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

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!