Mark Ritter  0:00  

We’re looking for people who want first of all want that relationship with your institution, that we can have a conversation and get to know who you are and you’re, who you are now and where you’re looking to go. And we really focus on the real estate side on three major buckets. You know, about a third of our business is that residential real estate investor. The other piece where we do a lot of is that owner occupied small business.  And and the third bucket that we love, is that just a straight up commercial real estate investor. Maybe you have some some different projects that are credit worthy, but there’s an explanation behind them. We’re good where we can talk to you on that piece. 

Announcer  0:47  

Welcome to CREPN Radio for influential commercial real estate professionals who work with investors buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, Property Manager, attorney or accountant, we’re here to learn from the experts.

J Darrin Gross  1:06  

Welcome to Commercial Real Estate Pro Networks CREPN Radio. Thanks for joining us. My name is J Darrin Gross. This is the podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their insight and experience to help you grow your real estate portfolio. Today, my guest is Mark Ritter. Mark is the CEO of MBFS and an expert in credit unions, real estate investment lending and small business lending. His primary role at MBFS is leading company efforts to assess assist credit unions and making commercial loans and helping businesses and investors. And in just a minute we’re going to speak with Mark about how credit unions are a force you should not overlook when financing your commercial real estate. 

But first a quick reminder, if you like our show CREPN Radio, there are a couple things you can do to help. You can like, share and subscribe. And as always, we’d love to hear from you please consider leaving a comment. Also, if you’d like to see all handsome our guests are, be sure to check out our YouTube YouTube channel. And on YouTube, we are Commercial Real Estate Pro Network. And if you’re inclined, please consider subscribing. That’s always the challenge, try and grow the subscription and appeal to more real estate investors. With that, I want to welcome my guest, Mark. Welcome to CREPN Radio.

Mark Ritter  2:48  

Thank you for having me looking forward to the conversation.

J Darrin Gross  2:51  

Likewise. And before we get into the meat of the conversation Mark, if you could take just a minute and share with the listeners a little bit about your background.

Mark Ritter  3:03  

Sure. Like you said, my name is Mark Ritter. I’m the CEO of MBFS. And we are a company that’s owned by 13 credit unions and work with credit unions all throughout the East Coast. I’ve been involved in quit credit unions for close to 20 years now. And it’s just been involved in business lending, when this was a twinkle in somebody’s eye in a microscopic level of business out there, and it hardly even existed. But before that, I was a, you know, a banker work with different companies consulting with banks,.  But and then grew up in Pennsylvania, lifelong Pennsylvania, nate.  Resident other than a few years down south, and a graduate of Penn State where I root for those Penn State Nittany Lions.

J Darrin Gross  3:57  

All right. Well, the Credit Union I grew up my dad was a banker. And I don’t know what the nature of was, but I know there was maybe it was a competitive thing, or we’re better than you kind of a thing I know. And in our house, there was always this nature of the distinction between banks, savings loans and credit unions. And I’m wondering if you could take just a minute and distinguish the difference between the the credit unions and the other lending institutions? 

Mark Ritter  4:35  

Sure.  And it’s, as you said, there’s a long history there between banks and credit unions, and I try to stay out of those battles just because I let Congress worry about those more than anything. But when you walk into a credit union or meet with your local credit union representative, it looks and feels just like just about any Mainstreet financial institution. We have checking accounts, we have credit cards, we have car loans, and mortgages and investments and all those types of things that you have. But really what is different from that underlying structure is what a credit union is, is a cooperative. And it’s owned by the members, just like any other cooperative business. It’s run by a board of directors who have who’s elected by the members of the Associate of the of the organization. And really the profits, you know, kind of go back into helping make it a stronger organization. So what and and credit unions have, it used to be, you know, maybe when you were growing up, it was the local teachers credit union, or the local factories credit union, and they really tended to serve just that tight knit group. Unless you were an immediate employee there. But it you know, you probably couldn’t join, but that’s probably been the biggest change in the past 15, 20 years is that credit unions are much more open to people from wider groups. And what happened about 20 years ago, is so many people had credit union relationships. Well, and then maybe as they progress their life, they open up a business, they open up, start buying real estate, and they have this nice relationship. But they couldn’t help out their credit union. So the law was finally changed that allowed that to expand and be open. So but yeah, that so that’s kind of where we came into play and started building this up. But yeah, that was you know, when you look at it the same day, I hate to say it’s commodity and sometimes commodity products are very boring. But really, you know, we look at it as that co operative difference helps makes that the culture of the credit union network. A little bit different. It’s nice to work in an industry where nobody’s out there protesting on the streets against their local credit unions as evil people.  We’`re usually considered the good guys in this business.

