Our commercial hard money mortgage company, Blackburne Sons, is making a really interesting commercial loan this month. We are making a $1.6 million loan to the owner of two large apartment buildings so that the owner can take advantage of a discounted pay-off (DPO) being offered by the bank.
Now the really interesting thing about the deal is that the bank would not discount the four existing commercial loans that it has with the borrower . directly to the borrower. They agreed to sell the four notes and mortgages to Blackburne Sons at a discount, but not to the borrower. Huh. Kinda odd . but whatever. We get to make a nice loan fee on the deal.
So this complicated escrow will go as follows: Blackburne Sons, in escrow, will buy the four mortgages. Then we will simultaneously sell these four mortgages to the borrower at a discount (they total around $2.3 million) using a brand new blanket loan of $1.6 million on both apartment buildings.
This deal is what is known as a brainer deal , as opposed to a no-brainer deal. A no-brainer deal is a commercial loan that is so obviously good that the lender doesn’t even have to think about it. You should make a note that Blackburne Sons is owned by a real estate attorney with 34 years experience in commercial mortgage finance. If your commercial loan is fundamentally excellent, but the deal is just a little complicated (a brainer deal), we may be the perfect commercial lender for you.
Now we finally get to the point of today’s article. One of the four mortgages that we are buying in escrow is an open-ended mortgage. An open-ended mortgage is a commercial loan with no fixed loan amount.
Open-ended commercial mortgages are extremely rare. (more…)