All Forum Posts by: Jolene Desmond

Samari, 

Google 'Amortization Calculator Excel'.  This will let you input original loan balance, interest rate, etc.  Amortize to 25 years (meaning that the spreadsheet will calculate interest and principal payments so that the principal shows paid in full at the end of 25 years.)  Once you have that, than look at the end of year ten (which is probably the loan term that your lender will give you). That remaining amount of principal at the end of year ten will be DUE IN FULL at your loan maturity (Balloon Payment).   I can help you run some numbers if this was not helpful enough.  

My background is in the commercial real estate financial markets. I have worked on behalf of groups of investors, bond holders to CMBS loans, overseeing over $6bb in outstanding loan balances on any given day.

What does that mean, and why does it matter?

It means that there is a trillion dollar market whereby a number of lenders take part in securitizing the loans that they close. They sell their loans. We have heard this term – selling loans. (Let me know if you want to know all the fancy, interesting details on the process.) When this happens than you end up tied to your loan documents as they are written – no leeway unless you want to pay for a modification, if they might even consider one. Lenders that sell their loans today are also taking part in what they call CMBS 2.0 (post 2007 underwriting criteria, where it is very common to see certain terms and conditions implemented for the additional security of the bondholders, and the increased risk of the Borrower (you)).

The one thing that I see over and over – even with some of the biggest players in the market, is this: Investors spend a lot of time and attention on the due diligence of the property, economics affecting property performance, property management, repositioning, and on closing the loan - - and NOT AS MUCH ATTENTION IS USED TO PREPARE FOR THIS ENTRY INTO THE FINANCIAL MARKETS, (WHERE THEY WILL BE RESIDING FOR UP TO TEN YEARS) AND HOW IT CAN ADVERSELY AFFECT THEIR RETURNS.

There are a few things you can do and know on the front end to help prepare.

• 1)Know how to read your loan documents.
• 2)Know the differences between Cash Trap, Cash Management, and Cash Sweep.
• 3)Know what a Trigger Event is, and if you have one written into your loan agreement.
• 4)Know how to efficiently request reserve disbursements.
• 5)Make sure your lender is never holding more than they need to in escrow.
• 6)Have a system set up to monitor your lender and their obligations, in addition to your own.
• 7)Know how to recognize and monitor risks based on how your loan agreement was written.
• 8)Know when you need to hire an attorney, and when you don’t.
• 9)Know the difference between Property Management and Asset Management.

Already experiencing some of these issues on a Loan? Let me know. 

Insurance Loss proceeds can be some of the hardest to get reimbursed from your lender. I have seen loan documents that were written so that the investor had no possible way to ever access insurance funds - but they still had to pay to repair the property.

Here is how to tell if you are at risk you may not have been aware of.

1. Check your insurance policy(ies). Your lender will be named as first loss payee. This is standard. If they are not, check your loan agreement because it may require that you send all insurance funds to your lender within a certain amount of time. When a claim is filed, all insurance proceeds are paid to the loss payee named in the policy. Your lender will have control of funds. Think they will use that money to have the property repaired? Think again.

2. Know how to read and interpret your loan agreement. The best tip - refer back to definitions. Capitalized words will be defined.

3. The loan agreement will outline what has to be done for you to be able to possibly receive reimbursement. Know what these are and how they affect you.

Now I used to work as the Lender on some of the most highly structured, large balance CRE loans in the nation - and I remember one loan document that required the repair process to have begun within 10 days of the loss and repairs had to be fully completed one year prior to the maturity date. They were already 14 months away from maturity on a 6 month process - they are never going to get access to those funds before the loan is repaid. Know your risks and parameters.

Insurance Loss proceeds can be some of the hardest to get reimbursed from your lender. I have seen loan documents that were written so that the investor had no possible way to ever access insurance funds - but they still had to pay to repair the property.

Here is how to tell if you are at risk you may not have been aware of.

1. Check your insurance policy(ies). Your lender will be named as first loss payee. This is standard. If they are not, check your loan agreement because it may require that you send all insurance funds to your lender within a certain amount of time. When a claim is filed, all insurance proceeds are paid to the loss payee named in the policy. Your lender will have control of funds. Think they will use that money to have the property repaired? Think again.

2. Know how to read and interpret your loan agreement. The best tip - refer back to definitions. Capitalized words will be defined.

3. The loan agreement will outline what has to be done for you to be able to possibly receive reimbursement. Know what these are and how they affect you.

Now I used to work as the Lender on some of the most highly structured, large balance CRE loans in the nation - and I remember one loan document that required the repair process to have begun within 10 days of the loss and repairs had to be fully completed one year prior to the maturity date. They were already 14 months away from maturity on a 6 month process - they are never going to get access to those funds before the loan is repaid.

Know your risks and parameters.