Occasionally lenders and mortgage bankers use terms that may not be familiar to borrowers. Below are some Frequently Asked Questions (FAQs) followed by a few abbreviations and terms commonly used in commercial and multifamily financing. Feel free to contact us directly for more detail on anything below or on our website.
FAQ’s
What property types does LJCG cover? Permanent, bridge or construction loan services for most all types of commercial and apartment properties including; full market rate apartment projects, senior, affordable and low income housing projects, mobile home or manufactured housing communities, fractional condo building purchases or refinances, low, mid and high rise office buildings, strip, unanchored and anchored retail centers, single and multi-tenant warehouse and industrial properties, all types of mixed-use buildings, motel, independent and flagged hotels, self-storage facilities, single tenant buildings, owner occupied properties, most other types of special use properties (i.e., gas stations, non-profit occupied buildings, etc.)
What kind of properties do you not cover? Marinas, stand-alone golf courses, owner occupied single family homes, traditional 2-4 unit owner occupied residential properties, and commercially zoned 1-4 unit owner occupied residential properties.
What information should I prepare in order to request a loan quote? On the front-end we like to have property income and expense statements for the last 2 years and year-to-date, a current rent roll or lease summary, and a general idea of the proposed borrower structure, along with borrower net worth, liquidity, and real estate owned schedule. When we proceed beyond an initial conversation there will be more extensive information requests.
What is the difference between a rent roll and a lease summary? Typically a rent roll refers to a rental income schedule for a multifamily / apartment property consisting of tenant names, rental amount, deposit, move-in date, lease expiration date, date of last increase, and any other income (utility reimbursement, pet rent, etc.). A lease summary typically refers to a lease income schedule for a commercial property consisting of the same items above, except it’s important to break out the other income as applicable (percentage rent details if applicable, tenant reimbursement amounts and formulas for landlord incurred expenses).
What is Private Money? Private money is typically comprised of funds lent under non-traditional circumstances when a borrower has needs such as; an extremely short closing timeline, financing that won’t qualify for a traditional or conventional loan, financing on properties with occupancy or condition issues outside the scope of a traditional construction or bridge loan, etc.
Is Depreciation treated as an operating expense of the property? No, lenders and appraisers will not factor in depreciation when calculating Net Operating Income or NOI since depreciation is a non-operating property expense
What type of loan programs are typically available for commercial and multifamily loan requests? Loan options vary based on the LTV, property type, borrower strength, borrower experience and several other factors. In general, loan terms may be adjustable or fixed for 3, 5, 7 or 10 years and sometimes longer (15-20 years, and in some cases 30 years). Amortization schedules typically vary from 25-30 years although sometimes interest-only options are available along with shorter amortization schedules if desired (i.e., 10-20 years). Maximum loan to value is typically limited to 75%-80%.
What are the typical costs associated with a loan? Most loans will require an appraisal and sometimes other 3rd party reports (environmental, property condition report, etc.). LJCG will work to receive par quotes from lenders so the only loan point(s) are to LJCG. This figure is typically 1.00% with a $7,500 minimum for traditional and more conventional loans – although for extremely large loans this fee may sometimes be reduced. For private loans this fee is higher. Occasionally lenders will also charge some type of fee, although it’s our goal to eliminate this whenever possible. Other closing costs typically include title, escrow, lender loan processing fees (LJCG typically never charges an additional processing fee on traditional / conventional loans). Depending on the type of loan and lender, there may also be additional legal fees, although this is not common with most bank and credit union options.
What if I manage a building myself and never have any vacancy, will a lender and appraiser still deduct property management fees and vacancy from income? Yes, a typical market vacancy factor will always be used in underwriting, along with an off-site management fee (varies depending on property type and size)
Glossary of Terms
Balloon Payment – A payment of outstanding principal balance that comes due when the loan term is shorter than the amortization. For example, if a loan has a 10 year term and is amortized over 30 years, after 10 years the borrower would need to pay off the remaining principal loan balance.
NOI – Net Operating Income. This is all income less all operating expenses, excluding mortgage payments.
Cap Rate – Annual NOI divided by Purchase Price. This is the un-levered return on an investment (i.e., the return on investment as if one had paid all cash).
Cash on Cash Return (COC) – Free Annual Cash Flow divided by Total Borrower Equity. This differs from the Cap Rate because the Cash on Cash Return formula takes into consideration mortgage payments.
DCR – Debt Coverage Ratio, also known as Debt Service Coverage Ratio (DSCR). Calculated by taking the Annual NOI divided by Annual Mortgage Payments.
Debt Yield – Annual NOI divided by Loan Amount.
EGI – Effective Gross Income. All income less vacancy, loss to lease, concessions, bad debt, etc.
Global Cash Flow – A comprehensive analysis of all income sources and expenses of a borrower as it relates to their ability to service a proposed loan. This takes into account a borrower’s complete financial picture – not just the subject property that is being financed.
LTV – Loan to Value. Loan Amount divided by Value.
LTC – Loan to Cost. Loan Amount divided by Borrower’s total project cost including purchase price, property improvements, etc.
LTPP – Loan to Purchase Price. This figure isn’t always the same at LTV, since sometimes the Value and Purchase Price differ.
NCF – Net Cash Flow. NOI less mortgage payments, i.e., free cash flow.
Replacement Reserves – Funds set aside (sometimes held by the lender) that provide for the periodic replacement of components in or on a building outside the scope of normal ongoing annual repairs (i.e., roof, water heater, fencing, etc.).
