Getting the Loan:
Commercial Real Estate Lending Basics
The differences
Residential Property • Loan to value ratio • Borrower's credit • Property risks Commercial Property • Loan to value ratio • Property's cash flow • Property risks
Loan to value ratio
• Multifamily: 70% to 75% LTV • Office: 60% to 70% LTV • Retail: 60% to 70% LTV • "Other": depends, usually up to 60% LTV Rule of thumb: lenders are conservative to limit risk
Property Cash Flow
Debt Service Coverage Ratio (DSCR or DCR): • Ratio of effective income (rent & other income less vacancy and collection loss) to operating expenses other than debt service (taxes, insurance, maintenance & repairs, wages and admin costs) • Expressed as a decimal (1.xx, or 0.xx) • For leased properties, lenders usually require a minimum DCR of 1.25
Property Risks
• The "usual stuff" - title, tax, flood zone • Additional items
o o o o o
Environmental - Phase I / II Survey - ALTA / ACSM Legal - lender's counsel / opinion letters Repairs - Property Condition Report Zoning Certificate
What's it going to cost?
Typical closing costs: • 3% to 4% of property value for purchases • For refinances, usually 1.5% to 3% of loan value
Thank you!
Getting the Loan:
Commercial Real Estate Lending Basics