commercial property underwriting

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.

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. 

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.

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.

Defining Yield Maintenance In Commercial Mortgages

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 commercial mortgage, anticipating a set return over the full term of the loan. Unlike other prepayment penalties, yield maintenance covers the entire cost of the original lending agreement, compensating the lender fully for the prepayment of the borrowed funds.