BiggerPockets

Yeah, it's a new year but......

Monday, January 26

Where do I start, better yet, lets just make this simple. When underwriting a commercial real estate deal right now, utilize the following info and then decide if you can stomach the terms:

Cap Rates: Sub 8% will be laughed at by most life company sources. Once you get outside the 4 main food groups (Retail, Office, Industrial and Multi-Family), consider using a 10% cap, especially on Hotels.

Amortization: Lets just say 20 years is a nice number, but 25 is still out there on conservative deals. Which leads me to:

Loan to Value: 65-70% seems to be the norm right now, although 60% or less will get more consideration. Lenders are really indifferent to doing real estate deals in this climate.

Rates: Spreads over the corresponding index really don't matter anymore. Assume a 10 year coupon in the 7% range on the low side. Yields on corporate debt are just too attractive for investors right now, so issuing a 10 year commercial mortgage under those yields isn't really an option.


So to sum it up: The deal must be clean (no hair, sorry), low leverage, great sponsorship, and void of any equity cash out!

Hotel Financing

Monday, December 29

It appears some hotel lenders are coming out of the shadows. Some of the intial loan paramaters  I am seeing are as follows:

 

85% LTV on purchases via SBA

65% LTV on  conventional loans for purchases

60% LTV on  conventional refis

60% LTV on  conventional construction

80% LTV on SBA construction

 

5-20 year rate horizons, that reset every five years.

 

Given the times, these arent bad terms on hotels.

 

 

Commercial Financing 101

Sunday, December 14

Not a day goes by right now that I don't get a call from a new client stating that they are looking for long term, fixed rate mortgage financing from their local banker, and the best they can get is a 5 year deal, if anything. And to add insult to injury, the banker is trying to convince them that short term money on a long term asset is a good idea. Maybe its just me, but  short term finanacing on a long term asset is illogical. Case in point, look at the borrowers that locked down 5 year mortgages on any commercial asset back in 2003. They are scrambling now to find a home for that same debt. With 10-20 year fixed rate monies, that fear/concern can be put on the back burner for quite sometime. Don't fall into the local banker trap, put your mortage on a long term, fixed rate note and rest easy at night.