RE61RC10: Commercial Real Estate Loan Packages

Approved June 16, 2010

1. Identifying what lenders review for underwriting purposes (10 mins)

  • Using the lender's underwriting as a contingency to an offer
  • Protecting the buyer from its agreed price to financing price

2. Loan-To-Value, Debt Coverage Ratio, Loan-To-Cost (30 mins)

  • Identifying the 3 underwriting techniques

    A. Loan to Appraised Value and the percents for financing
    • This amount may be quite different than the agreed price
    • Often used with user-occupied properties
    • The state of the current LTV ratios
    • Loan-To-Value ratio (known as LTV) is used by banks to determine the amount financing they decide to issue on a real estate investment




LTV Ratio=

Total Loan Balances
Fair Market Value of the Property

B. Debt Coverage Ratio

  • Employed by the lender on income property
  • Different ratios; 1.1, 1.25, 1.3, etc.
  • How the ratios affect determined loan amount
  • Used to determine loan amounts on income-producing properties or build-to-suits
  • Measures the property's potential or actual net operating income as a way to pay for the annual loan payments or debt service
  • The ratio is the "spread" or "buffer" between what the property will produce for annual net income and the annual loan payments to be paid to the bank
  • For instance, 1.0 DCR means that 100% of the annual net income can be used to pay for the final undetermined loan payment. This is a great ratio for a borrower.
  • Current state of DCR

C. Loan-to-Cost

  • Employed on new construction
  • Actual replacement cost
  • Based on a percent of the construction cost of the project
  • Lender will decide which ratio to use
  • Loan is based on a percent of the estimated construction cost
  • Appraisers and lenders not using this approach as often

D. Lender's Interest Rate Criteria
Benchmark Rates

1. Prime Rate

  • Often defined as the rate charged by major commercial banks to their best business borrowers.


  • "London Interbank Offered Rate"
  • Is a daily reference rate
  • Based on interest rates banks offer to lend to unsecured funds to other banks in the London wholesale (or "Interbank" money market)

3. 10 year Treasury Notes

  • Rates paid by the Federal Government to pay for short-term cash requirements.
  • These rates legally peg the maximum amount of interest banks can pay on CDs of less than $100,000.

4. Discount Rate

  • The New York Federal Reserve's charge to member commercial banks.
  • Frequent banks are often charged an additional fee.

3. Contents of a Commercial Loan Application (70 mins)

A. Concepts of Project

  • Location and address
  • Land size
  • Title survey
  • Parking area
  • Design of building
  • Landscaping
  • Special amenities
  • Lobby entrance
  • Name of architect, engineers, general and sub-contractors
  • Blue prints, site plans
  • Utilities provided to building
  • No. of loading docks or ground level
  • Stories
  • Age
  • Sprinklered
  • HVAC system
  • No. of elevators
  • Gross vs. usable vs. rentable square feet
  • What was the method used to measure building
  • Overall appearance and quality

B. Market Studies to indicate demand

  • Broker market analysis of supply and demand
  • Annual absorption rate study
  • Asking and effective rental rates
  • Size of tenant leases
  • Rent concessions
  • Location of each competitor
  • Estimated market vacancy
  • Background information on any new projects, building permits, site plan approval or zoning board variances

C. Review of Annual Property Operating Data, income, expenses (include copy of APOD)

  • Last 3 years of cash flow analysis of actual income, expenses and capital repairs or replacements
  • Current rent roll
  • CAM
  • Taxes
  • Insurance
  • Management
  • Percent Rent
  • Fixed Rent
  • Any rent increases
  • Other income: parking, satellite dish
  • Net operating income
  • Leasing commissions
  • Tenant improvements
  • Capital expenses
  • Extraordinary capital expenses

D. Feasibility Study (if new construction)

  • Appraisal or consulting report indicating highest and best use
  • Legally permitted
  • Physically possible
  • Financially feasible

E. Site location

  • Maps, aerials, distance to highways and secondary roads
  • Precise size of land
  • MPH, traffic counts, nearest signal lights
  • Any proposed public works
  • Site views
  • Highway visibility

F. Site Studies

  • Environment 21E studies
  • Wetland delineation
  • Soil testing
  • Site surveys
  • Site Contours

G. Plan for building

  • Architectural and engineering plans of any new construction
  • Building inspection
  • Any past appraised reports or value?
  • Owner occupied or leased?

H. Cost for project

  • Architectural and engineering costs
  • Contractor bid estimates
  • Improvements documented

I. Developer's Pro Forma and financial feasibility analysis

  • Hard and soft costs
  • Loan analysis

J. Loan Amount Requested by Prospective Borrower

  • Recourse Preference
  • New loan based on new purchase or refinancing?
  • Construction or permanent financing?
  • Expected closing date
  • Variable or fixed interest rate?

K. Management Plan for the Project

  • The name of the asset and/or property management
  • History of experience
  • Names of staff, experience and field maintenance
  • Fees related to management

L. Lease Abstracts

  • Summary of tenants, date of lease signing, term, rent, any other economic obligations, rent concessions, type of signatures, etc
  • Name of tenants and years in building
  • Floor location
  • Lease expiration
  • Occupied Since
  • Options and terms
  • Copies of Corporate Resolutions/Clerk Certificates
  • Certificate of Insurance Binder
  • Eventually copies of all originals
  • Discussions on Estoppel Certificates
  • Copy of current draft lease

M. Operating Company

  • Federal tax returns and/or reviewed statements for the last 3 years

N. History of Real Estate entity/trust (if applicable)

  • Federal tax returns and/or reviewed statements for the last 3 years

O. Personal/Individual

  • Experience of each individual in real estate and with properties similar
  • Biography and expertise
  • Federal tax returns for the last 3 years
  • FICO score
  • Net worth
  • Any past bankruptcies?

P. Updated Interim Financial Statement

  • For the current year including long-term debt schedule matching interim financial

Q. Personal Financial Statements

  • On all owners or partners with accompanying corporate returns for other affiliates / entities owned

4. Case Study (10 mins)

  • Sample Loan package or bank check list for a loan package


Did you find what you were looking for on this webpage? * required
We use your feedback to help us improve this site but we are not able to respond directly. Please do not include personal or contact information. If you need a response, please locate the contact information elsewhere on this page or in the footer.
We use your feedback to help us improve this site but we are not able to respond directly. Please do not include personal or contact information. If you need a response, please locate the contact information elsewhere on this page or in the footer.

If you need to report child abuse, any other kind of abuse, or need urgent assistance, please click here.