Commercial Mortgages

TI/LC: Tenant Improvements / Leasing Commission In Commercial Real Estate

TI/LC: Tenant Improvements / Leasing Commission In Commercial Real Estate

A tenant improvement, or TI, refers to the improvements a commercial property owner makes to the interior of a rental space in order to suit the needs of a new tenant.

The leasing commission, or LC, is an amount paid by the owner of the property based on a percentage of the lease value.

LTV: Loan To Value Ratio In Commercial Real Estate Loans

LTV: Loan To Value Ratio In Commercial Real Estate Loans

The loan-to-value ratio, or LTV, is a measure of the relationship between the loan amount and the value of the commercial real estate (collateral). It is used to measure, or determine risk when financing commercial property or making a commercial mortgage.

LTC: Loan to Cost Ratio In Commercial Real Estate Loans

LTC: Loan to Cost Ratio In Commercial Real Estate Loans

The loan-to-cost ratio, or LTC, is used in commercial real estate to calculate the percentage a construction or rehabilitation project's loan amount represents relative to the total project cost.

Internal Rate Of Return (IRR) and Commercial Property

Internal Rate Of Return (IRR) and Commercial Property

An internal rate of return (IRR) is a calculation investors use to determine the likely rate of growth of capital (as it relates to both time and yield) for a particular commercial real estate investment opportunity.

Cash on Cash Returns For Commercial Real Estate Investments

Cash on Cash Returns For Commercial Real Estate Investments

A cash on cash return calculation determines the amount of annual income an investor earns on a piece of real estate when compared to the amount of cash invested.

What Is Defeasance?

What Is Defeasance?

Defeasance is a strategy that permits repayment of a commercial property loan on a property, to facilitate sale or refinance.

The Importance of Debt Yield in Commercial Property Loans

The Importance of Debt Yield in Commercial Property Loans

Debt yield, is a measure of risk for commercial mortgage lenders. It takes into account the net operating income of a commercial property to determine how quickly the lender could recoup their funds in the event of default.

Capitalization Rates (Cap Rates) in Commercial Real Estate

Capitalization Rates (Cap Rates) in Commercial Real Estate

The Capitalization rate, or "Cap Rate" is calculated by dividing the net operating income of a property by its market value. This is the key tool appraisers use to determine the value of a commercial property and is the key metric behind the income capitalization approach to valuation. 

Balloon Notes & Refinancing (5/25s & 10/30s)

Balloon Notes & Refinancing (5/25s & 10/30s)

Balloon mortgages are common in commercial real estate. Set up as essentially two-step financial products, the borrower makes payments for a certain number of periods before a final payment to pay off the remainder of the loan.

DSCR: Debt Service Coverage Ratio In Commercial Property Loans

DSCR: Debt Service Coverage Ratio In Commercial Property Loans

Debt service coverage ratio or DSCR, is a comparison between net operating income and debt service on an annual basis and is generally one of the most important considerations when a commercial mortgage broker, lender or bank is underwriting a loan.

Understanding Replacement Reserves

Understanding Replacement Reserves

Replacement reserves is a budget line item used by commercial property underwriters to address periodic maintenance on systems that wear out faster than the building itself.

Loan Constant: Mortgage Constant

Loan Constant: Mortgage Constant

The loan constant, also known as the mortgage constant, is the calculation of the relationship between debt service and loan amount on a fixed rate commercial real estate loan. It is the percentage of the cash paid to service debt on an annual basis divided by the total loan amount.

Soft Step Down In Commercial Property Loans

Soft Step Down In Commercial Property Loans

A step down requires the payment of a set percentage of the outstanding amount of the loan. That percentage declines as the loan ages. While a typical step down might decline by 1% a year, for example 5 % in year one, 4 % in year two and 3 % in year three, a soft step down starts at a lower rate and declines less quickly. While a step down might have terms that equate to 5-4-3-2-1, a soft step down might be 3-2-2-1-1.

Carve-Out Guarantees in Commercial Real Estate Finance

Carve-Out Guarantees in Commercial Real Estate Finance

The carve-out guarantee gives a lender the authority to require payment for a commercial real estate loan beyond the actual value of the property if foreclosure occurs.

Step-Down Prepayment Penalties on Commercial Property Loans

Step-Down Prepayment Penalties on Commercial Property Loans

Generally, this is a straightforward calculation based on the remaining balance. It is called a "step-down" penalty because the amount gets smaller the longer the loan is in place.For example, a typical step-down might be 5 % of the outstanding balance in the first year, 4 % in the second year, 3 % in the third year, and so on.