J Darrin Gross  7:12  

I can say from personal experience, you know, I’ve used banks, savings and loans, and I have actually have a commercial mortgage through a credit union. And I was pleasantly pleased at how easy and personable it felt, you know, they’re easy to deal with and personable and and I can’t say as a user, that there’s any distinguishable difference as far as the look and feel like you mentioned. So I would, I would agree that So you mentioned 20 years ago, laws change.  What what was it? congressional act or changed? 

Mark Ritter  7:57  

Yeah, they’re the it actually rolled back into the Federal Credit Union act, that it did two things.  It it really made it clear that they wanted to open up the membership to multiple organizations or larger communities and allow different groups, many different groups to join into a credit union. And that’s why you see, you know why a lot of credit unions that you probably drive past in your neighborhood, if you really wanted to, you could probably go in and open an account. So that opened it up. And then in conjunction with that, they also opened up the commercial lending function, where it used to be very, very tightly regulated to the point where it’s almost impractical. So and that, like I said, that was about 20 years ago. And when I got into credit union business lending, you know, here in Pennsylvania, we had $13 million in credit union commercial loans among every credit union, and almost all of that was for Amish credit unions. So is a real narrow niche and hardly ever done. And today we have billions just here in Pennsylvania and credit unions, you know, each year we’re funding about 25 billion in commercial loans.

J Darrin Gross  9:16  

Well, it’s great, great growth. Are you finding that that real estate investors are more regularly thinking of credit unions for commercial lending? 

Mark Ritter  9:28  

You know, that’s actually our biggest challenge is being that Top of Mind choice. You know, when you drive past your community bank, when you drive past the regional banks or the big banks, they all know that it’s a choice. But credit unions in the United States have over 100 million members. So really, you’re talking about a third of America belongs to a credit union, but they just don’t think to maybe put that you know, when they’re in the market to should go to that same place where they already have The relationship. And as you probably know, it’s it’s some of the easiest places and best places to get the terms or where you have that in show have that established relationship. So really getting people to expand. Now not every credit union does commercial lending. So sometimes maybe they have that membership at a credit union, but they don’t do it. And they think, oh, credit unions don’t do that.  Where in fact in the truth is maybe they just have to shift to somebody else down the street or in the region. And that’s really where we help out is we’re kind of an aggregator for credit unions being owned by credit unions helping drive the business. So and sometimes credit unions are relatively small institutions, compared to you know, your regional banks. So being a cooperative industry, we basically partner credit unions together. You know, this year we’ve done deals over $20 million You know, that’s the anomaly some, you know, our average deal, maybe is a small balance real estate deal. It’s very common to do deals of a couple million dollars in size. So but but maybe that local credit union can’t fund the deal themselves. So but but it’s a very cooperative industry that works together for real estate investors.

J Darrin Gross  11:22  

So when you say your your average deal size you mentioned, you know, a lot of the small balance real estate stuff. Are you guys actually do you hold the paper or are you is kind of a, you put it through Fannie or Freddie or?

Mark Ritter  11:39  

Credit unions hold all their own paper, okay. They really don’t sell off to agencies. And I hate to say it, but the best years for credit unions are typically after a recession because credit unions, you know, they can sit down and talk with somebody about their transaction and make that decision based off of the facts. And credit unions are also after during a recession or tougher softer times are flush with cash. So they’re looking to make loans and they’re looking to have those conversations with real estate investors so that they can get that deal done. Whereas maybe a larger institution tends to have a box and if it’s in the box, that’s great. And if it’s out of the box, it doesn’t work. Where where somebody in our in our industry can sit down with the decision makers and they can sit down to the investors can sit down with the people behind the money.

J Darrin Gross  12:42  

Yeah, I have to say from personal experience, the lending was fairly simple. With a credit union. I presented you know the the property in this case Kind of my estimates based on all the expenses, I was able to show the debt cover ratio. You know, and it was basically, I don’t remember the exact but I want to say that presented all that to my, I still call him a banker. But the person I worked with that credit credit union, and he presented to the loan committee and and you know, it was very shortly thereafter I got a call saying when you want the money,

Mark Ritter  13:33  

It, they tend to be a much flatter organization where that person that you talk with and working on the transaction isn’t that far removed from the senior executives, so that everybody knows that conversation and they’re looking for those relationships to make that first deal and in the future?

