Commercial Property 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.

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.

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.

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.