Mortgage Banking

Making sense of commercial real estate finance.

Archive for January, 2008

Commercial Real Estate Events

Posted by Jordan Crouch on January 31, 2008

I’m going to start posting any commercial real estate events in the Seattle area. Look for a new tab above this post soon.

If you are in the area, please suggest an event to be included in the comment section. I’m looking for anything related to commercial real estate. Examples: NAIOP, BOMA, CREW, brokers open house, SIOR, CCIM, someone from our industry speaking, etc.

Thanks for your help!

 UPDATE: The events tab is now up. Please let me know if I forgot anything. Send me an email at Jordan(at)JordanCrouch(dot)com


Posted in Seattle Real Estate | 1 Comment »

What is DSCR?

Posted by Jordan Crouch on January 30, 2008

A broker new to the industry recently asked me what this term meant. I realized others might be confused about this term as well.

DSCR stands for Debt Service Coverage Ratio. The quick and dirty explanation is it is a numberthat tells how easily a borrower will be able to make his or her loan payments. How can a number tell this? By creating a ratio of net operating income(NOI) to loan payments. Here’s an example:

Let’s say Lucy owns a building. After collecting all the rent and paying all of her expenses for the year, whatever cash she has left over is called Net Opertating Income (See below)

RENTS     $500,000
Expenses $100,000
NOI          $400,000

Lucy has a loan payment of $275,000 per year. To get the DSCR, take the NOI divided by the loan payment.
$400,000 / $275,000 = 1.45

In this example Lucy has a DSCR of 1.45, which means she could pay her loan payment and still have lots of cash left over. Any lender would like a DSCR this high.

The higher the DSCR, the better. If the DSCR was 1.0 there would be just enough cash to pay the loan,making the lender very nervous. If the DSCR was 2.0 there would be twice enough cash to make the payment. Each lender has a different comfort level how high or low the DSCR is. Depending on the property type a DSCR of 1.25 is typically the minimum. That said, I’ve seen them as low as 1.15 for special cases (though not recently) or even 1.01 for credit tenants (like a Walgreens, Microsoft, etc.) The DSCR is just one way a lender will use to examine a loan.

Posted in Finance 101 | 3 Comments »


Posted by Jordan Crouch on January 29, 2008

Last week, I attended the Leasing Forecast sponsored by our local NAIOP chapter. Here are the highlights with my thoughts at the end.

An industrial broker from Colliers spoke about six challenges for the future.

  1. Oil/Construction costs -rising
  2. New FEMA flood Plan – covering 100% of the Kent Valley
  3. Puget Sound Traffic – the area’s main detractor
  4. Credit Markets – making deals difficult
  5. Land Costs – rising
  6. Green Movement-more of a trend than a challenge, but something worth being aware of

Next was an office broker from CBRE specializing in the Seattle CBD. He mentioned there are many tenants expanding: Microsoft, Amazon, Starbucks, Safeco, and Nordstrom to name a few. Rental rates are up and vacancy is down. He had a positive outlook on the Seattle Office Market.

Last was a Bellevue office broker from GVA Kidder Mathews. He listed three main 2007 events to note:

  1. E.O.P. sale,
  2. Several large tenants leasing large chunks of space,
  3. There is 2.5M square feet of new development in Bellevue and most of it is preleased.

The two most interesting facts he shared was that Microsoft owns or leases 25% of the Eastside office market and for every new Microsoft job, 3.4 other jobs are created.

My Thoughts

On the Industrial broker’s 6 challenges:

  1. Agree, this will continue to be a problem.
  2. The Kent Valley is the main industrial hub of the Puget Sound. The repercussions of FEMA’s new plan haven’t been felt yet.
  3. Traffic here is ridiculous.
  4. This will be the biggest challenge for 2008.
  5. Land is so scarce developers are going almost 100 miles out to get raw industrial land.
  6. This will continue to be more “mainstream”

On the Seattle office broker’s comments: there is definitely a lot of expansions/new development. Last time I counted there were 13 cranes in the Seattle CBD. As for the Bellevue Office Broker, he’s right on. Microsoft, Yahoo, Expedia, Eddie Bauer all have taken HUGE chunks of space in the CBD. The EOP sale was a major 2007 event. The new construction is changing the face of Bellevue.

Posted in Green, Seattle Real Estate | Leave a Comment »


Posted by Jordan Crouch on January 28, 2008

-The French Bank Societe General lost $7.9B via a rogue trader. All the details are still coming out, but what is certain is the incident affected the overall market.

-After a bad Friday two weeks ago, coinciding with Societe General’s troubles, world markets began declining, prompting the Federal Reserve to drop the Fed Funds rate 75 basis points during an unscheduled emergency meeting.

-US Markets buoyed slightly after the rate drop but are still down 10% year to date.

-The 10 Year Treasury Yield has also been pulled lower to 3.57%, down 30 basis points from Jan. 1.

-This week look for a sign from the Fed’s meeting on Tuesday of the state of the economy. Another interest rate drop is expected. Also tune into the President’s State of The Union address tonight at 6pm.

Posted in Capital Markets | Leave a Comment »

A Few Economic Notes

Posted by Jordan Crouch on January 14, 2008

  • After flirting with bankruptcy several times last week, Countrywide was bailed out by Bank of America. The planned $4 Billion purchase by BofA follows a $2 Billion cash infusion made by BofA last year.
  • WaMu, also suffering from sub-prime losses, is rumored to be a takeover target by JP Morgan.
  • There is growing concern about an economic recession in the US and what effect a full-blown recession will have on the world economy.
  • The commercial real estate market has not seen the drastic slowdown that the residential market has, but some prognosticators are expecting a similar situation in the commercial real estate to occur in the next 12 months. Will this happen? Time will tell.
  • The Federal Reserve will meet later this month and is expected to lower interest rates again.

Posted in Capital Markets | Leave a Comment »