Upload
troy-pennington
View
218
Download
0
Embed Size (px)
Citation preview
Commercial Real Estate
Commercial Real EstateSection FourFinancing
1. Parties to the LoanBorrower the loan is a debt
Lender the loan is an investment
Originator (loan officer) Takes loan application and initial information
Processor (usually a term) Processes the application and determines what document/inspection will be required
Underwriter (usually a committee) decides to make the loan or not
2. Types of LendersCommercial Banks Portfolio lenders (usually keep the loan for some period of time). May securitize loan later.
Life Insurance Companies/Pension Funds Usually portfolio lender
Commercial Mortgage Backed Securities CMBS Bonds backed by commercial mortgages (where all the trouble today came from)
Conduit CMBS loan
2. Types of LendersCorrespondent Facilitates Conduit loans
Mortgage Broker Brokers loans with money from any of the above (big ones can portfolio for a time).
Can be paid by fee and/or spread (difference between wholesale rate and loan rate)
Specialty Lenders (any of the above) Specialize in particular types of properties (i.e. gas stations)
3. Lending TermsLoan to Value = Loan Amount/Price (value) 80% = $400,000 (loan / $500,000 (price per value) OR 100% minus the down payment
Debt Service Coverage Ratio DSCR Ratio of income to paymentDSCR = NOI/Payment (principle or principle and interest)1.25 = $50,000/$40,000
Securitized Packaged with others loans and sold as a bond (sold on Wall Street)
3. Lending TermsDebt Ratio
Monthly Payments / Monthly Income
Not often used in commercial lending (more residential)
1:3 to 1:4 is common today (debt service does not exceed 25-30% of monthly income)
3. Lending TermsLoan Term Time until loan is due
Amortization Period May not be same at loan term
30 year amortization due in 10 years
Balloon Payment the balance due at end of loan term
Points
Discount Points = interest on the loanOrigination Points = fee for securing the loan
Buy Down Borrower pays Origination Points to Lower Discount Points (interest rate)
3. Lending TermsLoan Origination Costs paid during escrow
Deposit - may / may not apply to other costs may / may not be refundable. (Not earnest money)!Appraisal (expensive)Environmental (Phase I or Phase II NOT Phase III)Inspection(s)PhysicalEngineeringSpecific trades
3. Lending TermsLoan Origination Costs paid during escrow
Legal Opinion Letters ($20,000 - $60,000)Legal costs (borrower)Legal costs (lender)Title (ALTA will require a recent survey)
3. Lending TermsClosing Costs Paid at Closing
PointsTitle Insurance (sometimes both sides)
Recording fees (can be very high)
Assignment of Warranties
Escrow fees (Closing Agents fees in other states)Proration
3. Lending TermsClosing Costs Paid at Closing
Prepaid Fees Impounds
Taxes
Insurance
Payment
Tenant Improvements
Maybe even CAM
4. Debt Service
The cash that is required for a particular time period to cover the repayment of interest and principal on a debt.
5. Pre-Payment Penalties
Yield Maintenance Defeasance
Loan is assumable (usually 1%)
Can be paid off but extremely expensive
5. Pre-Payment Penalties
Step Down 5% first year, 4% second year, 3% third year, etc.
To avoid prepayment penalties, you may be able to get the buyer to assume and discount the price the difference between current interest and loan interest.
6. Commercial Loan Application Buyers Documents
Tax Returns for borrower(s) and business entities
Bank Statements 3 months (show seasoned down payment)
Personal Financial Statement updated in past 90 days
P&L
Balance Sheet
Management Resume
Borrowers Business
6. Commercial Loan Application Buyers Documents
Resume of buyer experience owning similar properties
Resume of management company
6. Commercial Loan Application Buyers DocumentsLLC or LLP Paperwork
LLC (Limited Liability Company) Not a corporation
LLP (Limited Liability Partnership) - A partnership in which some or all partners (depending on the jurisdiction) have limited liabilities.
Usually require Single Purpose LLC that will own nothing but this property
Ask lender what state it must be formed in
Ask lender what provisions they require in LLC documents (ask before it is formed)
7. Commercial Loan Application Documents from Seller
P&L for past two calendar years and this year to date (do not need balance sheet)
Sellers tax returns (Scheduled E)
Rent Roll showing move in date and lease expiration date
Copy of all leases, rent increase notice, and amendments
Tenant Estoppels / SNDA
Tenants Financials
7. Commercial Loan Application Documents from Seller
Casualty Insurance
Liability Insurance (lender may require endorsements)
Zoning Compliance Letter (you may have to get this)
Certificate of Occupancy
Copy of Current Tax Bill