Relationships and reputation are key to cracking commercial broking

Experts share tips for breaking into non-coded lending

Relationships and reputation are key to cracking commercial broking

Diversification has been one of the biggest trends in the broker channel over the past year, with mortgage brokers increasingly extending their tentacles into the commercial space in search of deals.

The reasoning is clear enough – with the rate of housing applications continuing to meander below government targets, top-tier residential deals remain elusive and extremely competitive.

Commercial real estate – which spans office blocks, retail centres, warehouses and multifamily dwellings – has therefore seen an influx of interest from enterprising dealmakers.

Matthew Porch (pictured above), head of distribution at commercial finance specialist Aquamore, said he has “certainly seen an increase in brokers diversifying into commercial transactions over the past 12 months”.

This, according to Porch, coincides with an increase in what he calls “commercial finance literacy”. In other words, brokers are becoming more comfortable analysing businesses’ balance sheets and cash-flow statements, plus they’re prone to asking “more probing questions to uncover further opportunities” in the space.

For Aquamore, these opportunities often come in the form of refinancing and debt-consolidation manadates.

“A lender, such as Aquamore, with a judgemental credit-based approach, considers an opportunity holistically,” said Porch, adding: “This is often beneficial for equity-rich, cash-poor businesses seeking capital to seize a time-sensitive opportunity.”

But as always, no opportunity comes without a degree of risk, and for newcomers to the commercial space, it can be difficult to avoid the common pitfalls.

Common pitfalls

Commercial lending and residential are two different beasts. It is often a case in the commercial space that securing a bespoke solution for your client outweighs the importance of the deal’s headline rate.

“As such, only focusing on the interest rate in isolation is a common mistake for newcomers in commercial lending,” Porch said. He stressed the importance of understanding the nuances of the borrower and their requirements, as well as the respective lenders, as each lender has its niche and specific loan parameters.

“Brokers should ensure they’re fully aware of the full suite of fees, charges and conditions accompanying a commercial loan,” he said.

For Jason Arnold (pictured below), group executive of origination at Pallas Capital, “a common pitfall is not spending enough time educating themselves on product and market dynamics, which can lead to over-promising and under-delivering”.

“Brokers should adopt a long-term approach by reaching out to aggregators, lenders and industry bodies for education and guidance before diving into the market,” he said.

Arnold also suggested partnering with an experienced commercial broker to get hands-on experience in closing commercial deals.

Getting the upper advantage

Commercial finance, just like any other segment of the third-party channel, is a hotly competitive space, especially at a time when the market isn’t exactly flying.

The fact of the matter is resting on your laurels is a surefire way to fall behind. But the experts believe there are a few key attitudes brokers can bring to the game to stand out from the pack.

In commercial finance, “reputation is everything and relationships are key”, said Porch. It is essential to establish relationships with industry stakeholders, including lenders, valuers, conveyancers, solicitors and real estate agents.

Echoing Porch’s sentiment, Arnold said that “networking is key” for any broker seeking to expand their offerings into commercial.

Thankfully, there is a wealth of industry bodies hosting regular events, such as the Property Council, the Urban Development Institute of Australia (UDIA) and Urban Developer, which present opportunities to swap business cards and get your name out there.

Additionally, Arnold suggested speaking with commercial agents, while cold calling small businesses and SMEs to learn more about their business and their financial needs can also help to gain invaluable insights.

Leveraging social media, not just for marketing but also as a platform to educate clients and showcase expertise, is also useful.

On the lender front, “it’s important to understand the approach, parameters and strength areas to enhance efficiencies and boost the likelihood of conversion”, Arnold added.

So, where’s the action?

While the likes of JPMorgan, Tesla and the federal government are steadily reintroducing five-day-a-week office mandates in the US, hybrid working remains popular in Australia.

That is, of course, a matter of debate and varies from employer to employer, but with the most recent data (sourced from the Australian Bureau of Statistics in August 2024) showing that 36% of employed people “usually worked” from home, it’s clearly still a major trend in the Aussie workforce.

This has been something of a bugbear for city-centric segments of the commercial real estate sector. But that’s not to say there are no deals to be made.

According to Arnold, there is a “growing interest” in the repositioning of commercial properties such as upgrading offices or creating mixed-use developments that have a focus on “quality, amenity and sustainability”.

But the real activity at the moment, noted Arnold, continues to be residential development, particularly apartments, townhouses, and land subdivisions. “I expect this will remain the case throughout 2025,” he said.