GPARENCY Disrupts CREF Industry with Membership-Based Brokerage Service

The commission-based mortgage broker model doesn’t have the General Partner in mind, it only considers the loan amount. At least that’s what Ira Zlotowitz said after nearly three decades in the industry, including 20 years at the company he founded, Eastern Union. Zlotowitz came up with a radical new pricing model built on a subscription instead of percentage-based fees. As a result, it revolutionizes the way commercial real estate owners engage and pay for mortgage broker services, effectively saving them tens of thousands of dollars in commissions, empowering them with intel, and giving them equitable access. GPARENCY, the premier commercial mortgage brokerage firm Zlotowitz founded last November, disrupts the industry by allowing GPs to have the entire mortgage process handled within a subscription service that costs $5,000 for membership, and a maximum of $11,000 per deal. Partner Insights spoke with Zlotowitz about how GPARENCY is changing the game for commercial real estate borrowers.

Commercial Observer: Is GPARENCY a commercial mortgage brokerage firm?

Ira Zlotowitz: Yes, we are — we just price the process differently. Due to our membership model, borrowers pay much lower fees than traditional mortgage companies. Membership with GPARENCY costs just $5,000. After that, every deal you want to close costs $11,000 max. 

To be clear, when you say any deal, do you mean no matter the loan size?

Yes. Every closing costs a max of $11,000. The fees are the same to close a $100 million multifamily refi in New York City as it is to close a $2 million construction loan in Alabama. At that price, it’s like taking half a point off your interest rate.   

What would the normal brokerage fee for those two cases be?

The industry standard is that brokers charge 1 percent of the loan amount. So on the last examples, for the $100 million deal in NYC the fee would be $1 million, and only $20,000 for the construction loan in Alabama. In reality, it is a lot more work to close a construction loan than a typical refi — let alone a multifamily one. Yet, the current brokerage model only values the loan amount. So in this case it is 50 times more expensive to close a simpler transaction. How does that make sense?

GPARENCY only charges $11,000 even on a large construction loan? How can it be done for so cheap?

Yes.

There is a major misconception, so let me tackle it and explain. The true question is: Why do brokers charge so much when the costs are much less and the work should be priced similar to how lawyers charge — by time and value?

For starters, 80 percent of commercial real estate owners don’t even use commercial mortgage brokers. They go directly to the lenders they are comfortable with, and their office staff runs the process.

With a GPARENCY membership, these same owners benefit by the fact that our team of 10-plus lender concierges provide all the banking intel on rates and terms and make an unlimited amount of introductions to lenders for any deal type. Only if and when a borrower feels they need more services, then we offer typical brokerage services and only at a max of $11,000 to close each deal. The borrower even has the option to just use parts of the $11,000 —  for $4,000 we underwrite, shop and negotiate the term sheet, and for an additional $7,000 we will run the deal until closing.

The subscription covers our basic overhead while the $11,000 covers the brokers and underwriters (we call them funding coordinators) to close the deal.

Here is the math showing why the $11,000 is still very profitable:

Most deals in the industry are run by an underwriter who closes about 100 deals a year, and earns a max of $300,000 to $500,000 a year. That max works out to an average of just $5,000 per deal. $11,000 per deal affords a lot of room for profit. And with our technology, more than 100 deals can be closed a year!

Is there any proprietary technology at play here?

Yes, a tremendous amount. As of now, most of it is behind the scenes. Over the next 12 to 18 months, my co-founder, Ben Schweitzer, who ran technology products at Freddie Mac, together with his amazing team will be making all this technology client-facing. To start, at the end of April, we launched the first release with a new product called Match to Lender, which allows any GP to go to our website, select their state and property type, and find a lender who’s a solid match for their deal. It’s going to be a game changer. Our Match to Lender database lists over 3,000 lending institutions and can be accessed at gparency.com/match-to-lender. You can type in, for example, “multifamily” and “Texas,” and see which lenders lend multifamily in Texas, with the information you’ll need to call them direct.

What were the biggest issues you had with the traditional commercial mortgage industry model?

Because there was a one price fits all for brokerage services, I found that even though they were missing out on some of the brokerage services, more and more clients were opting to go direct to avoid the fees. And those that were using a broker were negotiating lower fees, and there was no transparency to show when you could provide a better deal because so many things were opaque behind the scenes. Experienced borrowers felt that they only needed some of the services of a broker, and not all. I saw an industry shrinking, and thought I’d rather be on the side that’s growing, while offering a subscription and lower fees at the same time.

You mentioned the membership several times. What does a GP get for being a member?

They get a dedicated concierge who provides any CREF intel that we have, and an unlimited amount of intros to lenders for their deals. We are also building out a database of updated and confirmed listings of deals available throughout the country, and we make the intro to the listing brokers, as well as offer access to equity resources. Over the course of the next year, as we build out our technology, we will be adding more and more resources.

Have you received any pushback from mortgage brokers on this?

I thought there would be a lot more pushback at the beginning. The reality, though, is that brokers that are successful believe they’re irreplaceable — that’s what makes them great at what they do. I’ve had a few competing brokers invest in the business. They said, let’s call it a hedge in case you’re right. 

How do you envision the future of the company? What will GPARENCY’s effect on commercial mortgages look like five years from now?

The industry is going through changes and mergers. I think the market’s going to a model similar to residential, to a certain extent, where people are going to go online and quote out their deals within a Robinhood type of technology. This gives more power to the GP. I want to be that front door. When you’re deciding where to go, let me tell you your options. 

As to where the market’s going, I think a higher percentage of owners will be more comfortable dealing with lenders directly, and there will be fewer lenders, with a lot more mergers taking place.