J Darrin Gross  13:55  

Yeah, and then even even kind of what’s been demonstrated during this COVID crisis, I’ve seen just the value of those relationships and the ability to have a conversation. You know, and to, you know, whether it be rents or whatever the, the, the concern might be, if there was any issues there, there was somebody that was available to talk with, as opposed to an 800 number, or on hold or go to the website kind of thing. That’s good. So what what are some challenges you find on on connecting with investors to make them, you know, recognize the opportunity with a credit union?

Mark Ritter  14:49  

You know, what, once we usually get over that perception and choice, you know, then it’s a fairly easy conversation because what we’re selling is what a lot of people are looking for in that they people like that connection, they want those relationships directly with the lenders. They don’t want to be merged through another institution and then move down the ladder. But there’s over 5000 credit unions in this country. So and maybe, you know, maybe a quarter of them are really active hardcore lenders, some of them just dabble. Or maybe there’s, they’re too small for this. So sometimes people have to weed their way through and find that nice fit for them themselves, and not just kind of judge that first institution that they say and say, oh, credit unions don’t do that. Much like banks, people tend people tend to lump credit unions into this homogenous bucket. Whereas maybe they don’t do that with a bank. You know, they think oh, credit unions don’t do this, or credit unions, this is how they do things. When in reality there, there are many different distinct financial institutions. In many of the metro areas, you know, their billion dollar plus institutions, which people don’t think about, you know, the largest in the country is over a billion hundred billion dollars in assets. And people don’t, you know, people still think of them as their credit union that’s on the corner of the street. So getting over that perception and making us a choice is the by far the hardest part of our job. Because credit unions tend to be friendly on fees, they tend to be friendly on terms. Federal Credit Unions can’t charge a prepayment penalty. And that’s part of that’s in the federal Federal Credit Union act. So things like that, that make us very friendly. You know, that’s good. But get making a choice for somebody who may be the more you’ve been in the more real estate You’ve had, the longer you’ve been in it, maybe when you started out credit unions weren’t an option. But now we are.

J Darrin Gross  17:07  

Yeah. And you mentioned the loan size. It didn’t sound like there is really a limitation on that. Can you speak a little bit to kind of the range of loan able to do?

Mark Ritter  17:22  

Well, and that’s what’s nice with us being owned by many different credit unions and working with them. We do deals, maybe it’s the first property you’ve wanting to buy, and kind of get your toe get your get your feet wet in their toes in the water. We do those types of loans and help build some small ones. Plus, we’re in some major metro areas and do large scale traditional cre deals up to 15,20, $25 million. That you never would really think a credit union could be in the ball game of we’d like to be a lot of things to a lot of people.  We do your know your multifamily. We do owner occupied real estate.  You know, credit union, like we we tend to be what I’ll call Main Street and community lenders, when you say what do we like to do? Well, they like to do what’s in their marketplace to help out their community. That’s what they like to do. So and that’s, that’s a nice experience, as opposed to some financial institutions where you say, this is my box and it’s either in or out.

J Darrin Gross  18:30  

Yeah, I think the box underwriting is kind of one of the hazards of the bigger, bigger institutions. And especially the more computerized things get, you know, if it’s a computer making a decision based on some preset parameters, I’ve seen, deals that make sense to me not make sense to the larger system.  And, you know, so whereas, versus the ability to have a conversation with somebody and lay it out and talk through it, it seems like there’s a, an opportunity there. If somebody is having a challenge, you know, trying to get a loan from from a lender. Can you make a suggestion or is there is there a good? Is that a good time to say, you know, what about the credit union?

Mark Ritter  19:35  

 You’re exactly right.  That what if you if we really strive, you know, our products are nice, but my dollar spends the same dollar as everybody else. If you’re having trouble having those conversations, if you’re looking for more of that relationship where somebody can come out and see your property and your project and talk through it, and meet with the credit team, and meet With the credit decisions, you’re a good fit for a credit union. If you’re, if you’re just looking for corporate, you know, here’s the box, this is what we do. That’s it. Well, now maybe we can see if we can help. But maybe there’s other people out there who can do it the same as everybody else. But But yeah, that that’s a perfect example of who we are and what we’re looking to do. You know, in today’s world, credit unions are funding loans. Despite we’re actually back in June, we were back to funding loans at the same pace we were prior to the pandemic. Do do we ask a couple more questions? Absolutely. You know, we’re stewards of our members money and for the institution. So we want to make smart decisions, but we’re making those decisions and out there making money and making loans for people to put to push it out there.

