Commercial Mortgage Financing for Beginners | C-Loans

Commercial Real Estate Loans at Par

Sun, 08 Jan 2006 14:50:43 -0500

When a Commercial Real Estate Lender Makes a Loan at Par, He Charges No Points

It is expensive for a commercial real estate lender to underwrite a commercial real estate loan. That's why the overwhelming number of commercial lenders charge at least one point. The typical hard money lender charges between three to six points for a commercial loan.

Some lenders, however, make loans at par. Par means the lender charges zero points.

Ten years ago the only type of lender that made loans at par was a life insurance company. Today more and more commercial lenders are making loans at par so that their mortgage brokers can add one point and still be competitive. For example, many Wall Street investment bankers will buy loans from their CMBS conduits at par. A CMBS conduit is a mortgage banker that books CMBS loans destined for sale to investment banks and banks.

But there is a problem. There is no free lunch. Those lenders making loans at par almost always charge a prepayment penalty. And prepayment penalties on commercial loans today are typically very expensive. I have seen prepayment penalties as large as $1 million on a $10 million commercial loan!

Blackburne & Brown, the hard money commercial lender, is now making zero point hard money loans in California with no prepayment penalty. For details, please call Mike Thurman at (916) 338-3232 or email him at thurman@blackburne.com.

The Sources and Uses of Funds Statement in Commercial Construction Financing

Sun, 08 Jan 2006 14:38:18 -0500

The Wise Developer Places this Statement High in the Stacking Order

When you apply for a commercial construction loan, one of the first items your commercial construction lender will look for in your package is the Sources and Use of Funds Statement. The Sources and Use of Funds Statement will list on one side where every penny of the construction budget will be used (spent). The other side of the statement will list the source of the funds, be it from the developer's own pocket, from the proceeds of the construction loan, or from any subordinate financing.

The reason this statement is so important is because it shows exactly how much skin the developer has in the game. Is the developer covering the customary 20% of the total project cost, or is he trying to get the construction lender to cover 97% of the cost or is he (illegally) trying to use purchase deposits of future condo buyers as part of his required equity?

As a construction lender I spent half my time on projects trying to ferret out how much dough a developer has in the deal. You would be amazed at how much subterfuge developers and mortgage bankers will go through to hide or disguise the developer's lack of equity dollars.

Therefore bankers and other construction lenders greatly admire the package which displays the Sources and Use of Funds Statement as one of the first documents in the stacking order of the package. The stacking order is merely the order in which documents appear in a loan package.

You can apply to hundreds of commercial construction lenders and mezzanine lenders in just four minutes using C-Loans.com.

Commercial Financing and the Debt Service Coverage Ratio

Thu, 15 Dec 2005 13:00:22 -0500

The Custom and Practice is to Express the DSCR to One-Hundredths

In commercial mortgage underwriting, the debt service coverage ratio (DSCR) is customarily computed to two places to the right of the decimal point.

In other words, a debt service coverage ratio of 1.346 would be rounded to 1.35. A debt service coverage ratio of 1.1 is customarily expressed as 1.10.

Interestingly, a breakeven cash flow is customarily shown on the Executive Loan Summary as 1.0 - notwithstanding the custom to express a DSCR to two places to the right of the decimal point.

One of our new loan officers recently expressed a DSCR as one-point-twenty-seven. Oops. Busted. She just revealed to her lender that she is a rookie. She should have said one-point-two-seven.

Commercial Mortgage Financing for Beginners | C-Loans

Commercial Real Estate Loans at Par

See Also

The Sources and Uses of Funds Statement in Commercial Construction Financing

See Also

Commercial Financing and the Debt Service Coverage Ratio

See Also