Commercial Mortgage Glossary
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This refers to tenant with a top credit rating. This type of tenant is often critical to a developer’s ability to arrange both construction and permanent mortgage financing for a major commercial project, such as a shopping center or office building. The more AAA Tenants you have, percentage-wise, the better your commercial loan rate will be.
Loan that features artificially low payments for a while-usually 3 to 5 years, with a large lump sum payment due at the end of the term. In mortgages, these loans feature level monthly payments that will fully amortize it over a specified period, but then there’s a balloon payment that’s due at an earlier time. Balloon mortgages are typically used by investors for property they expect to hold for only 3-5 years. When homeowners use them, they plan to refinance when the balloon comes due.
Common Area Maintenance. Charges for maintaining the common areas of a building, apartment complex, or condo development. Usually assessed monthly, quarterly, or annually.
Payments made on a commercial loan or real estate loan. Used to compute cash flow-debt service is subtracted from rents received from real estate investment property.
A sum of money or other consideration given by a prospective purchaser to the seller as evidence of good faith along with an offer to purchase rights in real property. Often non-refundable, or with strict conditions on refunds.
Commercial Real Estate Broker Information
Park West Capital strives to provide complete customer satisfaction by offering a spectrum of financing options to achieve the result our client is seeking. Whether the primary objective is maximizing the loan dollars available; obtaining the lowest possible interest rate; or maintaining the maximum in flexibility in terms of prepayment; we work for you to determine the proper source of financing for your project.
We have relationships with various national lenders to provide a wide range of financing alternatives. Our financing sources include:
- Life Insurance Companies
- Conduits also known as Commercial Mortgage Backed Securities originators
- Pension Funds
- National and Regional Banks
- Special Finance Companies
- Private Money Funds
We pride ourselves on providing creative solutions to complex issues. We specialize in recognizing the unique attributes of each transaction and matching it with the appropriate lender and structure.
The Commercial Real Estate Lending Process
After you have discussed your loan request with a representative, the next step will be to provide information regarding the property. Most loans will require the following information to begin our in-house underwriting process:
- Property Ownership Description
- Prior two year-end operating statements for the property
- Year to date operating statement for the property
- Current Rent Roll
- Copies of leases or summary of lease terms
- Summary of capital improvements to property
- Smith Travel Research (STR) Report (if hospitality property)
- Photographs of property and neighborhood (electronic preferred)
Once we have completed our in-house underwriting, your package will be submitted to the appropriate lenders for their conditional approval. At this point, you will know the rate and terms of the proposed loan and third party reports will be started. These generally include the following:
- Property Condition Report
- Environmental Phase One or Environmental Insurance
- Insurance Review
- Title Insurance
You will be asked to make your deposit for these expenses at this point. The actual amount of the deposit and costs varies between lenders. You will have a detailed estimate of all closing costs and expenses with your loan proposal and prior to spending any money.
At this point, your Park West Capital representative will review any additional items that the Lender will require and commence collection of all outstanding items to move toward closing.
Q. What types of property are eligible?
A. Income Producing Real Estate
Q. What is Park West Capital origination territory?
A. Southeast North America & Northeast North America
Q. What is the most I can borrow on my property?
A. A number of factors influence this. We have lenders offering very competitive rates for loans with up to a 80% loan-to-value. For example, a single tenant property with non-investment grade credit, that has strong earnings and net worth on a long term lease may be able to obtain 85% financing that includes typical non-recourse terms.
Most loan requests will have options available between 75% to 80% loan-to-value.
Q. Is there a maximum loan amount?
A. Maximum Loan Amount $25,000,000
Q. How is the loan amount determined?
A. The maximum loan amount available is determined primarily by property type, property value and cash flow of the property. Two very important ratios in determining value and cash flow are the Loan-to-Value Ratio and Debt Service Coverage Ratio.
The Loan-to-Value (LTV) Ratio is computed by dividing the loan amount by the property value as determined by the outside appraisal. Acceptable Loan-to-Value amounts can range from 50% to nearly 100% depending upon the property type and loan product. Most properties will have financing available in the 75% to 80% LTV range.
Loan Amount/Appraised Value = LTV
Another important determinant of the loan amount is the Debt Service Coverage Ratio (DSCR). Lenders will look to the operating performance of the property to establish that the cash flow is adequate to service the debt and provide a margin of comfort for changes in operating status such as increased expenses or vacancies. This margin is referred to as the Debt Service Coverage Ratio.
The requirements for financial performance vary among loan programs and by property type. Generally, the range of required DSCR is 1.20 to 1.30. This ratio is calculated based upon a detailed analysis of the current year-to-date and the most recent two year-end Profit and Loss Statements for the property, and analysis of the current Rent Roll and Leases. The definitive DSCR is finalized by the property appraisal. The ratio is calculated by dividing the underwritten cash flow available for debt service by the annual mortgage payment amount.
Annual Cash Flow from Property/Annual Debt Service = DSCR
Q. What are the closing costs?
A. Because we represent a large number of lenders and loan products the closing costs can vary widely. All loan proposals presented to you will include the estimated closing costs. This way, you will be able to make an informed decision.
Q. Will my loan have prepayment penalties?
A. Many of our institutional loans come with prepayment penalties. Some of the lowest interest rates will carry the most stringent prepayment penalties. The vast majority of the loans available through Park West Capital that include prepayment penalties are also fully assumable. We will discuss your plans and objectives early in the loan underwriting process to match the loan terms with your objectives.
Q. How long will it take to close my loan?
A. Generally loans close between 45 to 60 days from the date you submit all required documents. It is possible to close in less than 45 days. You should discuss your specific timing needs with your loan officer during initial loan discussions.
Q. What does a “non-recourse loan” mean?
A. Many of our institutional lenders offer loans on a non-recourse basis. That is, the lender takes the market risks. If the property fails to provide adequate income to support the operating costs and debt service, the borrower could opt to not invest additional dollars in the project and turn the property back to the lender. If the lender sells the property for less than what is owed, the lender will not come back to the borrowing entity or principals personally requesting the difference between the final disposition price and the loan balance.
The borrowing entity and principals normally will be required to execute a guaranty addressing areas such as; fraud, waste, misappropriation of proceeds, environmental liability and bankruptcy. These are the traditional “carve-outs” of non-recourse financing.