Recourse vs Non-Recourse Debt: What is the Difference?
When evaluating a loan request, a lender’s primary concern is evaluating the risk of loss associated with the transaction. Specifically, they want to know how they are going to be repaid and if the source(s) of repayment are reliable. In a commercial real estate context, a lender will typically evaluate up to three sources of […]
What is Development Spread in Commercial Real Estate?
One of the unique challenges faced by commercial real estate (CRE) developers is that they often have to make important financial decisions quickly and with relatively little information. For example, if a developer finds a well-located parcel of land, it is likely that they will have make a purchase decision within days or weeks and […]
What is the Difference Between Capital Expenses and Operating Expenses?
Running a commercial real estate asset on a day-to-day basis can be expensive. As such, it is important for operators to manage costs relative to rental income to ensure that the given property is profitable. From a management standpoint, costs can be grouped into two buckets: Operating Expenses (or “OpEx”) and Capital Expenses (or “CapEx”). […]
What is a Base Year Expense Stop?
Commercial real estate leases are dense legal documents that contain dozens of clauses pertaining to how a space may be used, when it may be occupied, and how much space the tenant is entitled to use. One of the most important lease clauses outlines the amount of rent that the tenant is required to pay […]
What is the Absorption Rate in Commercial Real Estate?
Often, a value-add investment strategy involves a significant renovation and/or the purchase of a property with a high vacancy rate. In either case, the investor/buyer must forecast how long the renovation will take and/or how long it will take to fill the space with rent-paying tenants. This amount of time is heavily dependent upon the […]
What is the Relationship Between Capital Expenditures and Rent Increases?
At First National Realty Partners, we are value-add investors. This means that we intentionally seek out real estate that we can purchase at or below replacement value and for which we can implement our value-add program. The goal of the value-add program is to increase the property’s Net Operating Income, which will also improve its […]
Entry Cap Rate vs. Exit Cap Rate: Difference & Calculation
Commercial real estate investment returns come from two sources, income and capital appreciation. While income provides steady cash flow over the life of the investment, capital appreciation is where the big gains can be earned. During the pre-purchase due diligence phase of the transaction, it is the real estate investor’s job to estimate both the […]
What is Debt Yield in Commercial Real Estate?
Traditionally, commercial real estate lenders evaluate the risk associated with a loan request using metrics like the loan to value ratio (LTV Ratio) and the debt service coverage ratio (DSCR). While these metrics are important, there is another metric called debt yield that is becoming widely adopted as an evaluation tool for lenders. Despite the […]
Five Commercial Real Estate (CRE) Return Metrics Every Investor Should Know
When evaluating a potential property purchase, the number one question on every real estate investor’s mind is “if I buy this property, what is my potential return on investment?” There are many ways to measure this, each with its own advantages and disadvantages, and these important metrics are the subject of this article. In order […]
