Commercial Mortgages
Everything in Commercial Mortgages in the Commercial Real Estate Glossary.
Articles
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…
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…
LIBOR: London Interbank Offered Rate
The London Interbank Offered Rate, or LIBOR, is the interest rate central banks in London are charged for short-term borrowing.
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…
Prime Interest Rate in Commercial Property Loans
The prime interest rate is the interest rate banks charge their most favored customers. It is based on the federal funds rate.
Understanding Personal Guarantees on Commercial Mortgages
A personal guarantee pledges the private assets of an individual borrower to secure a commercial mortgage.
Internal Rate Of Return (IRR) Calculator & Usage
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…
BPS: Basis Points In Commercial Mortgages
Basis points are used to measure many financial instruments, including the fees, spreads and rates in commercial real estate finance.
Value-Add Commercial Properties
Value-add refers to the purchase of a building for the purpose of adding value. Value-add may come from lowering operational expenses and increasing revenue.
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…
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…
Balloon Payments in Commercial Real Estate
Balloon mortgages are two-step financial products that see a borrower make installment-like payments for a certain number of periods before a much larger final…
DSCR: Debt Service Coverage Ratio
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…
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…
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…
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…
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…
Step-Down Prepayment Penalties on Commercial Property Loans
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…
Due Diligence in Commercial Real Estate
Due Diligence refers to the practice of investigating or auditing a prospective investment in order to confirm facts. The audit includes analyzing different…
Recourse Debt Versus Non-Recourse Debt in Commercial Real Estate
Recourse debt, also referred to as a recourse loan refers to a debt where the lender is able to claim the borrower’s assets if he or she fails to pay back the…
Mezzanine Financing
Mezzanine Financing in commercial real estate authorizes a lender to convert a debt into equity in the event that a borrower defaults. For example, if the…
Preferred Equity Investments in Commercial Real Estate
In a preferred equity investment, the investor is considered an equity partner and therefore benefits from a fixed rate of return.
APR: Annual Percentage Rate in Relation to Commercial Real Estate
The Annual percentage rate or "APR" is the true interest rate that must be paid for a loan over the course of a year. Used to get a much better idea of the…
U.S. Treasury Yields and Commercial Mortgage Rates
Commercial mortgage rates are influenced by the U.S. Treasury yields, where lower treasury yields lead to lower mortgage rates. This results in larger homes at…
What is a Commercial Mortgage Loan?
A commercial mortgage loan is a commercial real estate loan that is secured by commercial property. A commercial real estate loan is an agreement in which the…
CMBS: Commercial Mortgage Backed Securities in Commercial Real Estate
A Commercial Mortgage Backed Security (CMBS) loan is a fixed income security backed by a commercial mortgage. These loans are for commercial property such as…
Conduit Loan in Commercial Real Estate
A conduit loan, also known as a CMBS loan, is a commercial real estate loan which is secured by a mortgage on a commercial property. These loans are structured…
Lockouts in Commercial Real Estate
A lockout is a restriction within the commercial real estate loan to prevent the prepayment of the loan. If the loan is paid early, then the lender will not…
Earnouts in Commercial Real Estate Loans
An earn out is an agreement by the lender to increase the loan amount at the advent of a certain event. Earn outs are structured such that the additional money…
Holdbacks in Relation to Commercial Property Loans
A holdback is a clause in the commercial property loan that seeks to put aside a certain portion of the loan until an objective has been accomplished…
OpEx: Operational Expenditures in Commercial Real Estate
Operating expenditures are ongoing costs incurred in the operation and maintenance of a commercial property. Unlike CapEx, OpEx is fully tax-deductible in the…
CapEx: Capital Expenditure in Commercial Real Estate
Capital expenditure or "CapEx" are the funds used to acquire, upgrade or repair the property. It also includes the acquisition of equipment for said property…
NOFA: Notice of Funding Availability in Commercial Real Estate
NOFA or Notice of Funding Availability is a statement issued by the GRRHP (under the USDA) in the Federal Register. The statement will contain information on…
GRRHP: Guaranteed Rural Rental Housing Program in Commercial Real Estate
The GRRHP or Guaranteed Rural Rental Housing Program is a federal government initiative which backs loans made by private lenders to developers of rural homes…
O&M: Operating and Maintenance Expenses in Commercial Real Estate
O&M refers to operating and maintenance expenses; such as property and liability insurance premiums, utility installation charges and deposits, maintenance…
AMI: Area Median Income in Commercial Real Estate
AMI stands for Area Median Income and is a statistic published by HUD. It is the household income of the median (middle) household in an area. HUD releases…
HUD in Relation to Commercial Real Estate?
HUD is the term used to describe The United States Housing and Urban DevelopmentDepartment, which is the federal department tasked with creating decent housing…
Defining Yield Maintenance In Commercial Mortgages
Yield maintenance is a prepayment penalty on an existing commercial mortgage. It acts as a guarantee for the commercial property lender who made the original…
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