CRE Loans

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.

Rent Ceiling in Commercial Real Estate

Rent Ceiling in Commercial Real Estate

A rent ceiling is the highest price that a landlord can charge for rent. In most cases, rent ceilings apply to multifamily properties and are a result of city and/or state rent control regulations. A rent ceiling is only effective if it actually sets rents below the current market rate. While rent ceilings are supposed to make properties more affordable for residents in a specific area, in practice, this isn’t always the result, especially due to increased “black market” costs in the form of key fees and additional rent paid in cash.

Special Purpose Entities in Commercial Real Estate

Special Purpose Entities in Commercial Real Estate

A special purpose entity or single purpose entity (SPE), also known as a special purpose vehicle (SPV), is a legal entity used to acquire and finance a specific investment while limiting risk for all parties involved. The main benefit of an SPE is that it is bankruptcy remote-- if the firm that owns the entity declares bankruptcy, there is only a limited risk that the SPE will become ensnared in the bankruptcy proceedings.

Deed in Lieu in Commercial Real Estate

Deed in Lieu in Commercial Real Estate

In real estate, a deed in lieu, also known as a deed in lieu of foreclosure, is a potential alternative to a foreclosure or a short sale. It generally involves handing a lender the deed to a property in exchange or being released from all related debt obligations. For commercial real estate borrowers who have defaulted on their loans, a deed in lieu of foreclosure has several advantages to foreclosures and short sales, but they aren’t a good option in every situation.

Conditional Use Permits in Commercial Real Estate

Conditional Use Permits in Commercial Real Estate

A conditional use permit (CUP) allows a landowner to use their land in a way not permitted by ordinary zoning regulations. Technically, this is considered “non-conforming use”, as the use does not conform to the zoning ordinance. Schools and religious institutions, such as churches, typically need to get a conditional use permit in order to operate in residential neighborhoods. In addition, home-based businesses also may need a CUP in order to operate in residential areas.

Commercial Zoning in Commercial Real Estate

Commercial Zoning in Commercial Real Estate

Zoning is the process of segmenting land into zones, each of which permits and prohibits specific land uses. Zoning also regulates elements like the height, density, and design of buildings in certain areas. Understanding zoning as it relates to commercial property is essential for commercial real estate investors and developers, as failing to abide by zoning regulations can be expensive, time consuming, and potentially disastrous.  

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.

Mini Perm Loans in Commercial Real Estate

Mini Perm Loans in Commercial Real Estate

Mini perm loans are generally used to finance an income-generating commercial property that has recently been built, but does not yet have the income to qualify for permanent financing. A variety of property types qualify for mini perm loans, including multifamily apartments, retail, office, and industrial properties. Mini perm loans can technically be classified as bridge loans, but they typically offer somewhat lower interest rates and generally have substantially longer terms.

Tenancy in Common (TIC) in Commercial Real Estate

Tenancy in Common (TIC) in Commercial Real Estate

Tenancy in common (TIC) is a type of commercial real estate ownership structure in which more than one party owns a specific property. Tenancy in common can make it easier for commercial real estate borrowers to get financing for a property, but can cause a variety of legal and practical complications if property owners are not careful.

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. 

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.

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.

Interest-Only Loans in Commercial Real Estate

Interest-Only Loans in Commercial Real Estate

An interest-only loan is a type of loan in which the borrower only needs to pay the interest, not the principal, for a specific amount of time. This period will typically be laid out in the loan agreement. After the interest-only period of the loan ends, the loan will become a typical, amortizing loan, in which the borrower contributes to both the interest and the principal of the loan with each payment. 

New Markets Tax Credits (NMTC) in Commercial Real Estate

New Markets Tax Credits (NMTC) in Commercial Real Estate

The New Markets Tax Credit (NMTC) is a federal tax incentive program designed to encourage investment in low-income communities. Since congress started allocating credits in 2003, the program has issued approximately $25 billion in tax credits. Specialized investment vehicles called community development entities (CDEs) compete for NMTCs, which are allocated by the U.S. Department of the Treasury. Once a CDE has been allocated NMTCs, they can award investors the tax credits. In order to qualify for NMTCs, a CDE needs to invest or provide loans to a business located in one of approximately 31,000 qualified low-income census tracts.

Ground Lease in Commercial Real Estate

Ground Lease in Commercial Real Estate

A ground lease is a type of long-term lease agreement that allows the tenant to build on and make significant improvements to the leased property. Ground leases usually last between 50-99 years, and generally stipulate that the property and all improvements made during the lease will revert to the landlord after the termination of the lease.

Commercial MLS in Commercial Real Estate

Commercial MLS in Commercial Real Estate

A multiple listing service, or MLS, is a software system used by real estate brokers in order to represent the sellers of properties, search for properties for buyers, and to establish commission rates for other brokers who may help a broker sell a property. There are approximately 900 MLS services in the United States, most of which are intended for residential property brokers in specific local areas. However, there are only a few commercial MLS providers that stand out, including LoopNet, CoStar, CREXi, Brevitas, and ApartmentBuildings.com.

Commercial Equity Loans: The Basics

Commercial Equity Loans: The Basics

If you need capital to make repairs or renovations to your commercial property, or you’d like additional funds to purchase a new investment property, you may want to take out a commercial equity loan. Commercial equity loans allow you to tap into the equity you’ve built up in a property in order to get cash. These loans are typically offered by banks, but can be offered by private lenders. Commercial equity financing is also ideal for business owners that need additional funds to pay bills or expand their business.