1 / 14

Lecture 15

Lecture 15. Commercial Financing. Lecture 15. Commercial Investment Organizations. Commercial Investment Organizations. Limited Partnerships Composed of a General Partner and Limited Partners Three primary advantages to a LP Tax benefits on individual tax returns

jbrand
Download Presentation

Lecture 15

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Lecture 15 Commercial Financing

  2. Lecture 15 Commercial Investment Organizations

  3. Commercial Investment Organizations • Limited Partnerships • Composed of a General Partner and Limited Partners • Three primary advantages to a LP • Tax benefits on individual tax returns • Limited liability in lawsuits • Limited partners do not participate in the management of investments • Four tests of a Limited Partnership • Continuity of the organization • Centralization of management • Limited Liability • Transferability of interests

  4. Commercial Investment Organizations • General Partnership • Three characteristics • Test for continuity requires that partnership be dissolved if a partner dies, resigns, or leaves the partnership • Each partner has unlimited liability for any obligations of the organization • All members of the partnership have equal management rights to commit and bind the whole organization

  5. Commercial Investment Organizations • Corporation • Can own assets as an organization • Required to pay corporate income taxes • Joint Ownership • Individual Ownership

  6. Lecture 11/ Chapter 10 Commercial Lending

  7. Basics of Commercial Lending • Money lent for real estate that produces income • Loan underwriting based on items such as projected incomes, historical earnings and credit of borrowers, location, supply/demand factors in the market, etc. • Loans typically larger than residential loans, so terms will vary depending on property and borrower • Negative v. Positive Leverage

  8. Commercial Loan Payment Structures • Constant Level Payments • Fully amortizing; can be paid monthly, quarterly, semi-annually, annually • Term Payment • Borrower pays debt balance at loan maturity, but pays interest portion over the life of the loan; interest can be paid monthly, quarterly, semi-annually, annually

  9. Commercial Loan Payment Structures • Partial Payment with a Balloon • Borrower able to delay a portion of debt until loan maturity • Results in lower payment, and higher return over the loan duration • Results in additional time to increase property values for re-sale or refinancing benefits at the time of loan maturity (repay debt balance)

  10. Key Financial Standards • Debt-Service Coverage Ratio (DSC) • NOI / Annual Debt Obligation • Loan-to-Value Ratio (LTV) • Total Loan Amount / Property Value (Sales Price) • Overall Capitalization (Cap) Rate: • NOI / Property Value (Sales Price)

  11. Commercial Underwriting Factors of Underwriting: 1. Borrower/Company 2. Project Feasibility (Value greater than development costs) 3. Expected Performance of Project

  12. Commercial Second Mortgages • Higher need in commercial markets due to larger required equity capital contributions • Can be issued by a third party, subject to restrictions of the first mortgage • Higher interest rates than first mortgages (higher risk from having second-lien rights)

  13. Lecture 15 Construction Finance

  14. Construction Loans • Construction Financing • Short-Term • Not a first-lien loan • Borrower typically pays interest only during construction • Lender pays contractor (in behalf of borrower) in draws • Permanent Financing • Long-Term • Begin paying towards principal • “Takeout commitment” • Gap Financing (if necessary) • Covers non-receipt of income between end of construction and occupancy stabilization of improvement

More Related