What Is a Bridge Loan in Commercial Real Estate?
What Is a Bridge Loan in Commercial Real Estate? With a value-add investment strategy, there are two distinct transaction phases: the value-add phase and the stabilized phase. During the value-add phase, there is a lot of activity around improving the property. This could include things like managing renovations and working with future tenants to negotiate […]
What is Defeasance In Private Real Estate Investment?
Nearly all commercial real estate transactions are financed with some combination of equity and debt. Equity is money that is raised from investors, and debt is a loan that is made by a bank or real estate lender. In return for their loan, the debt holder typically has a first claim on any cash produced […]
Understanding the Three Ways that Commercial Real Estate (CRE) Lenders Calculate Interest Due
One of the major benefits of commercial real estate investment is the wide availability of commercial mortgage loans at relatively favorable terms. As a result, individual real estate investors can minimize the amount of money that they must invest in a transaction, which boosts the return on the cash they receive. However, every commercial real […]
Why it Can Make Sense to Invest in a Zero Cash Flow Property
Much of the conventional thought used to evaluate a potential commercial real estate investment focuses on the amount of cash flow that a property produces. The greater the cash flow, the higher the value. Because this concept is so fundamental to CRE analysis, it may come as a surprise that there are certain circumstances where […]
What is the Difference Between Loan to Value and Loan to Cost?
In order to protect their financial interest in a commercial real estate transaction, lenders generally prefer to limit the amount of money that they advance. There are two reasons that they do this: first, they want to ensure that the borrower has a vested financial interest in the success of the transaction so he or […]
What is the Difference Between a Term Sheet and Commitment Letter?
In a commercial real estate transaction, sellers rely on a buyer’s ability to arrange the financing needed to close the deal. One of the ways that a buyer is able to prove this is to provide the seller with a term sheet and/or commitment letter. While these documents serve a similar purpose, there are material […]
What are The Stages of a Loan Workout?
Among borrowers and investors, there is a common misconception that a commercial real estate loan is either performing or in foreclosure. This is not entirely correct. The truth is that a non-performing loan may go through several stages of the “workout” process before ever reaching foreclosure. These stages are the subject of this article. But […]
What Happens When a Borrower Defaults on Their Loan?
When underwriting a loan request, it is never the lender’s assumption that the deal will go bad—but it happens. On occasion, a borrower fails to live up to his or her end of the loan agreement, and the lender(s) must take steps to protect their capital. While this is never the desired outcome, it is […]
How to Calculate the Interest Reserve for a Construction Loan
Banks and commercial real estate (CRE) lenders offer a specialized lending product for real estate developers and investors who need financing for their projects. The loan is commonly referred to as a “construction loan.” One of the most unique features of a construction loan is the “interest reserve” account that is used to make the […]
