So about 2 months ago I joined a group that does about $1 to 1.5 billion per year in commercial and commercial real estate loans. Our entire production and underwriting group is comprised of about 25 people. I've looked at a few dozen deals now that have made their way to my desk after extensive review and negotiation with upper management. While this is probably not universal (it's not even necessarily universal at my organization), there is a pattern I've begun to recognize.
A lot of guys who have become mega millionaires in real estate have done the following: they start out small and they work closely with a handful of local or regional financial institutions for their depository and borrowing needs. They rarely over leverage and they act responsibly. These borrowers also tend to involve their children in the projects and get their children hooked into the institution's relationships. Over 20-30 years with these same institutions doing deal after deal these FAMILIES can do practically anything they want at much higher leverage. I've seen guys with 650 credit scores get $10 million loans at 80% LTV on spec retail construction. On Friday, we extended a $2 million unsecured line of credit to small spec real estate developer with 660 credit and $300,000 in total cash and maybe $700,000 in net worth. Why do we do this? I'm still in the process of learning why, but it seems that their past performance with the institution is their credit. I came from institutions that securitize most of their debt and therefore are radically committed to extensive documentation and personal credit documentation, so I was blown away by how little paper verification we require and how liberal we are with our funds to these clients. But since we don't securitize we can do whatever we want.
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