J Darrin Gross  21:00  

Let me ask you about rate. I think one of the things that that I’ve seen happen a lot when I speak with real estate investors, and it depends a lot on where they’re coming from, if they’re, they’re used to getting a home loan, and then all of a sudden, they’re they’re trying to buy a piece of commercial real estate. And there, they’re used to having that conversation with the advertised rate. And, you know, thinking that they should have, you know, a certain rate, but not understanding the difficulty to get that rate for the type of product that they’re, that they’re looking for. Can you speak a little bit to that? Because I think that’s one of the things I found that, that when I talk with people, they their perception versus what they really wants the money?

Mark Ritter  21:49  

Yes. Yeah. And where we sometimes struggle the most with is maybe that newer real estate investor or somebody who’s in the residential space. Looking for that same transaction that is that they have on their home, even though you’re buying a home or you’re buying a two unit property, it’s not the same. You know, we’re not selling these loans on the secondary market, it is a little bit more work. But it is a little bit higher of a rate. We try to be competitive on the rates and do things that are fair for the membership and for the borrower. But the rates are certainly certainly in line with what you see everybody else. The one thing that we’re that we’re proud of in the credit union is that we are lending our own money. You know, we’re not borrowing against it or hedging it. And so so we have more flexibility since it’s the credit union’s own cash to manage that relationship as it goes on. You know, this, as I mentioned, we didn’t have we don’t have a prepayment penalty. And that’s by that’s by design for federal credit unions. So when rates plummeted this year, credit unions could modify and even last year, credit unions could modify their loans down. Because it’s really that internal borrowed funds. They didn’t borrow and match funds against it and have a yield premium that they have to maintain where there’s a penalty on the back end. So with our flexibility, being a cooperative structure allows us to be fair on rates not just at closing, but as your pro as your project progresses in the future.

J Darrin Gross  23:39  

Want to ask you a little bit more on that your money versus borrowed money. My understanding is that most banks, again, this is kind of a very basic description, but based on what they have on deposit, then they’re able to borrow at the federal level. And then that’s the money they they lend out. And based on the rate, that they can borrow the money, then they increase that rate to when they lend it out and set spread on that is essentially the way they’re they’re making their their fees.  Is that not the case with credit union?

Mark Ritter  24:22  

A credit union, almost every dollar dot, there’s a couple rare exceptions out there. But in today’s world, if for every dollar of credit union deposits, usually about 85 cents to 85 to 88 cents is lent out to borrowers. So it is indeed it’s not borrowed funds, where they have a note to pay. It is just internal funds that they’re lending against, based off of the deposits of people that have accounts at the credit union. So they’re not beholden to secondary markets, third party investors, other loans that they have out there to their people. It’s really they can just sit back. And you know, and unfortunately in today’s world, those deposits don’t pay a lot. You know that that’s the nature of the beast. But that also bleeds through to credit unions being able to have be much more flexible in the money that they lend out because it is indeed a cooperative structure of that money that’s in there. That through everybody’s accounts, that’s the actual dollar that’s being lent out to two real estate investors in small businesses.

J Darrin Gross  25:40  

Hmm, I didn’t, didn’t know that, per se. I guess I hadn’t really thought it through. But that’s that’s interesting, because that’s always been kind of the model that I thought of a bank worked on. But clearly realized as of late, that that’s not the case at all. The banks or banks are basically, you know, they really don’t want cash they want just enough so they can borrow more. So they can lend more kind of thing. That’s the nature of them. Well, that’s, that’s good stuff. I appreciate you sharing that. And, and so if you were to identify a, a prospective, ideal borrower, could you sum up what a, what a good candidate for a credit union would be based on the loan size and the property type?

