Commercial Mortgages 101

MICHAEL REINHARD (Houston, TX) is an independent mortgage banker for Texas Commercial Mortgage. He has originated and underwritten over $300 million in commercial loans since 1995 covering apartments, retail centers, office buildings, industrial warehouses, and more.

• CONTENTS Acknowlegments Introduction Chapter 1: An Introduction to Commercial Real Estate Loans What Is a Commercial Mortgage? “Mortgage” Defined “Commercial” Defined Types of Commercial Properties Non-Income-Producing Properties Income-Producing Properties Single-Tenant Properties Multitenant Properties Types of Commercial Real Estate Lenders Banks Life Insurance Companies Conduit Lenders Agency Lenders Credit Companies Mortgage Bankers Private Lenders Commercial Mortgage Terms Maturity Period Amortization Period Loan-to-Value Ratios Interest Rates Prepayment Penalty Recourse vs. Nonrecourse Loans Commercial Mortgage Underwriting Sponsorship Property Underwriting Final Underwriting Analysis Chapter 2: Preparing the Loan Request Package Executive Summary Purpose of Loan Request Sources and Uses Property Description and Location Financial Summary Borrower Property Description Location and Demographics Property Economics Financial Statements Financial Analysis Schedule of Income Historical Cash Flow Loan Analysis Supporting Documents Market and Submarket Data Sponsorship Chapter 3: Financial Strength and Creditworthiness Net Worth and Liquidity Assets Non–Real Estate Assets Real Estate Assets, Cash Equity, and Market Equity Cost vs. Market Value Pre-Funding Liquidity Post-Funding Liquidity Lender’s Calculation of Net Worth and Pre-Funding and Post-Funding Liquidity Credit Score and History Five Adverse Conditions Unacceptable to a Commercial Lender Personal Income and Cash Flow Gross Income Self-Employment Income Net Cash Flow and Taxable Net Cash Flow from Rental Income Cash Flow Statement Banking and Credit References Chapter 4: Real Estate Experience Ownership and Management Experience Ownership Experience Management Experience Chapter 5: Real Estate Assets The REO Schedule The REO Schedule and the Balance Sheet Anatomy of an REO Schedule Property Value Section Property Name Property Description Property Address Date of Acquisition Original Cost of the Property Name and Address of Lender Loan Number Ownership Percentage Market Value of the Property Balance of Mortgages Total Equity Net Ownership Equity Cash Flow Section Monthly Rental Income Monthly Operating Expenses Monthly Loan Payments Monthly Cash Flow Net Ownership Cash Flow Chapter 6: Forms of Ownership Borrowers and Borrowing Entities Types of Borrowers and Borrowing Entities Individual Ownership Co-Tenancy and Joint Ownership Partnerships Limited Liability Companies Corporations Trusts Index