came direct for the rest. If you can avoid paying a broker 35bps and instead call a lender, dupe some docs and close in 25 days, that is generally the easier route.
I’ll add about duping docs. It was eye opening for me to see how much business was won (and lost) over duplicating documents. Many lenders out there will do what they need to (drop rate, change structure, etc.) in order to win a deal and get a first set of documents negotiated with a high volume acquisition borrower. They understand that having those docs in place make them so much more competitive to win the next loan that comes around because all of a sudden, it’s cheaper and easier to close the deal.
Not having to renegotiate every little point is huge, especially with the larger institutions. Quicker, less legal and they aren't as worried about getting x, y, or z because they already have it. Also why you have to be careful on the lending side what you give away, because it can bite you in the ass on the next deal.
I’ve found this to be the case, but for the truly large loans (say $200mm+), more often than not they’re brokered. I’ve seen BX and their ilk who have a fairly built out capital markets team still engage eastdil / HFF / etc
Why do you think this is the case? Logically doesn't it make sense to go direct? Especially at that size I'm sure they have the established relationships and resources to execute.
When I was at a Life Co and did lending probably 90% of our deal flow, maybe even a bit more, was brokered. But many of the larger firms would come to us direct. At a certain scale, as also noted above, firms begin to bring debt capital markets in house. The smaller and midsize players would usually use a broker and the larger shops had one person (or even a team) dedicated just to DCM work.
What do you define as "direct", the reason I ask this is some people don't consider capital brokers as brokers in this context because they don't drive deal flow from the property brokerages.
At a debt shop in NY, 90% of our deals are from brokers
Do you have to use a broker again once you have relationship with lender from original brokered deal? Ex: if a mortgage broker introduced me to a bank do I need to go back to the mortgage broker for next deal?
Depends on how often you’ll use that broker in the future
For those of you that do a lot of direct deals, how did you or your firm establish those relationships? Curious which channels have been the most fruitful (conferences, school networks, etc)
Debt brokers hate this one simple trick! Google the fund/mREIT and they almost always have originators emails/“get in touch with us” email drops. I would say I have gotten responses from these “cold” emails/reach outs 95% of the time…boom, direct relationship started.
Any advice for an originator looking to establish direct relationships with sponsors?
This is simple but has always made a noticeable difference to my team - take the 15-20 minutes to ask about the firm and their teams experience as well as really telling the group about yourself and your firm. It’s amazing how so many people will just want to jump right into the “deal” and not even want to get to know the person they are talking to. My team would take a term sheet a few bps stiffer than another if it meant getting to deal with someone that actually gives a damn.
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