Mark Ritter  26:39  

Sure. And I hate to give a broad answer, but we, you know, we deal with a lot of broad people, we’re looking for people who want first of all want that relationship with your institution.  That we can have a conversation and get to know who you are and you’re, who you are now and where you’re looking to go. And we really focus on the real estate side on three major buckets. You know, about a third of our business is that residential real estate investor, maybe you have two units, maybe you have 100 units, maybe you have 200 units, we have a lot of relationships where people you know, they’re in that business of the residential real estate side. The other piece where we do a lot of is that owner occupied small business and I would call in that segment usually we’re, we’re in that small balance commercial real estate, maybe we’re under a few million dollars, you know, and it really we deal in Center City urban areas and we deal with small town America. So so we’re willing to go in those secondary markets a lot more. 

And and the third bucket that we love, is that just a straight up commercial real estate investor. Maybe you have So some different projects that are credit worthy, but there’s an explanation behind them. We’re good where we can talk to you on that piece. You know, we’re not looking to finance a Manhattan skyscraper, but there’s a lot of apartment buildings and office buildings and medical offices. And, and maybe that average sized in your portfolio is two and a half million dollars. We do those all day. You know, like I said, and we do some bigger ones, and we’ll do some smaller ones. So and what we tend to do is, you know, not all credit unions are homogenous. So we tend to talk to our people and try to match them up with somebody in their area that’s lending that fits the scale on who they want to be and where they want to go in the future.

J Darrin Gross  28:49  

No, that’s great. That’s great. Hey, Mark, if we could, I’d like to shift gears here for a second. I mentioned to you earlier by day I am an insurance broker and such I work with my clients to assess risk and determine what to do with it. And there’s a couple of different strategies we typically consider. The first is we ask, can we avoid the risk? The next one we ask is can we minimize the risk? And if we cannot avoid nor minimize the risk, we look to see if we can transfer the risk. And that’s what an insurance policy is. And I like to ask my guests if they can identify what they consider to be the BIGGEST RISK?  And I’m looking for is kind of you can take a look at what your your clients and or your business across that, that spectrum. And just to be clear, I’m not necessarily looking for an insurance related answer. But if you’re willing, I’d like to ask you, Mark Ritter. What is the BIGGEST RISK?

Mark Ritter  30:00  

As a lender and people who like to lend money for your real estate investments, my BIGGEST RISK that we come across is is it is kind of nothing to do with real estate. It has to do with the people behind it. When loans go bad in our cases, the vast majority of time it has to do with the people behind it. Maybe you had something go on in your personal life, maybe you you had that vise that you have to get taken care of. Maybe sometimes enough that some things are never enough, where you you can’t put the brakes on your growth. And because what happens is maybe when that personal life is out of whack, whether it be a whether it be a substance, whether it be some values, whether it be too much spending is that tends to cause people To make take too much risk in their commercial real estate business, where their margins and and window of error is much tighter. And then as soon as there’s a bump in the road, things start to snowball. So we really that’s why to manage that risk, we really want to get to know the people behind the transaction as much as the transaction itself. Because, you know, if we have good people who manage their personal life and their expenditures, all right, in a good manner, then all that then you’re much more prepared to manage the risk in your commercial real estate life.

J Darrin Gross  31:45  

Makes a lot of sense. kind of messy life can turn to keep it all contained there. That’s, that’s, unfortunately, it’s true. But I think that, you know, I know as an insurance broker, there’s a lot of those types of questions. We look at as well. And, you know, they don’t always present themself up front. But usually there’s some clues. When you get to the claim, you know as to whether you could see it coming when you put all the pieces back. When you look in the rearview mirror and see all the pieces there so I can appreciate that. Mark, where can listeners go if they would like to learn more connect with you?

Mark Ritter  32:26  

Sure. The easiest if you’re a real estate investor and want to get connected with a credit union, you can reach out to us at mbfs.org mbfs.org. And if we don’t have a credit union in your marketplace that can help you out. We have friends all over the country, with other credit unions that we match you up with and get you pointed in the right direction. We’re very active on LinkedIn. I’m a big LinkedIn user Mark Ritter, or they can they can also look up Member Business Financial Services. is on LinkedIn, but the website’s probably the easiest.

J Darrin Gross  33:06  

Mark, I want to say thanks for taking the time to talk today. I’ve enjoyed it tremendously and learned a lot. And I hope we can do it again soon.

Mark Ritter  33:15  

Appreciate the conversation. Thank you.

J Darrin Gross  33:18  

All right. For our listeners, if you liked this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CREPN Radio.

Intro  33:38  

You’re listening to CREPN Radio for influential commercial real estate professionals. For more information on this or any of our guests like us on Facebook CREPN Radio.