Mortgage Banking

Making sense of commercial real estate finance.

Archive for the ‘Finance 101’ Category

Lender Questions

Posted by Jordan Crouch on January 20, 2009

Peter Maclennan recently posted the blog post “Nine Questions to Ask a Commercial Lender“. While it is directed to mortgage brokers, it is good food for thought for anyone currently in commercial real estate.

  1. What are your minimum and maximum loan amounts?
  2. Do you have a geographical limitation?
  3. What property types do you prefer?
  4. How long does your average loan take to close? What is the shortest amount of time you have personally seen a deal close?
  5. What is your maximum loan-to-value ratio?
  6. What is your minimum debt-service coverage ratio?
  7. What information do you require from the borrower in a loan package?
  8. What is the best way to contact you if I have a deal?
  9. What loans are you the most competitive on?
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Posted in Finance 101, Lenders | 5 Comments »

Prepayment Penalties in Today’s Market

Posted by Jordan Crouch on December 12, 2008

The SquareFeet Blog has an excellent post detailing how the shifting treasury yields are affecting prepayment penalties. Read the article here. One thing the post does not mention is that for a borrower that is forced to sell a property, one way to avoid these hefty prepayment penalties is to have the new borrower assume the loan. This usually can be done with a 1% fee versus paying the prepayment penalty of 10% (using the example in the post).

Posted in Capital Markets, Finance 101, Lenders | 3 Comments »

5 Ways to Decide Which Loan?

Posted by Jordan Crouch on May 6, 2008

Every loan is a little different from the next. Here are five things to consider when evaluating your options.

  1. What are your plans for the property? This is the number one thing I try to determine when I meet with clients. Do they want to pull some equity out, hold the property long term, or flip it in a few years? Each of these scenarios will require a different loan structure, term, prepayment, etc.
  2. How much cash flow do you want? Your cash flow will be determined by the loan amount, amortization and the interest rate as well as any reserves that are collected.
  3. Will the loan have recourse? Recourse means that the lender has the ability to take anything of yours, in addition to the building, to repay the loan in full. Non-Recourse means the lender can only take back the building if you default on the loan. There are consequences with both recourse and non-recourse loans.
  4. What type of lender do you want? There are many types of lenders. Click here to read a discussion on the various types.
  5. Does the lender require reserves? Some lenders require you to keep a tenant improvement, leasing commission, tax or insurance payments in a reserve account held by the lender. This can be funded when the loan closes or payments can be made along with the regular loan payment. Other lenders require some or no reserves.

This isn’t an exhaustive list, but is a good way to get started when comparing different loans.

Posted in Finance 101, Lenders, Uncategorized | 4 Comments »

Fixed versus Variable?

Posted by Jordan Crouch on April 3, 2008

This is from an email blast from one of Fannie Mae’s Designated Underwriter Servicers.

For anyone financing an apartment deal today the real question is Fixed versus Variable?  

Variable Rate deals today provide potentially cheaper prepayment options and possible interest rate cost savings.  We can structure interest rate caps that will provide a ceiling interest rate if rates go up. If rates go down then you ride the rate down with the index and save on interest costs.

Fixed Rate deals today are also good but we suggest that you look at 5 or 7 year deals to save on the interest costs as the yield curve is very steep as you get beyond 7 years and therefore pay an incrementally higher interest cost.

Very true. I met with a bank yesterday that has no prepayment penalty for its variable loans. We are seeing many borrowers park their loan in a short term variable loan expecting to refinance into a permanent loan when the market turns around.  Someone who does this usually has a loan coming due. If the maturity is a year or two out, its better to wait.

Posted in Finance 101 | 4 Comments »

Super Cop to the Rescue

Posted by Jordan Crouch on March 31, 2008

Here are a few random thoughts on Monday.

  • Hank Paulson, the Treasury Secretary, proposed a new arrangement for US financial regulation over the weekend. This “super cop” structure will be the largest change in the financial sector since the Great Depression.
  • Spreads on commercial loans are continuing to rise. Most life companies are quoting 300+ basis points on a ten year loan. Five and seven year loans currently have the best interest rates.
  • Lenders are not allowing for lease up risk or pushing loan dollars, meaning lenders are continuing to take only the best loans.  

Rates:  

TODAY  

Last Mth

Last Year

5 Yr T-Bill:     

2.45%

2.47%

4.54%

10 Yr T-Bill:

3.42%

3.51%

4.65%

LIBOR-30 Day 

2.70%

3.11%

5.32%

 

 

 

 

10 Yr T-Bill

Last week’s range:

3.45% – 3.54%

 

 

 

YTD high:  

3.98%

 

 

 

YTD low:

3.28%

 

 

 

 

 

Posted in Finance 101 | Leave a Comment »