What is LTPP in Commercial Real Estate?
LTPP, or loan to purchase price, is a metric that compares the size of the loan to the purchase price of the property. It's similar to loan to value (LTV) ratio, but slightly different, since the purchase price and the value of a property is often different. However, much like LTV, LTPP is also a good measure of leverage-- the higher the LTPP, the more leverage the borrower/buyer uses.
For example, if a borrower took out a $900,000 loan on a commercial property priced at $1,000,000, the loan would have an LTPP of 90%-- regardless of the actual value of the property itself.
In comparison, a similar metric, LTC, or loan to cost, is used to calculate the loan amount to the cost of a rehabilitation or construction project. LTC is determined by dividing the loan amount by the total cost of the project. Higher LTPPs, LTVs, and LTCs all represent higher risks for lenders. As a result, it's important to remember this when applying for a commercial real estate loan.